THE MARXIAN PROFIT RATE: A SUGGESTED REFORMULATION

Abstract

The paper attempts to reformulate Marx’s definition of the profit rate in a two-good framework so that it can be compared with the definition of the profit rate in the Ricardo-Sraffa tradition. The implications of this reformulation are investigated with regard to Marx’s theory of value and distribution and his theory of capitalist development. Specifically, the labor theory of value is proven where the price ratio in a two-good framework is shown to be equal to the ratio of unit labor requirements. Then, profits are discussed in terms of allocative efficiency and in the context of their appropriation by the capitalist class. Subsequently, there is a discussion of the compatibility of the law of the falling rate of profit and the law of increasing misery. The conclusion of the paper is that the suggested reformulation of the profit rate increases the number of necessary conditions that must be satisfied for some key results to hold in Marx’s theory of value and distribution and his theory of capitalist development.