Falling Rate Of Profit Research Articles

Profits and capital accumulation in the Mexican economy

Abstract The paper studies the long-run disconnection between a rising profit share of income and a constant rate of capital accumulation in Mexico since the early 1990s. According to stylized facts based on the Cambridge accumulation equation, the disconnection reflects two factors: first, a flat trajectory of the investment share of profits, and second, a gap between a rising profit share and a constant or even falling profit rate due to a decline in the output/capital ratio. In manufacturing—where the disconnection was particularly sharp—econometric estimates show that the accumulation rate was negatively affected not only by the decline in the output/capital ratio but also by a fall in the relative Mexican/US profit rate. The estimates show in addition that, among financialization indicators, a rise in interest payments as a share of profits may have contributed to the low accumulation rate.

Profit share and capital accumulation in Mexican manufacturing

ABSTRACTMexican manufacturing shows a long-run divergence between a rising profit share of income and a flat rate of capital accumulation. Following the Cambridge equation, the paper studies the determinants of capital accumulation and finds the divergence to be partly explained by a reduction in the output/capital ratio, which opened a gap between a rising profit share and falling profit rate. But besides this classical, Marxian mechanism, two additional factors were at play: first, nonlinear profitability effects, which reveal that, at the high profitability rates observed in Mexico, profitability was not a binding constraint on accumulation; and second, foreign profitability effects, which show that a rise in US profits rates affected negatively accumulation in Mexico. The results come from estimated equations for the capital accumulation rate and investment share of profits in an annual panel of 17 manufacturing industries during the period 1992–2019.

The Falling Rate of Profit under Constant Rate of Exploitation: A Generalization

In a two-sector model with circulating capital, Laibman (1982) shows that a capital-using and labor-saving technical change in the consumption goods sector lowers the rate of profit under the assumption of constant rate of exploitation. This paper generalizes his finding in a two-department multi-sector model that considers the capital advanced. JEL Classification: B51, C67

The dynamics of capital accumulation in Marx and Solow

This paper deals with issues arising in Solow's growth model when contrasted with Marx's schemes of expanded reproduction. More specifically, we argue that Solow's growth model lacks the crucial dynamic features of capital accumulation derived from the long-term movement of the rate of profit, which are well integrated in classical political economy. Classical economists discussed the attainment of the stationary state of the economy as a result of a falling rate of profit eliminating net investment. In Solow's growth model, however, the seemingly stationary state is proved to be a ‘saddle’ point, an aspect that has not received appropriate attention in the extant economic growth literature. By contrast, in Marx's analysis of absolute overaccumulation resulting from the falling profit rate the system is driven to a turning point and the conditions for major institutional changes that may lead to a new period of economic expansion are set.

The Austrian Way: Sozialpartnerschaft as Means to Curb the Falling Rate of Profit

Economic crises are inherent in all market systems. The leap from long boom to long downturn is attributed to the lack of advanced capitalist economies to achieve and sustain high profit rates. Economic historians vividly outline overaccumulation and overheating leading to a squeeze of profits as underlying to great booms, recessions and depressions by the historical examples of Italy, France, Germany and Japan. Overaccumulation is based on the capital account being run down due to a demand for labor, which leads to rising wages and capital flight and ultimately to unprofitable economies. Tightening labor markets during long boom phases lead eventually to class conflict, which is the starting point of the profit squeeze and eventually busts and recessions and depressions. Overheating occurs in the wake of strike waves and subsequent wage explosions, such as in Europe between 1968 and 1970 in France, Germany, Netherlands, Italy and the United Kingdom, when workers backed their claims with strike action. Capitalists were forced to concede wage rises, which eventually lowered their rate of profit. Strikes stem out of frustration over moderation of growth of real wages, reduction in labor's share and increase in the share of profits, erosion of differentials, and increased work load. Manifold conventional monetary, fiscal and social intervention strategies as counter-cyclical means to avert booms and busts are described in international examples of the past. This paper aims at adding to the existing literature the case of describing the Austrian Sozialpartnerschaft. This stakeholder engagement means practiced in Austria is shown to avert social imbalances leading to economically inefficient worker uprising, protests and strikes. Since the post-World War II era, the Austrian Wirtschaftswunder (economic miracle) is attributed to the Sozialpartnerschaft breeding economic growth alongside social stability in Austria. The relative low economic fluctuations of the Austrian economy are grounded in the model of Sozialpartnerschaft to solve class struggles and worker rights movements elegantly through self-determination, participation and compromise. The unique Austrian model of the voluntary Sozialpartnerschaft is captured to implicitly curb the falling rate of profit phenomenon. In the Sozialpartnerschaft model, the citizenry, that undermines the profit rate in many other countries, gains access to board meetings to discuss national claims. Rather than partially illegal and counterproductive, risky strike movements, the Sozialpartnerschaft forms an institutionalized relationship between the government, political parties and certain interest groups in the field of labor, social, and economic policy. While it is widely recognized as a key element in Austrian politics since the end of World War II, social partnership is neither anchored in the Austrian constitution nor laid down in any specific legal act. The insights gained from the Austrian way to structure economic growth are discussed alongside granting an international and future perspective of Sozialpartnerschaft as means to avert negative consequences in the wake of economic fluctuations. While the influence of the Sozialpartnerschaft may be decreasing in the eye of the European Union integration and in times of globalization, other countries with fairly less developed stakeholder engagement approaches may learn from the positive example of the Austrian way to gracefully social partner in reaching common economic, industrial and societal endeavors together.

Is the Theory of a Falling Profit Rate Valid?

Marx's theory of the falling rate of profit makes two main appearances in his work. The first is in Chapter 25 of Capital Volume 1, entitled “The General Law of Capitalist Accumulation.” It is further developed in Part III of Volume 3 of Capital, entitled “The Law of the Tendency of the Rate of Profit to Fall.” In this article I will outline the structure of the theory presented in these two volumes of Capital. Following that I will look at some criticisms that have been leveled at it. I will go on to argue that the criticisms are based on a misunderstanding of some of the dynamic causal mechanisms that Marx assumed. Following on from this I shall present a dynamic solution to the equations of accumulation and show under what circumstances these lead to a falling rate of profit. The dynamic model will then be used to analyze the trajectories of some contemporary capitalist economies and to help understand the current structure of the world economy.

Is the Falling Rate of Profit the Driving Force Behind Globalization?

This paper examines critically the role of the law of the tendency of the falling rate of profit in the geographic expansion (globalization) of competitive capitalism. It contends that Marx did not believe there was an iron-clad connection between the falling rate of profit and globalization; in addition, it argues that Marx believed that the capitalists' insatiable search for colonial markets was driven by their desire to overcome recurrent (and growing) realization problems in the home market arising from deficient aggregate demand on the part of both workers and capitalists.

Organic Composition of Capital, Falling Rate of Profit and ‘Preferential Growth of the First Sector’ in the Marxian Optimal Growth Model

Marxist economics claims that capitalism has some long-term tendencies. Because such kinds of trends have a very close relation with the decline or death of capitalism, they must be analyzed by models that also express its decline. For this purpose, we apply the Marxian Optimal Growth Model, which was constructed by Yamashita & Ohnishi (2002). Even if this appearance is neoclassical but includes many Marxist conclusions. In this paper, firstly we introduce its basic model structure. Secondly, we decompose the total value of the two sectors into C, V, and S. Thirdly, we calculate the final values of C, V, and S that they approach in the long run, and by applying them we project the long-term trend of organic composition of capital, rate of profit and ratio of output between the two sectors. Our conclusions are: (1) the organic composition of capital rises, (2) the profit rate falls, and (3) the ratio of output of the first sector falls. The second conclusion is in opposition to the Okishio Theorem, and the third is in opposition to Lenin.

Les causes de la désindustrialisation brésilienne

Au Bresil, le ralentissement du processus d’accumulation et la desindustrialisation sont souvent mis sur le compte de la financiarisation de l’economie. Ainsi, des taux d’interet maintenus tres eleves, notamment dans le but de financer la dette publique, incitent davantage a se procurer des bons du tresor qu’a investir dans la sphere productive. Neanmoins, l’evolution du taux de profit dans l’appareil productif explique egalement le rapport des entrepreneurs a l’investissement. En effet, la fin du « Miracle economique » et la crise de la decennie 1980 peuvent etre analysees comme des consequences d’une baisse du taux de profit dans l’industrie.

US Economic Performance from 1929 to 2008 in Terms of the Marxian Theory of Crises, with Some Notes on the Recent Financial Crisis

The core of the Marxian theory on economic crises is detected in Marx's theory of the falling profit rate, owing to the rising organic composition of capital or the decrease of the rate of surplus-value, due to rising real wages. On the basis of this theoretical admission a research on US economic performance from 1929 to 2008 has been undertaken. The findings of this study indicate that US capitalism seems to suffer from a weakness to achieve high profit rates. The recent financial crisis is thus a possible result of a ‘plethora’ of profit seeking capitals in the financial sector.

A Criticism on the Theory of Falling Rate of Profit from a Methodological Perspective

A Criticism on the Theory of Falling Rate of Profit from a Methodological Perspective

Les limites de la croissance chinoise

Le taux d’investissement de la Chine atteint en 2008 un record mondial, depassant les 45 % du PIB. Cependant, ce processus d’accumulation risque d’etre dangereux pour la poursuite de l’investissement. L’accent est souvent mis sur l’importance des phenomenes de surproduction : l’industrie chinoise ne fonctionne souvent qu’a 50 % de ses capacites de production, ce qui finit forcement par peser sur le niveau de la productivite. Il n’en reste pas moins que cette evolution de la productivite doit surtout etre analysee au regard de la theorie sur la baisse tendancielle du taux de profit presentee par Karl Marx dans le troisieme livre du Capital.

On the Law of the Falling Rate of Profit: A Reinterpretation

This paper demonstrates that Marx's law of the falling rate of profit holds only if investment falls short of saving. A rising organic composition of capital is not found to be the direct cause of the falling rate of profit but rather a condition that makes it more difficult for investment to keep pace with saving. The paper also brings out the connection of the law of falling profit with the business cycle phenomenon. A rising organic composition of capital is found to exacerbate cycles. The paper concludes with the suggestion that a synthesis between the theories of Marx and Keynes will better explain real world crises.

Competition and profitability: A critique of Robert Brenner

Robert Brenner has argued in a recent essay that the decline in manufacturing profitability in the United States since the mid-1960s can be attributed mainly to intensified foreign competition. I attempt to show that Brenner's argument is logically incongruent, and does not fit with the observed behavior of the profit rate and the manufacturing trade balance. I also argue that Brenner's rejection of Marx's theory of the falling profit rate is questionable.

Competition and profitability: a critique of Robert Brenner

Robert Brenner has argued in a recent essay that the decline in manufacturing profitability in the United States since the mid-1960s can be attributed mainly to intensified foreign competition. I attempt to show that Brenner’s argument is logically incongruent, and does not fit with the observed behavior of the profit rate and the manufacturing trade balance. I also argue that Brenner’s rejection of Marx’s theory of the falling profit rate is questionable.

Brenner on Competition

This paper criticizes Brenner's emphasis on competition within Manufacturing in his analysis of the falling profit rate, and the subsequent extension of this fall to the entire economy. His assumptions concerning price competition appear arbitrary and proofs are deficient. Brenner cannot escape the reliance on the rise of wages, contrary to what he contends in his criticism of profit-squeeze theory. Several basic theoretical issues, such as adjustment by prices (as in neoclassical models) or by quantities produced (as in Keynesian models), partial or general analysis are not treated properly. For Marx, the decline of the profit rate causes competitive wars; the inverse relationship is posited by Brenner.

Once Again on the Falling Rate of Profit

Once Again on the Falling Rate of Profit

Technical Change, Accumulation and the Rate of Profit Revisited

Recent work has drawn attention to the connection between technical change and the labor market. Reasonable assumptions concerning both the reality of positive capital accumulation and the effect of technical change on wage rates reveal the ubiquitous possibility of viable technical changes that raise the composition of capital and lower the rate of profit. A complete non-steady-state growth model including both optimal technical change and labor-market dynamics is described; the model provides a test of the empirical likelihood of an accumulation path with a rising profit share and falling profit rate. A general perspective on the existence and role of critical tendencies in capitalist economic growth is presented.

The Falling Rate of Profit: Recasting the Marxian Debate

Throughout this century there has been, and continues to be, a long standing debate about whether the rate of profit falls as technical change accelerates. All the major figures in economics have faced these questions. Its origins can be found in Adam Smith through to Ricardo and Marx, thereafter through all major Marxian thinkers, up to the present. The author's contribution is to provide students with an encyclopedic summary of the debates over time, to clarify complexities and divergent tendencies in the debates. He examines divergent wings of the Marxist debate, other writings on holistic, Cartesian debates from philosophers, sociologists, historians and others, including orthodox economists.

Three Models of the Falling Rate of Profit

Three models are presented which hold in common the assumption of imperfect competition but differ in their treatment of technical change. When technical change is purely endogenous (Model I) or exogenous (Model II), the rate of profit declines to some steady-state value, either as capital accumulates or as time passes. Dynamic wage-profit curves describe the paths over time of the product wage and profit rate. Under a combined form of technical change (Model III), the slope of the dynamic wage-profit curve is indeterminate but it converges on some steady state. These steady states are the terminus of a historical process rather than the equilibria of the models. The models invite comparisons between neoclassical and Marxian theory.