Tendency of the rate of profit to fall

falling rate of profitfalling rates of profitdecline of the average rate of profitdecline of the profit ratefall of the rate of profitlaw of the tendency for the rate of profit to falllaw of the tendential fall in the rate of profitlong run tendency of capitalistic economylowering the rate of profitMarxian Law of the tendencial decline of the rate of profit
The tendency of the rate of profit to fall (TRPF) is a hypothesis in economics and political economy, most famously expounded by Karl Marx in chapter 13 of Capital, Volume III. Economists as diverse as Adam Smith, John Stuart Mill, David Ricardo and Stanley Jevons referred explicitly to the TRPF as an empirical phenomenon that demanded further theoretical explanation, yet they each differed as to the reasons why the TRPF should necessarily occur.wikipedia
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Capital, Volume III

Capital'', volume 3Capital'', Volume IIIIII (1894)
The tendency of the rate of profit to fall (TRPF) is a hypothesis in economics and political economy, most famously expounded by Karl Marx in chapter 13 of Capital, Volume III.
The work is best known today for Part 3 which in summary says that as the organic fixed capital requirements of production rise as a result of advancements in production generally, the rate of profit tends to fall.

Das Kapital

CapitalCapital: Critique of Political EconomyKapital
In Capital, Karl Marx criticized Ricardo's idea.
The work is best known today for Part 3 which in summary says that as the organic fixed capital requirements of production rise as a result of advancements in production generally, the rate of profit tends to fall.

Crisis theory

economic crisiscrisiscrisis of capitalism
Other orthodox Marxists or economists inspired by Marx (including Karl Kautsky, Mikhail Tugan-Baranovsky, Nikolai Bukharin, Rudolf Hilferding, Rosa Luxemburg, Vladimir Lenin, Otto Bauer, Fritz Sternberg, Natalia Moszkowska, Oskar Lange, Michał Kalecki, Paul Sweezy, Kei Shibata, Kozo Uno, Nobuo Okishio and Makoto Itoh) provided alternative crisis theories, focusing variously on the anarchy of capitalist production, sectoral disproportions, underconsumption and realization problems, labor-shortage and population pressures, credit insufficiency, excess capital, state policy, productivity and wages squeezing profits.
Crisis theory, concerning the causes and consequences of the tendency for the rate of profit to fall in a capitalist system, is now generally associated with Marxist economics.

Capital accumulation

accumulation of capitalaccumulationLaw of accumulation
In his 1857 Grundrisse manuscript, Marx called the TRPF "the most important law of political economy" and sought to give a causal explanation for it in terms of his theory of capital accumulation.
In Marxist thought, socialism would succeed capitalism as the dominant mode of production when the accumulation of capital can no longer sustain itself due to falling rates of profit in real production relative to increasing productivity.

Permanent war economy

permanent arms economyhow to Grow the Economy with the Use of War
It is Henryk Grossman (and Marx's “Grundrisse”), who argues that capital exports in themselves are a cause, which postpones a crisis, which otherwise would follow from the rising value composition of capital and the tendency of the rate of profit to fall.

Law of value

economic lawslaws of capitalism
Critics claimed that Marx failed to reconcile the law of value with the reality of the distribution of capital and profits, a problem that had already preoccupied David Ricardo – who himself inherited the problem from Adam Smith, yet failed to solve it.
The negative influence of the tendency of the rate of profit to fall on business income could, Marx argued, be overcome in the long run only by organizing production and sales on a larger and larger scale, or by technological revolutions which reduced the cost of raw materials, labour and fixed equipment.

Organic composition of capital

technical composition of capitalorganic compositionorganic composition of production
Simultaneously, however, technological innovations would replace people with machinery, and the organic composition of capital would decrease.
But this represents only a tendency, Marx argues, because the fall of the rate of profit can be offset by counteracting influences.

Underconsumption

underconsumptionistunderconsumptionismbloated retail inventories in the United States
Since the 1970s, the International Socialists have staged a theoretical struggle against underconsumptionism, regarded as a reformist ideology, and reaffirmed the TRPF as the true revolutionary theory.
Compare to the tendency of the rate of profit to fall, which has a similar belief in stagnation as the natural (stable) state, but which is otherwise distinct and in critical opposition to underconsumption theory.

Okishio's theorem

Okishiotheorem
In 1994, Stephen Cullenberg published a book on the falling rate of profit which reviewed the whole controversy to date (with special attention to Okishio's Theorem). Reviving and developing ideas first mooted in the 1980s, proponents of the temporal single-system interpretation (TSSI) such as Andrew Kliman, Alan Freeman, Paolo Giussani and Guglielmo Carchedi have argued from the 1990s onward that the arguments by von Böhm-Bawerk, Bortkiewicz, and Okishio do not refute Marx's case.
For this reason the theorem, first proposed in 1961, excited great interest and controversy because, according to Okishio, it contradicts Marx's law of the tendency of the rate of profit to fall.

Transformation problem

Marxian fundamental theoremtransformation from labor values into pricestransformations
The Marxian controversy about the so-called transformation problem began in earnest after the publication of Friedrich Engels's 1894 preface and 1895 supplement to his edition of Marx's third volume of Capital.
The lack of any function to transform Marx's "values" to competitive prices has important implications for Marx's theory of labour exploitation and economic dynamics—namely that, some people argue with Okishio's theorem, that there is no tendency of the rate of profit to fall.

Temporal single-system interpretation

Temporal Single System InterpretationCriticismSingle-system interpretation
Reviving and developing ideas first mooted in the 1980s, proponents of the temporal single-system interpretation (TSSI) such as Andrew Kliman, Alan Freeman, Paolo Giussani and Guglielmo Carchedi have argued from the 1990s onward that the arguments by von Böhm-Bawerk, Bortkiewicz, and Okishio do not refute Marx's case.
Among the main issues addressed by the TSSI are Marx's law of the tendency of the rate of profit to fall and the transformation of commodity values into prices of production––the so-called transformation problem––in Das Kapital Volume 3.

Financial crisis

economic crisisfinancial criseseconomic crises
Marx's law of the tendency for the rate of profit to fall borrowed many features of the presentation of John Stuart Mill's discussion Of the Tendency of Profits to a Minimum (Principles of Political Economy Book IV Chapter IV).

Henryk Grossman

Grossman, HenrykHenryk Grossman's crisis schemaHenryk Grossmann
From the late 1920s and 1930s onward, classical revolutionary orthodox Marxists like Henryk Grossmann, Louis C. Fraina (alias Lewis Corey) and Paul Mattick argued that at a certain point, the falling rate of profit stops the total mass of profit in the economy from growing altogether, or at least from growing fast enough.

Steady-state economy

steady-state theoristSteady state economysteady state
The accumulation of capital (net investments) would sooner or later come to an end as the rate of profit fell to a minimum or to nil.

Surplus value

surplus-valueexploitationsurplus
Assuming only labor can produce new additional value, this greater physical output would embody a gradually decreasing value and surplus value, relative to the value of production capital invested.
In turn, this causes the unit-values of commodities to decline over time, and a decline of the average rate of profit in the sphere of production occurs, culminating in a crisis of capital accumulation, in which a sharp reduction in productive investments combines with mass unemployment, followed by an intensive rationalisation process of take-overs, mergers, fusions, and restructuring aiming to restore profitability.

Diminishing returns

law of diminishing returnsincreasing returnsdiminishing marginal returns
Within the framework of the neoclassical theory of the factors of production, there does also exist a law of diminishing returns.

Hypothesis

hypotheseshypotheticalhypothesized
The tendency of the rate of profit to fall (TRPF) is a hypothesis in economics and political economy, most famously expounded by Karl Marx in chapter 13 of Capital, Volume III.

Economics

economiceconomisteconomic theory
The tendency of the rate of profit to fall (TRPF) is a hypothesis in economics and political economy, most famously expounded by Karl Marx in chapter 13 of Capital, Volume III.

Political economy

political economistpolitical economicspolitical economists
The tendency of the rate of profit to fall (TRPF) is a hypothesis in economics and political economy, most famously expounded by Karl Marx in chapter 13 of Capital, Volume III.

Karl Marx

MarxMarx, KarlMarxist
The tendency of the rate of profit to fall (TRPF) is a hypothesis in economics and political economy, most famously expounded by Karl Marx in chapter 13 of Capital, Volume III. In Capital, Karl Marx criticized Ricardo's idea.

Adam Smith

SmithA SmithAdam Smith’s
Critics claimed that Marx failed to reconcile the law of value with the reality of the distribution of capital and profits, a problem that had already preoccupied David Ricardo – who himself inherited the problem from Adam Smith, yet failed to solve it. Economists as diverse as Adam Smith, John Stuart Mill, David Ricardo and Stanley Jevons referred explicitly to the TRPF as an empirical phenomenon that demanded further theoretical explanation, yet they each differed as to the reasons why the TRPF should necessarily occur.

John Stuart Mill

MillJ.S. MillJ. S. Mill
Economists as diverse as Adam Smith, John Stuart Mill, David Ricardo and Stanley Jevons referred explicitly to the TRPF as an empirical phenomenon that demanded further theoretical explanation, yet they each differed as to the reasons why the TRPF should necessarily occur.

David Ricardo

RicardoRicardianDavid Ricardo,MP
Critics claimed that Marx failed to reconcile the law of value with the reality of the distribution of capital and profits, a problem that had already preoccupied David Ricardo – who himself inherited the problem from Adam Smith, yet failed to solve it. Economists as diverse as Adam Smith, John Stuart Mill, David Ricardo and Stanley Jevons referred explicitly to the TRPF as an empirical phenomenon that demanded further theoretical explanation, yet they each differed as to the reasons why the TRPF should necessarily occur.

William Stanley Jevons

JevonsStanley JevonsWilliam Jevons
Economists as diverse as Adam Smith, John Stuart Mill, David Ricardo and Stanley Jevons referred explicitly to the TRPF as an empirical phenomenon that demanded further theoretical explanation, yet they each differed as to the reasons why the TRPF should necessarily occur.

Grundrisse

Outlines of the Critique of Political Economy
In his 1857 Grundrisse manuscript, Marx called the TRPF "the most important law of political economy" and sought to give a causal explanation for it in terms of his theory of capital accumulation.