NML:
107-544: NML: The tendency of the rate of profit to fall ( TRPF ) is a theory in the crisis theory of political economy , according to which the rate of profit —the ratio of the profit to the amount of invested capital —decreases over time. This hypothesis gained additional prominence from its discussion by Karl Marx in Chapter 13 of Capital, Volume III , but economists as diverse as Adam Smith , John Stuart Mill , David Ricardo and William Stanley Jevons referred explicitly to
214-599: A " middle way " between laissez-faire , unadulterated capitalism and state guidance and partial control of economic activity, such as in the French dirigisme or the policies of the Golden Age of Capitalism , attempts to address such crises with the policy of having the state actively supplying the deficiencies of unaltered markets. Marx and Keynesians approach and apply the concept of economic crisis in distinct and opposite ways. The Keynesian approach attempts to stay strictly within
321-566: A Marxist scholar. There have been a number of non-Marxist empirical studies of the long-term trends in business profitability. Particularly in the late 1970s and early 1980s, there were concerns among non-Marxist economists that the profit rate could be really falling. Various efforts have been conducted since the 1970s to empirically examine the TRPF. Studies supporting it include those by Michael Roberts, Themistoklis Kalogerakos, Minqi Li , John Bradford, and Deepankar Basu (2012). Studies contradicting
428-553: A Minimum which forms Chapter III of Book IV of his Principles of Political Economy and Chapter V, Consequences of the Tendency of Profits to a Minimum , provides a conspectus of the then accepted understanding of a number of the key elements, after David Ricardo , but without Karl Marx 's theoretical working out of the theory that Frederick Engels posthumously published in Capital, Volume III . Marx's crisis theory, embodied in " ...
535-412: A boom and crisis is not the result of any long term tendency but is rather a cyclical phenomenon. The recovery following a depression is based on replacement of labor-intensive techniques that have become uneconomic at the low prices and profit margins following the crash. This new investment in less labor-intensive technology takes market share from competitors by producing at lower cost while also lowering
642-405: A central place to the tendency of the rate of profit to fall, as Marx himself neglected to include the argument in his published theoretical work. And at the level of the reasoning of the argument, the mathematician Heinrich demonstrates that "a long-lasting tendency for the rate of profit to fall cannot be substantiated at the general level" with the argument we're given. In order to safely deduce
749-570: A decade after he wrote the manuscript that became. in Engels' edition, the third volume of Capital , Marx composed a mathematical manuscript where he deals at length with the case of rising profit-rates under an increasing value-composition of capital. David Ricardo , interpreting Adam Smith's falling rate of profit theory to be that increased competition drives down the average rate of profit, argued that competition could only level out differences in profit rates on investments in production, but not lower
856-642: A fall in profit as a general tendency, Marx's argument requires the presumption that the rate of surplus-value grows faster than the ratio of capital to value, which cannot be mathematically demonstrated from the concepts with which Marx is working. While the general direction of movement of both quantities may be known—both the rate of relative surplus-value, and the ratio of capital to value, are taken in ordinary capitalist conditions to increase— neither can grow without limit, and easy conclusions about their comparative rates of growth are not forthcoming. Marx, Heinrich argues, later became cognisant of this difficulty. Over
963-446: A kind of top-heaviness, in which a relatively fixed number of workers have to add profit to an ever-larger lump of investment capital. This observation leads to what is known as Marx's law of the tendency of the rate of profit to fall . Unless certain countervailing possibilities are available, the growth of capital out-paces the growth of labour, so the profits of economic activity have to be shared out more thinly among capitals, i.e., at
1070-410: A long-term "labor-saving bias", and that the overall long-term effect of saving labor time in producing commodities with the aid of more and more machinery had to be a falling rate of profit on production capital, quite regardless of market fluctuations or financial constructions. Marx regarded the TRPF as a general tendency in the development of the capitalist mode of production. Marx maintained that it
1177-434: A lower cost, enabling more sales in less time. Ladislaus von Bortkiewicz stated: "Marx’s own proof of his law of the falling rate of profit errs principally in disregarding the mathematical relationship between the productivity of labour and the rate of surplus value ." Jürgen Habermas argued in 1973–74 that the TRPF might have existed in 19th century liberal capitalism, but no longer existed in late capitalism , because of
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#17330927925451284-781: A lower profit rate. When countervailing tendencies are unavailable or exhausted, the system requires the destruction of capital values in order to return to profitability. Hence creating the underlying preconditions for post-war boom . Paul Mattick 's Economic Crisis and Crisis Theory (published by Merlin Press in 1981) is an accessible introduction and discussion derived from Grossman's work. François Chesnais 's (1984, chapter Marx's Crisis Theory Today , in Christopher Freeman ed. Design, Innovation and Long Cycles in Economic Development Frances Pinter, London), discussed
1391-483: A theory of business cycle . "... more than any other economist [Marx] identified cycles with the process of production and operation of additional plant and equipment". A survey of the competing theories of crisis in the different strands of political economy and economics was provided by Anwar Shaikh in 1978 and by Ernest Mandel in his 'Introduction' to the Penguin edition of Marx's Capital Volume III particularly in
1498-417: A theory of a falling rate of profit in capitalist economies. One must, however, relax some of the assumptions of the stark models discussed here, to achieve such a falling rate of profit theory." It is also possible to construct an alternative Okishio-type model, in which the rising cost of land rents (or property rents) lowers the industrial rate of profit. Heinrich calls into question Marxist theories giving
1605-472: A way, that only the absolute power of consumption of the entire society would be their limit." The above passage contains within it no more than a description or a restatement of the capitalist relations of production. Marx called it a tautology to explain the crisis by lack of effective consumption ..." Other explanations have been formulated, and much debated, including: Nobuo Okishio Nobuo Okishio ( 置塩 信雄 , January 2, 1927 – November 13, 2003)
1712-885: Is a long history of interpreting crisis theory, rather as a theory of cycles than of crisis. An example in 2013 by Peter D. Thomas and Geert Reuten, "Crisis and the Rate of Profit in Marx's Laboratory" suggests controversially that even Marx's own critical analysis can be claimed to have transitioned from the former toward the latter. There are several elements in Marx's presentation which attest to his familiarity with Mill's formulations, notably Mill's treatment of what Marx would subsequently call counteracting tendencies: destruction of capital through commercial revulsions §5, improvements in production §6, importation of cheap necessaries and instruments §7, and emigration of capital §8. "In Marx's system, as in Mill's
1819-404: Is an inherent characteristic in the accumulation process of the capitalist economy. Problems examined are (A) to make clear capitalists’ investment decision of Harrod and (B) to investigate the instability postulate taking into consideration other possibilities like substitutive technical changes, changes in saving ratio, and movements in relative prices. He obtained the conclusion that instability
1926-420: Is crucial for Marx. It is the rate of exploitation and the social productivity of labour that are the key considerations and these in relation to the existing capital stock. While for Keynes the low marginal productivity of capital has its cause in an over-abundance of capital in relation to profit expectations, and therefore to a 'potential' over-production of commodities (the capitalist will not invest). For Marx
2033-402: Is from the historical standpoint the most important law." A key characteristic of these theoretical factors is that none of them are natural or accidental in origin but instead arise from systemic elements of capitalism as a mode of production and basic social order . In Marx's words, "The real barrier of capitalist production is capital itself ". The law of the falling rate of profit,
2140-700: Is impossible to infer definitely a theoretical principle that a falling rate of profit must always and inevitably result from an increase in productivity. Perhaps the law of the tendency of the rate of profit to fall might be true in an abstract model, based on certain assumptions, but in reality no substantive, long-run empirical predictions can be made[?]. In addition, profitability itself can be influenced by an enormous array of different factors, going far beyond those which Marx specified[?]. So there are tendencies and counter-tendencies operating simultaneously, and no particular empirical result necessarily and always follows from them[?]. Steve Keen argues that if you assume
2247-442: Is not averaged with others). Again, like Mill, Marx indicates the post-crisis waste of capital which restores profitability, but this is not mentioned specifically as a counter-tendency until the cyclical nature of the system is demonstrated. On the other hand, Mill does not refer to depression of wages below their value, relative overpopulation, or the increase in "stock capital". But on the most important counter-tendencies, that is,
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#17330927925452354-539: Is not sympathetic to Marx, Okishio thought that Keynes is an important criticizer of neoclassical economics inside modern economics, because Keynes denied the harmonic adjusting mechanism of market economy. Keynes also emphasized the independent and volatile role of investment demand in capitalistic economy. In these respects Keynes shared the similar viewpoint with Marx. Recent New Keynesians or Neo-Keynesians have been neglecting these fundamental characteristics of Keynes's original theory. Okishio's critique to Keynes
2461-467: Is precisely crisis in its highest form. Thus, the theory of imperialism must be an extension of the theory of crisis." David Yaffe, in his application of the theory in the conditions of the end of the Post War Boom in the early 1970s, made an influential link to the expanding role of the state's interventions into economic relations as a politically critical element in attempts by capital to counteract
2568-544: Is related to clarifying the logic of Marx's theory. First, there is the transformation problem. Marx argued in Das Kapital Book Three about the transformation from values to prices. There he discussed that output prices also enter input prices in various sectors. And he warned us that we could make a mistake if we ignore this fact because there exists some discrepancy between prices and values. Here, of course, prices mean output prices and values mean input prices at
2675-404: Is taken, could continue to develop into a recession or depression . It continues to be argued in terms of historical materialism theory, that such crises will repeat until objective and subjective factors combine to precipitate a resolution of the underlying class struggle in a social transition to the new mode of production either by sudden collapse in a final crisis, or gradual erosion of
2782-519: Is that competition can drive the economy to zero-profit equilibrium unless there exist no continuous technical innovations or an increase in labor supply or independent capitalist consumption. This investigation is still under way. On this point Okishio's argument is composed of the following two propositions. First, in order for the capitalist economy to work effectively, the production power of humankind in that society should exceed some minimum level, but also should not exceed some maximum level. Second,
2889-533: Is that he denied the possibility to change the capitalist's decision making. As is well known, Keynes devoted almost all his investigation to the demand-side and as far as the supply-side he only said that there remains almost no materials that is not known to us and Keynes left it as technically given. Okishio examined the capitalistic property of Keynes aggregate supply function Z(N) and showed an alternative way of raising employment by changing Aggregate Supply Function . His critical examination of Keynesian economics
2996-473: Is that he used, systematically and explicitly, a schema of periods, that is, that he was the first to practice the particular method of dynamics that is called period analysis". Marx praised and built on Sismondi's theoretical insights. Rosa Luxemburg and Henryk Grossman both subsequently drew attention to both Sismondi's work on the nature of capitalism, and as a reference point for Karl Marx. Grossman in particular pointed out how Sismondi had contributed to
3103-428: Is that the equilibrium rate of profit and the production prices are determined depending on real wage rate and technologies in basic sectors only. This result was accepted with surprise, because many economists considered that non-basic sectors also have some relations with the equilibrium rate of profit. As far as Japan is concerned, some heated arguments are held between Okishio and some other Marxian economists. Next
3210-527: Is the Marx's propositions of dynamic movement of capitalistic economy. In the paper “A Formal Proof of Marx’s Two Theorems” he tried to prove Marx's two theorems; first, the tendencial falling rate of profit and, second, the tendencial increase in unemployment. By “formal” Okishio meant whether we can deduct two propositions from Marx's presumptions of increasing organic composition of production . He showed that if new technologies with increasing organic composition of production are continuously introduced, then
3317-525: Is the amount of j {\displaystyle j} -th goods and τ i {\displaystyle \tau _{i}} is the direct labor input needed to produce one unit of i {\displaystyle i} -th goods. He first got this idea when he was writing “On Exchange Theory” in 1954 in Japanese and a little later in 1955 more clearly wrote in English paper “Monopoly and
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3424-460: Is the jointly published book “Keynesian Economics” in 1957. One of Keynes's criticisms of classical economics is the idea that a "market clearing wage" is determined in the labor market. On the contrary in Keynes, the real wage rate is determined in commodity markets. Many Marxian economists consider real wage rate is affected by labor market. However labor market can affect the nominal wage rate for
3531-531: Is the logic to guarantee it considering the change of real wage rate? Adam Smith considered that competition among capitals effects downward pressures on profits. But as is well known, Ricardo criticized Smith and claimed that competition can only equalize uneven rates of profits among capitals and never affect the level of the rate of profit itself, which is inherited by Marx. Walras and more clearly Schumpeter asserted that competition sweeps out profits completely. Okishio's tentative conclusion on this problem
3638-546: Is the robust property of capitalist accumulation. Capitalistic accumulation process displays instability. However, for one production system to survive for many years, some kind of equilibrium or near equilibrium conditions must be satisfied. In the short run the economy diverges from the equilibrium growth path due to Harrod instability , but in the long run it satisfies several conditions as shown in Reproduction Formula of Marx Book Two. Okishio proceeds to investigate
3745-447: Is the upper bound of production power for a capitalistic economy to be able to work effectively. As for the first, the introduction of new technologies are most important as shown by many economists as Schumpeter and others. As for the latter upper bound, he stresses the controlability of the whole economy. We are living in the world where even a local economic activity can have effects of global and long lasting consequences in all over
3852-404: Is tied to the amount of labor necessary, the value of the physical output would decrease relative to the value of production capital invested. In response, the average rate of industrial profit would therefore tend to decline in the longer term. In the “unhindered” advance of capitalist production lurks a threat to capitalism that is much graver than crises. It is the threat of the constant fall of
3959-523: The basing on competition and the emerging dominance of cooperation . The concept of periodic crises within capitalism dates back to the works of the Utopian socialists Charles Fourier and Robert Owen and the Swiss economist Léonard de Sismondi . Karl Marx considered his crisis theory to be his most substantial theoretical achievement. He presents it in its most developed form as Law of Tendency for
4066-412: The labor theory of value is wrong, then this obviates the bulk of the critique. Keen suggests that the TRPF was based on the idea that only labor can create new value (following the labor theory of value), and that there was a tendency over time for ratio of capital to labor (in value terms) to rise. If surplus can be produced by all production inputs, then he believes there is no reason why an increase in
4173-472: 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. Marx was already aware of this theoretical problem when he wrote The Poverty of Philosophy (1847). It gets a mention again in the Grundrisse (1858). At the end of chapter 1 of his A Contribution to
4280-437: The long run tendency of capitalistic economy . They were published in over twenty books and two hundred papers, almost all in Japanese. About thirty of his published papers have been translated in English, and much of these materials are collected in the book (Nobuo Okishio, Michael Kruger and Peter Flaschel, 1993). Okishio showed how Marxian value is determined quantitatively. The value equation presented by Okishio determines
4387-535: The theory of imperialism . Following the extensive setbacks to independent working class politics, the widespread destruction both of people, property and capital value, the 1930s and '40s saw attempts to reformulate Marx's analysis with less revolutionary consequences, for example in Joseph Schumpeter 's concept of creative destruction and his presentation of Marx's crisis theory as a prefiguration of aspects of what Schumpeter, and others, championed as merely
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4494-452: The Critique of Political Economy (1859), he referred to it, and announced his intention to solve it. In Theories of Surplus Value (1862–1863), he discusses the problem very clearly. His first attempt at a solution occurs in a letter to Engels, dated 2 August 1862. In Capital, Volume I (1867) he noted that "many intermediate terms" were still needed in his progressing narrative, to arrive at
4601-418: The Rate of Profit to Fall combined with a discussion of various counter tendencies, which may slow or modify its impact." Roman Rosdolsky observed that "Marx concludes by saying that the law of the tendency of the rate of profit to fall is in every respect the most important law of modern political economy ... despite its simplicity, it has never before been grasped and even less consciously articulated ... It
4708-466: The Rates of Profits” Kobe University Economic Review. Using this equation Okishio proved Marx's fundamental proposition that the exploitation of surplus labor is the necessary condition for the existence of positive profit, later called as Fundamental Marxian Theorem by Michio Morishima . This proof has some characteristics. First, it does not preclude the acceptance of value theory in advance. Starting from
4815-528: The SPD's Party School in Berlin (possibly in 1911, since the typescript includes a reference to statistics from 1911). Henryk Grossman 's re-presentation of both the central importance of the theory for Marx and the working out of its elements in a partially mathematical form was published in 1929. Central to the argument is the claim that, within a given business cycle, the accumulation of surplus from year to year leads to
4922-535: The TRPF "remains one of the most important and highly debated issues of all of economics" because it raises "the fundamental question of whether, as capitalism grows, this very process of growth will undermine its conditions of existence and thereby engender periodic or secular crises." In Marx's critique of political economy , the value of a commodity is the medium amount of labour that is socially necessary to produce that commodity. Marx argued that technological innovation enabled more efficient means of production . In
5029-458: The TRPF among Marxists and non-Marxists has continued for a hundred years. There exist nowadays several thousands of academic publications on the TRPF worldwide. No available book provides an exposition of all the different arguments that have been made. Professor Michael C. Howard [27] stated that "The connection between profit and economic theory is an intimate one. (...) However, a generally accepted theory of profit has not emerged at any stage in
5136-427: The TRPF as an empirical phenomenon that demanded further theoretical explanation, although they differed on the reasons why the TRPF should necessarily occur. Geoffrey Hodgson stated that the theory of the TRPF "has been regarded, by most Marxists, as the backbone of revolutionary Marxism. According to this view, its refutation or removal would lead to reformism in theory and practice". Stephen Cullenberg stated that
5243-568: The TRPF include those by Òscar Jordà, Marcelo Resende, and Simcha Barkai. Other studies, such as those by Basu (2013), Elveren, Thomas Weiß and Ivan Trofimov, report mixed results or argue that the answer is not yet certain due to conflicting findings and issues with appropriately measuring the TRPF. From time to time, the research units of banks and government departments produce studies of profitability in various sectors of industry. The Office for National Statistics releases company profitability statistics every quarter, showing increasing profits. In
5350-539: The U.S. census reports of 1870 and 1880, but Engels claimed that Stiebeling explained the results "in a completely false way" (Stiebeling's defence against Engels's criticism included two open letters submitted to the New Yorker Volkszeitung and Die Neue Zeit ). Stiebeling's analysis represented "almost certainly the first systematic use of statistical sources in Marxian value theory." Although Eugen Varga and
5457-554: The UK, Ernst & Young (EY) nowadays provide a Profit Warning Stress Index for quoted companies. The Share Centre publishes the Profit Watch UK Report . In the US, Yardeni Research provides a briefing on S&P 500 profit margin trends, including comparisons with NIPA data. Crisis theory Crisis theory , concerning the causes and consequences of the tendency for
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#17330927925455564-410: The amount of labor directly and indirectly needed to produce one unit of commodity as follows. t i = ∑ j a i j + τ i , i = 1 , … , n {\displaystyle t_{i}=\sum _{j}a_{ij}+\tau _{i},\quad i=1,\ldots ,n} where a i j {\displaystyle a_{ij}}
5671-444: The answer. In the 1870s, Marx certainly wanted to test his theory of economic crises and profit-making econometrically, but adequate macroeconomic statistical data and mathematical tools did not exist to do so. Such scientific resources began to exist only half a century later. In 1894, Friedrich Engels did mention the research of the émigré socialist Georg Christian Stiebeling, who compared profit, income, capital and output data in
5778-408: The average rate of profit and thus explains the actual mechanism for both economic growth with improved technology and a long run tendency for the rate of profit to fall. The recovery eventually leads to another boom because the lag for gestation of fixed capital investment results in prices that continue such investment until eventually the completed projects deliver overproduction and a crash. There
5885-546: The centrality of Marx's crisis theory in his pedagogic contributions The Life and Teaching of Karl Marx 1925 and his A Guide to the Study of Marx: An Introductory Course for Classes and Study Circles 1924. In the late 1920s and early 30s, Max Beer worked at the Institut fur Sozialforschung and was a friend of Henryk Grossman. It was Henryk Grossman in 1929 who later most successfully rescued Marx's theoretical presentation ... 'he
5992-400: The complete correlation of forces appeared. Kuruma in his 1929 Introduction to the Study of Crisis ends by noting "... my use of the term "theory of crisis" is not limited to the theory of economic crisis. This term naturally also encompasses the study of the necessity of imperialist world war as the explosion of the contradictions peculiar to modern capitalism. Imperialist world war itself
6099-435: The continuing relevance of the theory. Andrew Kliman has made major new contributions with a thorough and trenchant philosophical and logical defence of the consistency of the theory in Marx's work, against a number of the criticisms proposed against important aspects of Marx's theory since the seventies. Francois Chesnais has provided an important exploration of the 'fictitious capital' or 'Finance Capital' aspects of
6206-455: The crisis theory by reconciling these two requirements and by introducing crisis theory as a regulating mechanism. His accumulation theory is published in his main publication CHIKUSEKIRON (“ Accumulation Theory ” in Japanese). Okishio scrutinized the relation between profits and competition. Okishio's theorem is the proposition obtained by comparing the equilibrium rate of profit before and after
6313-401: The development of a series of Marx's concepts including crises as a necessary feature of capitalism, arising from its contradictions between forces and relations of production, use and exchange value, production and consumption, capital and wage labor. His "inkling ... that the bourgeois forms are only transitory" was also distinctive. John Stuart Mill in his Of the Tendency of Profits to
6420-509: The development of productive forces recedes further and further into the past. But the subjective factors are the explanation for why purely objective factors such as the severity of a crisis, the rate of exploitation , etc., do not alone determine the revolutionary upsurge. A common example is the contrast of the oppression of the working classes in France in centuries prior to 1789 which although greater did not lead to social revolution as it did once
6527-424: The economic sphere and describes 'boom' and 'bust' cycles that balance out. Marx observed and theorised economic crisis as necessarily developing out of the contradictions arising from the dynamics of capitalist production relations. "Where Marx differs from Keynes is precisely on the question of the falling rate of profit. It is not the propensity to consume or subjective expectations about future profitability that
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#17330927925456634-415: The effects of increasing productivity at home in cheapening commodities and of foreign trade in providing both cheaper goods and greater profits, Marx and Mill are in accord." It is a tenet of many Marxist groupings that crises are inevitable and will be increasingly severe until the contradictions inherent in the mismatch between the relations of production and the development of productive forces reach
6741-421: The elements of constant capital (via increased productivity); (4) Relative overproduction (which keeps many workers employed in relatively backward industries, such as luxury goods, where the organic composition of capital is low); (5) Foreign trade (which offers cheaper commodities and more profitable channels of investment); and (6) The increase of "stock capital" (interest bearing capital, whose low rate of return
6848-499: The existence of profit expressed in price terms, we can deduct the existence of surplus value as a logical consequence. This is the opposite way to Marx , who started from value and reached price and profit. Okishio's proof has effects to persuade the validity of Marxian propositions to much more non-Marxian economists at present. According to this value equation we can make quantitative measurements using input–output tables developed after World War Two. Okishio himself tried it at
6955-437: The expansion of "reflexive labor" ("labor applied to itself with the aim of increasing the productivity of labor"). Michael Heinrich has also argued that Marx did not adequately demonstrate that the rate of profit would fall when increases in productivity are taken into account. How exactly the average industrial rate of profit will evolve is either uncertain and unpredictable, or it is historically contingent; it all depends on
7062-444: The falling rate of profit is a long-run tendency precisely because of the "counteracting influences at work which thwart and annul the effects of this general law, leaving to it merely the character of a tendency." These counteracting forces are as follows: (1) An increase in the intensity of exploitation (via intensification of labor or the extension of the working day); (2) Depression of wages below their value ... (3) Cheapening of
7169-408: The final point of failure, determined by the quality of their leadership , the development of the consciousness of the various social classes , and other "subjective factors". Thus, according to this theory, the degree of "tuning" necessary for intervention in otherwise "perfect" market mechanisms will become more and more extreme as the time in which the capitalist order is a progressive factor in
7276-423: The first stage. So Marx suggested the need to proceed this iterative transformation process to the end. Marx showed the transformation formula although he left others to do it. Okishio executed the iteration process to the end using mathematical tools and proved that it converges to production price equilibrium with positive profits, i.e. equal to Bortkiewicz equation. One important finding relating this work
7383-414: The first time in 1958 in Japanese economy and since then we have many measurement investigations in many countries. Measurements from 1955 to 1985 in Japanese economy show that values and prices move differently in the short run but in the long run these two magnitudes very much coincidentally move. Thus at least in the long run values can be said to be playing a gravitating role of prices. Okishio's work
7490-405: The general profit rate (the grand-average profit rate) as a whole. Apart from a few exceptional cases, Ricardo claimed, the average rate of profit could only fall if wages rose. In Capital , Karl Marx criticized Ricardo's idea. Marx argued that, instead, the tendency of the rate of profit to fall is "an expression peculiar to the capitalist mode of production of the progressive development of
7597-435: The history of economics... theoretical controversies remain intense." Japanese economist Nobuo Okishio argued in 1961, "if the newly introduced technique satisfies the cost criterion [i.e. if it reduces unit costs, given current prices] and the rate of real wage remains constant", then the rate of profit would increase . Assuming constant real wages, technical change would lower the production cost per unit, thereby raising
7704-527: The innovator's rate of profit. The price of output would fall, and this would cause the other capitalists' costs to fall also. The new (equilibrium) rate of profit would therefore have to rise. By implication, the rate of profit could, in that case, fall if real wages rose in response to higher productivity, squeezing profits. David Ricardo also claimed that a fall in the average rate of profit could ordinarily be brought about only by rising wages (one other scenario could be, that foreign competition would drive down
7811-402: The introduction of new technology. Whether the economic disturbances due to technical change will smoothly converge to new stationary state is very problematic. In other words, how can the Marxian production-price constellation be justified in real economy? Marx considered, of course, that in the long run the average positive rate of profit is realized in capitalistic market economy. Then what
7918-489: The law of profitability did not appear until the publication of [Capital] Volume Three in 1894. Grundrisse was not available to anybody until well into the 20th Century ... " and therefore was only partially understood even among leading Marxists at the beginning of the twentieth-century. His notes, 'Books of Crisis' [Notebooks B84, B88 and B91] remain unpublished and have seldom been referred to. A relatively small group including Rosa Luxemburg and Lenin attempted to defend
8025-484: The local market prices for outputs, causing falling profits). John E. Roemer criticized the absence of fixed capital in Okishio's model, and therefore modified Okishio's model, to include the effect of fixed capital. He concluded though that: "... there is no hope for producing a falling rate of profit theory in a competitive, equilibrium environment with a constant real wage... this does not mean... that there cannot exist
8132-707: The logic of Karl Marx ’s economic system, offering formal and mathematical proofs for many Marxian theorems. For example, in 1955, he gave the world's first proof of the “ Marxian fundamental theorem ”, as it was later named by Michio Morishima , which is the theory that the exploitation of surplus labor is the necessary condition for the existence of positive profit. Concerning Marx’s Falling Rate of Profit , Okishio considered that his famous theorem would not deny it. Okishio wrote many papers covering various important fields in modern and Marxian economics , for example value and price , accumulation theory , critical analysis of Keynesian economics , trade cycle theory and on
8239-639: The other hand in a progressive increase of the absolute mass of the appropriated surplus value, or profit; so that on the whole a relative decrease of variable capital and profit is accompanied by an absolute increase of both." Source: In 1929 the Communist Academy in Moscow published "The Capitalist Cycle: An Essay on the Marxist Theory of the Cycle", a 1927 report by Bolshevik theoretician Pavel Maksakovsky to
8346-571: The overproduction of capital is only relative to the social productivity of labour and the existing exploitation conditions. It represents an insufficient mass of surplus-value in relation to total capital. So that for Marx the crisis is, and can only be, resolved by expanding profitable production and accumulation, while for Keynes, it can supposedly be remedied by increasing 'effective demand' and this allows for government induced-production." Yaffe noted in 1972 that "... passages in Volume III referring to
8453-474: The phenomenon and to argue that Marx's strong statements of its 'lawlike' fundamental character under capitalism have been overcome in practice, in theory or both. As a result, there have been persistent challenges to this aspect of Marx's theoretical achievement and reputation. Keynesians argue that a "crisis" may refer to an especially sharp bust cycle of the regular boom and bust pattern of "chaotic" capitalist development, which, if no countervailing action
8560-496: The possibility of the Falling Rate of Profit taking effect. A falling rate of profit might be realized in the long run due to competitive pressures among capitalists, bargaining power of labor, or other reasons. The crux of Okishio's theorem is that, given constant technological progress in the capitalist system of change, if the rate of profit falls in the long run, real wage rate must be increasing. The real wage rate will change in
8667-404: The present and the commodity market can affect nominal prices. So in order to determine real wage rate . In classical economics the real wage rate is how real wage rate move, we have to both markets, namely the economy as a whole. Okishio investigated the movement of real wage rate in an accumulation process and considered investment demands as the most dominant determinant of real wage rate in
8774-457: The process of technical change and it is very much doubtful whether this dynamic process converges to a stationary production price situation. Nevertheless, Okishio's theorem is relevant because it denies that the FRP is established automatically from technical change by itself. Okishio critically investigated non-Marxian economists with a lot of energy, especially Keynes and Harrod . Although Keynes
8881-516: The production power in the capitalistic economy necessarily advances due to the mechanisms of competition and commercial expansion inherent to the capitalistic mode of production. This viewpoint is exactly the same with Marx's historical dialectic . If this is correct, the necessity for a capitalistic society to be switched to another economic system can be proved by demonstrating the following two. First, we have to prove how production power advances in capitalistic society. Next, we have to show what
8988-532: The rate of profit is defined by the reproduction-cost principle. This theorem was later extended to the case of joint production in Morishima (1974), and later to the case of fixed capital by Nakatani (1978) and Roemer (1979). This work stimulated much discussion about its validity and implications for Marxist theory when it was first published, and has been a hotly debated subject to this day. Okishio does not believe his famous Okishio's theorem rules out entirely
9095-424: The rate of profit must fall and the unemployment must increase. Here the crucial assumption is the introduction of increasing organic composition technologies. Then he proceeds to examine the validity of this assumption from the viewpoint of capitalistic behavior of technical choice. In the paper “Technical Change and the Rate of Profit” in 1961 he presented famous Okishio Theorem. There he showed that if we assume
9202-454: The rate of profit to fall in a capitalist system , is associated with Marxian critique of political economy , and was further popularised through Marxist economics . Earlier analysis by Jean Charles Léonard de Sismondi provided the first suggestions of the systemic roots of Crisis. "The distinctive feature of Sismondi's analysis is that it is geared to an explicit dynamic model in the modern sense of this phrase ... Sismondi's great merit
9309-415: The rate of profit, resulting not from the contradiction between production and exchange, but from the growth of the productivity of labor itself. It declined in the long run, Marx argued, paradoxically not because productivity decreased, but instead because it increased, with the aid of a bigger investment in equipment and materials. The central idea that Marx had was that overall technological progress has
9416-427: The ratio of capital to labor inputs should cause the overall rate of surplus to decline. Eugen Böhm von Bawerk and his critic Ladislaus Bortkiewicz (himself influenced by Vladimir Karpovich Dmitriev ) claimed that Marx's argument about the distribution of profits from newly produced surplus value is mathematically faulty. This gave rise to a lengthy academic controversy. Critics claimed that Marx failed to reconcile
9523-416: The revisionists, on the breakdown theory." More recently David Yaffe 1972,1978 and Tony Allen et al. 1978,1981 in using the theory to explain the conditions at the end of the post-war boom of the 1970s and 1980s re-introduced the theory to a new generation and gained new readers for Grossman's 1929 presentation of Marx's Crisis theory. Rosa Luxemburg lectured on the 'History of Theories of Economic Crises' at
9630-512: The revolutionary implications of the theory, while others, first Eduard Bernstein and then Rudolf Hilferding , argued against its continued applicability, and thereby founded one of the mainstreams of revision of the interpretation of Marx's ideas after Marx. Henry Hyndman had written a short history of the crises in the 19th Century in 1892, attempting to present, popularise and defend Marx's theory of crisis in lectures delivered in 1893 and 1894 and published in 1896. Max Beer also asserted
9737-423: The section 'Marxist theories of crisis' (p. 38 et seq) where it appears that Mandel says more about the theoretical confusion on this question at that time, even among thoughtful and influential Marxists, than offering an excursus or introduction to Marx's crisis theory. There have been attempts particularly in periods of capitalist growth and expansion, most notably in the long Post-War Boom to both explain
9844-469: The seminar on the theory of reproduction at the Institute of Red Professors of the Communist Academy. This work explains the connection between crises and regular business cycles based on the cyclical dynamic disequilibrium of the reproduction schemes in volume 2 of Capital . This work rejects the various theories elaborated by "Marxian" academics. In particular it explains that the collapse in profits following
9951-455: The short run and the natural growth rate as determining the long run real wage rate. Okishio agreed with Roy F. Harrod that the market economy was not only from a static perspective but also from a dynamic perspectives. Harrod arguments are necessarily clear, however, about investment decision making. Okishio wrote many papers to clarify the Harrod instability logic and showed that instability
10058-411: The short run, physical productivity would increase as a result, allowing the early adopting capitalists to produce greater use values (i.e., physical output). In the long run, if demand remains the same and the more productive methods are adopted across the entire economy, the amount of labour required (as a ratio to capital, i.e. the organic composition of capital ) would decrease. Now, assuming value
10165-407: The social productivity of labor". Marx never denied that profits could contingently fall for all kinds of reasons, but he thought there was also a structural reason for the TRPF, regardless of current market fluctuations. By raising productivity, labor-saving technologies can increase the average industrial rate of profit rather than lowering it, insofar as fewer workers can produce more output at
10272-408: The specific configuration of costs, sales and profit margins obtainable in fluctuating markets with given technologies. This "indeterminacy" criticism revolves around the idea that technological change could have many different and contradictory effects. It could reduce costs, or it could increase unemployment; it could be labor-saving, or it could be capital-saving. Therefore, so the argument goes, it
10379-643: The tendency and find new ways to make the working class pay for the crisis. Crisis theory is central to Marx's writings; it helps underpin Marxists' understanding of a need for systemic change. It is controversial; Roman Rosdolsky said "The assertion that Marx did not propose a 'breakdown theory' is primarily attributable to the revisionist interpretation of Marx before and after the First World War. Rosa Luxemburg , Henryk Grossman [and Samezō Kuruma ] rendered inestimable theoretical services by insisting, as against
10486-568: The tendency was intrinsic to the capitalist mode of production. In the end, none of the conceivable counteracting factors could stem the tendency toward falling profits from production. In Adam Smith 's TRPF theory, the falling tendency results from the growth of capital which is accompanied by increased competition. The growth of capital stock itself would drive down the average rate of profit. There could also be several other factors involved in profitability which Marx and others did not discuss in detail, including: The scholarly controversy about
10593-456: The theory in a review of both historical and contemporary empirical research. Guglielmo Carchedi and Michael Roberts in their edited collection World in Crisis [2018] provide a valuable review of the empirical analyses that support and defend the thesis, with contributions from authors in the UK, Greece, Spain, Argentina, Mexico, Brazil, Australia and Japan. Keynesian economics , which attempts
10700-414: The underconsumption of the masses in no way can be interpreted as an underconsumptionist theory of crisis. The citation usually given in support of an 'underconsumptionist theory of crisis' is Marx's statement that "The last cause of all real crises always remains the poverty and restricted consumption of the masses as compared to the tendency of capitalist production to develop the productive forces in such
10807-412: The unexpected consequence of the profit motive , is described by Marx as a "two-faced law with the same causes for a decrease in the rate of profits and a simultaneous increase of the mass of profits". "In short, the same development of the social productivity of labour expresses itself in the course of capitalist development on the one hand in a tendency to a progressive fall of the rate of profit, and on
10914-428: The viability condition, i.e. for the new technology to be introduced, it must be cost reducing, then new technologies never decrease the rate of profit; if it is introduced into basic sectors, the rate of profit will necessarily increase. His arguments depend on several assumptions: (1) the real wage rate is constant before and after the technical change, (2) the comparison is made about the equilibrium rate of profit, (3)
11021-425: The world. In this sense the production activities are already socialized in their effects. The decision making, however, is still grasped exclusively by small part of members in the society and it is executed based on profit maximizing principle. So he considers that in order to guarantee the existence of humankind we have to change the capitalistic economy to an alternative much more socialized economic system, which
11128-475: The young Charles Bettelheim already studied the topic, and Josef Steindl began to tackle the problem in his 1952 book, the first major empirical analysis of long-term trends in profitability inspired by Marx was a 1957 study by Joseph Gillman. This study, reviewed by Ronald L. Meek and H. D. Dickinson, was extensively criticized by Shane Mage in 1963. Mage's work provided the first sophisticated disaggregate analysis of official national accounts data performed by
11235-586: Was a Japanese Marxian economist and emeritus professor of Kobe University . In 1979, he was elected President of the Japan Association of Economics and Econometrics, which is now called Japanese Economic Association. Okishio studied mathematical economics under Kazuo Mizutani. In 1950 he graduated from Kobe University and later taught there. He soon began to doubt the premises and results of modern economics , and decided to search for alternatives by studying Marxian economics . Okishio worked to clarify
11342-419: Was only a tendency , and that there are also "counteracting factors" operating which had to be studied as well. The counteracting factors were factors that would normally raise the rate of profit. In his draft manuscript edited by Friedrich Engels , Marx cited six of them: Nevertheless, Marx thought the countervailing tendencies ultimately could not prevent the average rate of profit in industries from falling;
11449-488: Was the first Marxist to systematically explore the tendency for the organic composition of capital to rise and hence for the rate of profit to fall as a fundamental feature of Marx's explanation of economic crises in Capital .' Apparently entirely independently Samezō Kuruma was also in 1929 drawing attention to the decisive importance of Crisis theory in Marx's writings, and made the explicit connection between Crisis theory and
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