Economics Dictionary of ArgumentsHome
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| Rate of profit: The rate of profit in economics measures the return on investment, calculated as profit relative to the total capital employed. It indicates the efficiency of capital use, influenced by factors like production costs, pricing, and market demand. Higher profit rates suggest better economic performance and investment opportunities._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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David Ricardo on Rate of Profit - Dictionary of Arguments
Kurz I 163 Rate of profit/Ricardo/Marx/Kurz: According to Sraffa, Marx had developed his law strictly against the background of Ricardo's explanation of a falling tendency of the general rate of profits. (…) Ricardo (1951-73, 1:49), in ascertaining the level of the general rate of profits and its development over time in changing technical conditions, had taken as given "the proportion of the annual labour of the country devoted to the support of the labourers" Ricardo's concept was subsequently adopted by Marx in terms of a given rate of surplus value. >Surplus value. In his observations on the wage-profit relationship, Ricardo typically assumed that the social capital consists only of wages (or can be fully reduced to wages in a finite number of steps), so that the rate of profits, r, is given by the ratio of profits, P, to wages, W, r=P/W = 1-w/w Kurz I 164 where w designates proportional wages (i.e., the wage share). Starting from this relationship, Ricardo had then argued that as Capital accumulates, proportional wages tend to rise, and the rate of profits tends to fall, because of increasing costs of production due to diminishing returns in agriculture. The rising money prices of agricultural commodities, in particular food, necessitate increases in money wages in order to keep "real," that is, commodity, wages constant. To this Ricardo added the following argument. With the rise in nominal wages and the associated fall in the rate of profits it becomes profitable to introduce known but hitherto unused methods of production ("machinery"). In Ricardo 's words, "Machinery and labour are in constant competition and the former can frequently not be employed until labour {i.e, the money wage} rises" (1:395)(1). The introduction of machinery in turn can temporarily check the rise in money wages and the associated fall in the rate of profits However, with further capital accumulation and a growing population, money wages, and hence also proportional wages, will sooner or later have to start rising again. 1. Ricardo, D. 1951-73. The Works and Correspondence of David Ricardo. I I vols. Edited by Piero Sraffa, with the collaboration of M. H. Dobb Cambridge: Cambridge University Press. Kurz, Heinz; Salvadori, Neri 2015. Revisiting Classical Economics: Studies in Long-Period Analysis (Routledge Studies in the History of Economics). London, UK: Routledge. - - - Rothbard II 88 Rate of profit/Adam Smith/Ricardo/Schumpeter/Rothbard: Adam Smith believed that the rate of profit, or the long-run rate of interest return, is determined by the quantity of accumulated capital, so that more capital will lead to a falling rate of profit. While this theory is not fully correct, it at least understands that there is some connection between saving, capital accumulation, and long-run interest or profit. But to Ricardo there is no connection whatever. Interest on capital is only a residual. By a series of fallacies, and holistic, locked-in assumptions, trivial conclusions are at last ground out, all with a portentous air, allegedly telling us conclusive insights about the real world. SchumpeterVsRicardo: As Schumpeter scornfully puts it: propositions such as ‘profits depend upon wages’, and the falling rate of profit, are excellent examples of ‘that Art of Triviality that, ultimately connected with the Ricardian Vice, leads the victim, step by step, into a situation where he has got either to surrender or to allow himself to be laughed at for denying what, by the time that situation is reached, is really a triviality’.(1) >Profit/Ricardo, >Economy/Ricardo, >Value theory/Ricardo. Rothbard II 418 Rate of Profit/Smith/Ricardo/Rothbard: One crucial aspect of the inevitable doom of capitalism [for Marx] is the inescapable law of the falling rate of profit. The extant uniform equilibrium rate, according to Marx, was doomed to keep falling. Rothbard: Both Smith and Ricardo had theories of a falling rate of profit, each fallacious, and each arrived at in completely different ways. Smith: To Smith, the rate of profit (or interest) is determined by the stock of capital; the greater the amount of capital accumulated, the Iower the profit rate. RicardoVsSmith: Ricardo, in contrast, was worried about the increasing squeeze of the economy by the landlords as inexorable population growth puts ever more inferior lands under cultivation. Labour hours required for production are raised, thereby raising both money wages and rents, hence eating increasingly into profits. Rothbard: But, one may well ask, if the accumulation of capital necessarily slashes profits, why do capitalists, who are clearly motivated by a search for higher rather than Iower profits, insist on continuing to accumulate? Why do they persist in cutting their own throats? >Rate of Profit/Marx, >Value theory/Marx, >Competition/Marx. 1. J.A. Schumpeter, History of Economic Analysis (New York: Oxford University Press, 1954), note 3, p. 653n._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
EconRic I David Ricardo On the principles of political economy and taxation Indianapolis 2004 Kurz I Heinz D. Kurz Neri Salvadori Revisiting Classical Economics: Studies in Long-Period Analysis (Routledge Studies in the History of Economics). Routledge. London 2015 Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977 |
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