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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Karl Marx on Rate of Profit - Dictionary of Arguments
Kurz I 164 Rate of profit/Marx/MarxVsRicardo/Sraffa/Kurz: In Sraffa's reading, Marx had detected an important error in Ricardo's line of reasoning, which emanated from his neglect of nonwage Capital in the analysis of the wage-profit relationship.26 As Marx ([1861—63] 1989, 73)(1) stressed over and over again, this neglect had serious implications, and in particular had misled Ricardo into focusing attention on the wrong causes in his explanation of a falling tendency of the rate of profits: But because for Ricardo the rate of profit and the rate of surplus value are identical terms, a permanent fall in profit or the tendency of profit to fall can only be explained as the result of the same causes that bring about a permanent fall or tendency to fall in the rate of surplus value, i.e. in that part of the day during which the worker does not work for himself but for the capitalist. What are these causes? If the length of the working day is assumed to remain constant, then the part of it during which the worker works for nothing for the capitalist can only fall, diminish, if the part during which he works for himself grows. And this is only possible (assuming that LABOUR is paid at its VALUE) if the value of the NECESSARIES - the means of subsistence on which the worker spends his wages - increases. But as a result of the development of the productive power of labour, the value of industrial commodities is constantly decreasing. The diminishing rate of profit c»an therefore only be explained by the fact that the value of FOOD, the principal component part of the means of subsistence, is constantly rising. For Ricardo, the general rate of profits falls if, and only if, proportional wages rise. >Marx, >Sraffa. MarxVsRicardo: This proposition was not correct: as Marx had pointed out, it only holds if one disregards the nonwage capital and argues as if capital advances consist only of the wages bill. However, once this very restrictive assumption is abandoned, the rate of profits can fall (or rise) even if proportional wages remain constant. Kurz I 165 Marx/Ricardo/Sraffa: In Sraffa's reading, Marx had developed his law as a critique of Ricardo's explanation of the falling rate of profits, incorporating major elements of Ricardo's in his own analysis. Thus Marx had argued that an accumulation process without technical change is bound up with a tendency of rising money wages and a falling rate of exploitation (i.e, rising proportional wages) - quite independently of rising costs of food production or the so-called law of population (see Marx [1867] 1954, 581—582).(1) Ricardo: According to Sraffa, Marx had incorporated also another element of Ricardo's doctrine in his own analysis: Ricardo's "machinery substitution argument" recurs in Marx's law of the falling rate of profits in terms of an "increasing organic composition of capital." Moreover, in Sraffa's understanding Marx had based his argument on the same "natural course" Scenario as Ricardo had: both had started with Kurz I 166 an analysis of the case of accumulation with given technical knowledge, where known but hitherto unused methods may be introduced in consequence of changes in the distributive variables and relative prices, but technical progress proper is set aside. >Rate of profit/Sraffa. 1. K. Marx. 1867. The Capital.The Process of Production of Capital. https://www.marxists.org/archive/marx/works/1867-c1/ (21.11.2024) 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 411 Rate of profit/surplus value/Marx/Rothbard: In contrast to Ricardo, (…), land and rent [for Marx] are simply assimilated into 'capital', since man's labour allegedly created all land anyway, and since the importance ofland and feudalism allegedly disappears as capitalism proceeds on its way. Values and prices of land therefore need not be treated or explained. Profit/Marx/Rothbard: Profit, for Marx, is derived only from exploiting labour; it is the surplus value over the wages necessary for the subsistence oflabour. Profits, on the other hand, have nothing to do With the amount of capital invested; Rothbard II 412 for capital is only dead matter, stored or frozen labour, and can therefore no longer be 'exploited' to provide current profits.(1) Only 'living' labour, then, can be used to provide profit for the capitalist. But if the amount of profit is extracted solely from labour, this means that any accumulation of capital will necessarily reduce the rate of profit earned by the capitalist. Thus, suppose no capital or, in Marxian terms, 'constant' capital is used(2), and investment is made solely in the form of 'variable capital' used to pay wages. >Wages/Marx. Rothbard II 413 Rate of Profit/Marx/Rothbard: [Marx‘] theory implies that, since profits are only derived from the exploitation of labour, profit rates are necessarily Iower in heavily capitalized than in labour-intensive industries. But everyone, including Marx, is forced to acknowledge that this manifestly does, not hold true on the market. The tendency on the market, as Smith and Ricardo well knew, is for rates of profit to tend toward equality in all industries. But how so, if profit rates are necessarily and systematically higher in the labour-intensive industries? Here is surely the most glaring single hole in the Marxian model. Marx acknowledged that, in the real world, profit rates clearly tend toward equality (or, as Marx termed it, an 'average rate ofprofit'), and that real prices or exchange-values in capitalist markets therefore do not exchange at their Marxian quantity-of- labour values. >Value theory/Marx. Rothbard: Marx admitted this crucial problem, and promised that he could solve the problem successfully in a later volume of Capital. He struggled with this problem for the rest of his life, and never solved it - perhaps one of the main reasons that he stopped working early on Capital and never published the later volumes. Rothbard II 414 Rothbard: Volume III was subjected to detailed, withering, thoroughgoing demolition two years later by Böhm-Bawerk in his extensive review essay, Karl Marx and the Close of His System.(3) Rothbard: Unfortunately, Böhm-Bawerk's point was too technical to have much impact outside the ranks of economists, and, since then, Marxism has held its greatest attraction in the ranks of sociologists, historians, the literati, and others who tend to be economically ignorant. Böhm-BawerkVsMarx: Marx claimed that goods exchanged on the market in proportion to the quantities oflabour embodied in them (i.e., that their values are determined by the quantity oflabour-hours needed to produce them), andyet also conceded that the rates of profit on all goods tended to be equal. And yet, if the first clause is true, the rates of profit would be systematically Iower in proportion to the intensity of capital investment, and higher in proportion to their labour-intensiveness of production. Marx promised to resolve this insoluble contradiction in Volume III and to reconcile these two fundamentally contradictory propositions. Solution/Marx/Böhm-Bawerk: In Karl Marx and the Close of His System(3), Böhm-Bawerk demonstrated that Marx's proffered 'solution' was a sham, and that actually what Marx did was to throw in the towel and admit that, on the capitalist market, profit rates were equal and therefore that prices were not proportional to or determined by the quantity of labour hours in the production of goods. Instead, Marx in effect embraced standard Ricardian theory and admitted that prices were actually determined by the costs (or, in his terminology, 'prices') of production plus the average rate of profit. In this way, while pretending to have saved his theory by talking grandly about competition transforming 'values into prices ofproduction', Marx had actually abandoned the labour theory of value altogether and had therefore scuttled his entire system. >Rate of Profit/Smith, >Rate of Profit/Ricardo, >Commodity/Marx, >Wages/Marx. Rothbard II 428 RothbardVsMarx: Finally, there is a glaring inner contradiction at the heart of Marxian economics that is never resolved. If the capitalists suffer over time from a falling rate of profit, and workers suffer from increasing impoverishment, Who is benefiting in the distribution of the economic pie? At least in the Ricardian system, the capitalists suffer from a falling rate of profit, and the workers are kept at brute subsistence level, but some group keeps grabbing all the social benefits - the parasitic landlords and their increasing absorption of the social product by land rent. But in the Marxian system, the landlords have disappeared, increasingly and rapidly assimilated into the capitalist class. So how can both mighty classes lose out under developing capitalism?(4) >Capitalism/Marx, >History/Marx. 1. As Böhm-Bawerk was later to point out, even if we choose to adopt this cost-of-production approach, we have to recognize that capital embodies not just labour, and land, but also time. Land, as we shall see further, was tossed out by Marx by amalgamating it into capital; but if time had been acknowledged as an important factor, then time-preference would have to be acknowledged, and the entire Marxian system would have collapsed. 2. 'Constant' because, according to Marx, capital goods, being deadweight, cannot generate any profit, or increased value. 3. First published as Zum Abschluss des Marxschen Systems in a Festschrift for Karl Knies in 1896, and published as a separate booklet the same year It was a rapid success, being translated the following year into Russian, and the English translation coming out in 1898. Unfortunately, 'close' is a peculiar and misleading term; a far more accurate title would have been Karl Marx and the Completion of His System. 4. See Gottfried Haberler, 'Marxist Economics in Retrospect and Prospect', in M. Drachkovitch (ed.), Marxist Ideology in the Contemporary World - Its Appeals and Paradoxes (Hoover Institution, New York: Praeger, 19 66), pp. 118, 183._____________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. |
Marx I Karl Marx Das Kapital, Kritik der politische Ökonomie Berlin 1957 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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> Counter arguments against Marx
> Counter arguments in relation to Rate of Profit
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