Talk:Tendency of the rate of profit to fall
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[edit] Preconditions of the law of the tendency of the rate of profit to fall
1) In a branch, firms, which, with a given amount of invested capital, can produce the most, have an advantage against competitors. Therefore firms try to out-produce each other.
2) To increase production (or production capacity) firms can enlarge their enterprise by investing their profits on the basis of the given technique. More workers, more means of production are used with the same technique.
3) To increase production (or production capacity) firms can increase investments per worker in order to increase production per worker. The technical composition of capital rises thereby.
4) In order that for a firm it is rational to use profits to increase the technical composition of capital (the capital intensity) by a certain percentage, it is necessary that thereby production per worker is increased by a larger percentage. Otherwise more production could be achieved by investing profits in capacity enlargements on the basis of the existing technique.
5) Therefore, an incentive for firms to use profits to increase the technical composition of capital by a certain percentage exists, if thereby production per worker can be increased by a larger percentage.
6) In so far as this incentive is given, firms will try to increase the technical composition of capital as much as possible. They will try to increase it, if possible, by a percentage, which is larger than the preceding rate of growth of the productivity of their workers. (They might use only their profits to finance more investments per worker, but they can also borrow money from banks or merge with other firms. Capital concentration – growth of single firms – goes hand in hand with capital centralisation – the number of firms declines in order to allow even higher growth rates for the remaining firms.)
7) If this continues to happen, if an increase in the productivity of labour in firms is followed by an even larger increase in the technical composition of capital, then it follows mathematically, that growth of employment will slow down, employment will even shrink sooner or later. According to the labour theory of value, this means that the rate of profit must decrease. (It might suffice to say, that employment must finally shrink. This is sufficient for a tendency for crisis to come about.)
8) So, the condition for a slowing down of employment growth or for a falling rate of profit is, that firms have an incentive to increase the technical composition of capital more (in %) than the productivity of their workers has increased (in %).
9) If this incentive is given, firms are caught in a rationality trap or in a prisoners’ dilemma. It is rational for individual firms to increase the technical composition of capital more than labour productivity has risen, but for the collective of firms, for the economy as a whole, this leads to crisis.
Alex1011 22:10, 27 February 2006 (UTC)
