Tendency of the rate of profit to fall
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 Das Kapital, Volume 3. The existence of such a tendency was generally accepted in the 19th century. Economists as diverse as Adam Smith, John Stuart Mill, Henry George and Stanley Jevons noticed a long-run empirical trend for the internal rate of return on capital invested in industrial production to decline. In his 1857 Grundrisse manuscript, Marx called the tendency of the rate of profit to fall "the most important law of political economy" and sought to give a causal explanation for it, in terms of his theory of capital accumulation. Although the tendency is already foreshadowed in chapter 25 of Capital, Volume I (on the "general law of capital accumulation"), in Part 3 of the draft manuscript of Marx's Capital, Volume III, edited for publication by Friedrich Engels, an extensive analysis is provided of the tendency.
There exists a very large academic literature on the TRPF nowadays, but there is no overview work available which considers all the different arguments that have been put forward by scholars. In official economics, there does exist a law of diminishing returns, but the idea that there could exist a systemic (endogenous) tendency in capitalist industries toward a fall in average profitability is rejected. Rather, it is believed that a free market economy will tend toward an equilibrium profit rate, consistent with the best match of supply and demand.
- 1 Adam Smith's 1776 comment on the rate of profit
- 2 Quote from Marx on the tendency of the rate of profit to fall
- 3 Marx's argument
- 4 Standard criticisms of Marx's argument
- 5 20th century Marxist controversies
- 6 21st century controversies
- 7 Profitability in mainstream economics
- 8 See also
- 9 References
- 10 External links
Adam Smith's 1776 comment on the rate of profit
"Profit is so very fluctuating that the person who carries on a particular trade cannot always tell you himself what is the average of his annual profit. It is affected not only by every variation of price in the commodities which he deals in, but by the good or bad fortune both of his rivals and of his customers, and by a thousand other accidents to which goods when carried either by sea or by land, or even when stored in a warehouse, are liable. It varies, therefore, not only from year to year, but from day to day, and almost from hour to hour. To ascertain what is the average profit of all the different trades carried on in a great kingdom must be much more difficult; and to judge of what it may have been formerly, or in remote periods of time, with any degree of precision, must be altogether impossible.
But though it may be impossible to determine, with any degree of precision, what are or were the average profits of stock, either in the present or in ancient times, some notion may be formed of them from the interest of money. It may be laid down as a maxim, that wherever a great deal can be made by the use of money, a great deal will commonly be given for the use of it; and that wherever little can be made by it, less will commonly be given for it. According, therefore, as the usual market rate of interest varies in any country, we may be assured that the ordinary profits of stock must vary with it, must sink as it sinks, and rise as it rises. The progress of interest, therefore, may lead us to form some notion of the progress of profit."
Quote from Marx on the tendency of the rate of profit to fall
"The progressive tendency of the general rate of profit to fall is, therefore, just an expression peculiar to the capitalist mode of production of the progressive development of the social productivity of labour. This does not mean to say that the rate of profit may not fall temporarily for other reasons. But proceeding from the nature of the capitalist mode of production, it is thereby proved a logical necessity that in its development the general average rate of surplus-value must express itself in a falling general rate of profit. Since the mass of the employed living labour is continually on the decline as compared to the mass of materialised labour set in motion by it, i.e., to the productively consumed means of production, it follows that the portion of living labour, unpaid and congealed in surplus-value, must also be continually on the decrease compared to the amount of value represented by the invested total capital. Since the ratio of the mass of surplus-value to the value of the invested total capital forms the rate of profit, this rate must constantly fall." (Karl Marx, Capital, vol. 3, chapter 13) 
Simply put, Marx argued that technological innovation enabled more efficient means of production. Physical productivity would increase as a result, i.e. a greater output (of use values) would be produced, per unit of capital invested. Simultaneously, however, technological innovations replaced people with machinery, and the organic composition of capital increased. Assuming only labor can produce new additional value, this greater physical output would embody a smaller value and surplus value, compared to the value of production capital invested. The average rate of industrial profit would therefore tend to decline in the longer term. It declined in the long run, Marx argued, paradoxically not because productivity reduced, but instead because it increased, with the aid of a bigger investment in equipment. The central idea that Marx had, was that overall technological progress has a longterm "labour-saving bias", and that the overall longterm effect of saving labour-time in producing commodities had to be a falling rate of profit on production capital, quite regardless of market fluctuations or financial constructions.
So Marx regarded this as a general tendency in the development of the capitalist mode of production. But it was only a tendency, because there are also "counteracting factors" operating which had to be studied also. In his draft manuscript edited by Friedrich Engels (Marx did not publish it himself), Marx cited six of them:
- more intense exploitation of labour (raising the rate of exploitation);
- reduction of wages below the value of labour power (commonly referred to as the "immiseration thesis");
- cheapening the elements of constant capital by various means;
- the growth of a relative surplus population (the reserve army of labour) which remained unemployed;
- foreign trade reducing the cost of industrial inputs and consumer goods; and
- the increase in the use of share capital by joint-stock companies, which devolves part of the costs of using capital in production on others.
Nevertheless Marx thought the countervailing tendencies ultimately could not prevent the average rate of profit in industries from falling.
There could obviously also be several other factors involved in profitability which Marx did not discuss in detail, including:
- reductions in the turnover time of industrial capital generally (and especially fixed capital investment);
- accelerated depreciation and faster throughput;
- the level of price inflation for different types of goods and services;
- capital investment into previously non-capitalist production, where a lower organic composition of capital prevailed;
- military wars or military spending causing capital assets to be inoperative or destroyed, or spurring war production (see permanent arms economy);
- demographic factors
- advances in technology and technological revolutions which rapidly reduce input costs.
- substituted natural resource inputs, or marginal increased cost of non-substituted natural resource inputs.
- consolidation of mature industries into an oligarchy of survivors. Mature industries do not attract new capital because of low returns. Also, mature companies with large amounts of capital invested and brand recognition create barriers to entry against new competitors. See also secular stagnation theory.
Some of these "countervailing factors" can only temporarily postpone the fall of the rate of profit. Wages, for instance, cannot fall below zero, the turnover period of capital also cannot fall below zero, and so on.
The scholarly controversy about the TRPF among Marxists and non-Marxists has continued for a hundred years. Important issues concern the scientific evidence for such an economic law, whether the reduction of constant capital costs could indefinitely counteract the TRPF, and what effect increased productivity has on the rate of profit on production capital. For socialists, the TRPF has also been an important political idea, because it seemed to prove that capitalism is inevitably crisis-prone and ultimately doomed.
Standard criticisms of Marx's argument
Marx’s interpretation of the TRPF has been the source of intense controversy, and has been criticized in three main ways:
- By raising productivity, labour-saving technologies can increase the average industrial rate of profit rather than lowering it.
- How exactly the average industrial rate of profit will evolve, is uncertain and unpredictable; there is no historical pattern.
- The labor theory of value is simply wrong, which obviates the bulk of the critique. Marginal utility theory predicts that a relatively high rate of profit attracts further investment, but each additional unit of production will generally tend to be of less utility (and therefore less value) to the market, causing the overall rate of profit to fall absent any technological innovation increasing productivity. The commodity in question will lose its appeal to investors, who will then invest in other, newer lines of production offering higher returns.
The Japanese economist Nobuo Okishio (see Okishio's theorem) famously argued, "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 must increase. Assuming constant real wages, technical change would lower the production cost per unit, thereby raising 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, only if real wages rose in response to higher productivity, squeezing profits. (This theory is sometimes called neo-Ricardian, because David Ricardo also claimed that a fall in the rate of profit can only be brought about by rising wages.)
Intuitively, Okishio's argument makes sense. After all, why would capitalists invest in more efficient production on a larger scale, unless they thought their profits would increase? Orthodox Marxists have typically responded to this argument in four kinds of ways (there are, of course, numerous other arguments, involving more or less complex mathematical models):
- Capitalists operating in a competitive environment may not have any choice about investing in new technologies, to keep or expand their market share, even if doing so raises the pressure for all of them to spend an ever larger share of their income on newest technology.
- It may be that in the heyday of a technological breakthrough, profits do indeed initially increase, but as the new technologies are widely applied by all enterprises, the overall end result is that average rate of return on capital falls for all of them. (This is exactly what Okishio's equilibrium model seeks to refute.)
- A slight reduction in annual profit rates on capital invested due to more expensive productive equipment may not seem such a problem to business anyhow, if it is compensated by an increase in profit volume (profit margins) through increased sales and market shares. The yield on capital might decline somewhat in percentage terms, while total net income from capital employed increases.
- Okishio's theorem is based on a misunderstanding of the TRPF, and of basic aspects of Marxian economics - the rate of profit is confused with surplus value, and wages as an expense for the capitalist with wages as a non-exploited component of value-added in production. Marx himself acknowledged that productivity increases even as the rate of profit decreases, and that these two tendencies necessarily go hand in hand. However, the decrease in production cost per unit brought about by investment in constant capital translates not to an increase in the rate of profit, but rather to an increase in surplus value: it increases the surplus labor time relative to variable capital. But meanwhile, the constant capital has expanded relative to variable capital (as a result of the capitalist's investment in productivity), meaning that surplus value, even though it has expanded relative to variable capital, shrinks relative to total capital. Since the rate of profit is defined as ( being surplus value and being total capital, i.e., constant capital plus variable capital), the rate of profit therefore tends to fall.
Responses 1 and 2 can be interpreted as a prisoner's dilemma in which the capitalists are caught. Prof. Okishio argued in terms of a comparative static analysis. His starting point is an equilibrium growth path of an economy with a given technique. In a given branch of industry, a technical improvement is introduced (in a way similar to what Marx described) and then the new equilibrium growth path is established under the assumption that the new better technique is generally adopted by the capitalists of that branch. The result is that even under Marx's assumptions about technical progress, the new equilibrium growth path goes along with a higher rate of profit. However, if one drops the assumption that a capitalist economy moves from one equilibrium to another, Okishio's results no longer hold.
The "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 labour saving, or it could be capital saving. Therefore, so the argument goes, it is impossible to infer definitely 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 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 follows from them.
20th century Marxist controversies
The 20th century Marxist controversies about the TRPF focused on five issues: the theoretical consistency of the TPRF argument; the data about empirical profitability trends in the long term; the relevance of the TPRF for understanding and explaining capitalist economic crises; the political significance of the TRPF for the policy of workers' parties; and the role of profitability tendencies in the final collapse of capitalism.
A century ago, economists such as Eugen von Böhm-Bawerk and Ladislaus Bortkiewicz claimed that Marx's argument about the distribution of profits from newly produced surplus value is mathematically faulty. This gave rise to a controversy about the meaning of Marx's prices of production, which is often called the transformation problem. Marx himself stated in chapter 9 of Capital, Volume III that he had previously assumed that, to the purchasing capitalist, the value of a commodity was equal to its cost-price. In reality, he argued, this cost-price is itself a production price (a cost-price + a surplus value) of the supplying capitalist producer: the output selling price of one capitalist is the input purchasing price of another capitalist. However, for Marx this did not alter the fact that the acquisition cost of inputs (a sum of money-capital) was a given, unchangeable datum for the purchasing capitalist, and that price-value discrepancies in this context were irrelevant to the analysis. The problem that nevertheless remained, was how the input and output results of interacting sectors of industry could be modeled in aggregate, so that total product-values and total product-prices would match up and price-value divergences would all cancel out. It proved mathematically difficult to reconcile the principle that production capitals of the same size attract the same (or similar) profit rates, with the reality that enterprises each have a different organic composition of capital, and therefore used more or less labour to produce the same amount of output - assuming total (production) prices equal total product-values. In his theory of the equalization of profit rates, Marx argued that, effectively, the price system redistributes new product-value, penalizing enterprises which produce output with above-average labour costs, and rewarding enterprises which produce with below-average labour costs. Through competition, Marx argues, a normal price-level is established for products, as well as a ruling rate of profit on production capital, as a given condition, but enterprises vary in their labour-productivity, and therefore they are unequally rewarded for the new value they produce. However, this process has never been convincingly modeled mathematically, and that casts some doubt also on the validity of the doctrine of the falling rate of profit. Bortciewicz's interpretation remained very influential through the 20th century.
Since the 1920s and 1930s, 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 at a sufficient rate. This results in a crisis of over-accumulation (or a shortage of surplus-value), and consequently a drop in new productive investment, causing an increase in unemployment. This, in turn, leads to a wave of takeovers and mergers to restore profitable production, plus a higher intensity of labour exploitation.
Other Marxists or economists inspired by Marx (including Karl Kautsky, Mikhail Tugan-Baranovsky, Nikolai Bukharin, Rudolf Hilferding, Otto Bauer, Rosa Luxemburg, Fritz Sternberg, Natalia Moszkowska, Paul Sweezy, Kozo Uno and Makoto Itoh) provided alternative crisis theories, focusing variously on the chaos of capitalist production, sectoral disproportions, under-consumption, labor-shortage and population pressures, credit insufficiency, and wages squeezing profits. Implicitly or explicitly, it is argued by these economists that economic crises, although they are a fairly regular occurrence in the last two centuries of capitalist development, do not all have exactly the same causes. There are all sorts of things that can go wrong with capitalism, throwing the markets out of kilter.
Some theories still attribute crises to one single factor (principally, the TRPF), while others argue for a multi-causal approach in which a distinction is drawn between the "triggers" of the crisis, its deeper underlying causes, and the concrete manifestation of crises.
Although Eugen Varga and the young Charles Bettelheim already studied the topic, the first major empirical analysis of long-term trends in profitability inspired by Marx was a 1957 study by Joseph Gillman. This study was extensively criticized by Shane Mage in 1963.
Starting off with the pioneering work by Ernest Mandel in 1964, various attempts have been made to link the long waves of capitalist development to long-term fluctuations in average profitability. Mandel's influential Late Capitalism (1975) was a critical response to Henryk Grossman's theory. Like Henryk Grossman, Mandel was convinced of the centrality of profitability in the trajectory of capitalist development, but Mandel did not believe that Marx's reproduction models could be used to create a theory of capitalist crises. Mandel's analysis was strongly criticized by Robert Rowthorn, who claimed "It is never clear, for example, whether Mandel considers capitalism has an inherent tendency towards overproduction which periodically expresses itself in a falling rate of profit, or whether overproduction itself is caused by a falling rate of profit."
Inspired by Josef Steindl and Baran's earlier work, Paul Baran and Paul Sweezy postulated in their 1966 work Monopoly Capital that there existed a "law of increasing surplus" which counteracted the TRPF. The official orthodox Marxist-Leninist theory of state monopoly capitalism similarly suggested that in the epoch of the "general crisis of capitalism", the state and its public funds acted as guarantor and promotor of stable monopoly profits by corporations, counteracting the TRPF.
In the 1970s, there were two main debates about profitability among the Western New Left. The empirical debate concerned the causes of the break-up of the long postwar boom. Orthodox Marxists like David Yaffe, for example, argued that the cause was the TRPF, while other Marxists (and non-Marxists) argued for a "profit-squeeze" theory. Yaffe became quite famous. In a 1980s satire about the British far Left, John Sullivan stated that Yaffe had done "sterling work on the velocity of the falling rate of profit, and has almost got it down to the nearest foot per second."
The theoretical New Left debate in the 1970s was a clash between orthodox Marxists and neo-Ricardian socialists inspired by Piero Sraffa. The neo-Ricardian socialists believed that Sraffa's models had made Marx's value theory redundant, and that the TRPF theory was mathematically incoherent.
In the 1990s, a leader of the International Socialists, Chris Harman, advanced a reading of Marx that sees economic crisis as the main effective countervailing factor, but which places limits on its effectiveness as the capitalist system ages and units of capital become larger and more interlinked. 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.
An important econometric work, Measuring the Wealth of Nations, was published by Anwar Shaikh and Ahmet Tonak in 1994. This work sought to reaggregate the components of official gross output measures rigorously, to approximate Marxian categories, using some new techniques, in including input-output measures of direct and indirect labour, and capacity utilization adjustments. Shaikh argued that the falling rate of profit is not a short-term trend of the business cycle, but a long-term historical trend.
The celebrated New Left historian Robert Brenner has also attempted to provide an explanation of the post-war boom and its aftermath in terms of profitability trends. Brenner's interpretation was heavily criticized by Anwar Shaikh, who argued that it is not really credible from an econometric or theoretical point of view.
Reviving and developing ideas first mooted in the 1980s, proponents of the Temporal single-system interpretation (TSSI) such as Andrew Kliman have argued in the 2000s that the evidence presented by von Böhm-Bawerk, Bortkiewicz, and Okishio do not refute Marx's argument. Kliman argues in Reclaiming Marx's Capital (2007) that the apparent inconsistency of Marx's case arises out of a misreading of Marx through the prism of general equilibrium theory. Once the operations of capital are interpreted as "temporal and sequential" (as opposed to a "simultaneist" reading) and "single-system" (where values and prices always co-exist and are co-dependent), it is argued that the transformation problem disappears, and that the TRPF can no longer be dismissed on logical grounds.
In his recent book Capitalism versus Planet Earth, Fawzi Ibrahim argues that, while profits can be maintained and in fact grow as rates of profit fall provided capital investment increases, by the same (or a larger) proportion than the fall in the rate of profit, eventually - as capital accumulation reaches the high levels witnessed in advanced economies of the west - a ‘tipping point’ is reached, where the additional capital investment necessary to offset a fall in the rate of profit becomes prohibitingly large, profits begin to tumble, and capital enters a ‘critical zone’ ushering in an economic crisis qualitatively different from those of the past.
There is some recent research which tries to assess the impact of the Internet on profitability.
21st century controversies
Globalisation and financialization have changed the way capitalism operates in the 21st century, and that has raised new points for debate about the rate of profit which had been overlooked, or regarded as less significant, in the 20th century.
One issue concerns the relationship between the real economy (producing goods and services) and the financial economy (trading assets). Some argue, like Marx did, that the tendency of the rate of profit to fall applies only to the sphere of the capitalist industrial production of commodities, not to the whole capitalist economy. Thus, it is argued, it is eminently possible that while industrial profitability stagnates, average profitability in activities external to the sphere of industrial production (for example, commercial trading, capital gains from property transactions, and speculation in financial assets) increases. That would not only mean that the proportions of net interest, net rents, royalties and fees in the total volume of surplus value would increase, but also that there exists an increasing amount of profit income not included in value-added.
The accounting category of "gross output" suggests the production of things but, in reality, the major part of it nowadays refers to the value of "services" which often maintain, distribute or increase holdings of already existing assets, local or imported. This is especially true of developed capitalist economies. The services must be produced; in that sense they represent production, but they mostly do not directly create a tangible product that is itself the object of sale. In national accounts, the concept of a "service" is rather vague, and it is often assumed that if a business activity of some sort is paid for, then it must have provided a service, even if opinions differ about what kind of service it is. Banks are a good example: if banks receive income from lending operations, this is often treated as an instance of payments for the production of a service, a service charge. Gross output is not the same as total gross revenue, or total gross expenditure in the economy, because the value of total gross output concerns only the value of incomes and expenditures thought to be generated by production (factor incomes and factor expenditures).
Investment in production is, according to Marx, one mode of capital accumulation, but not the only one. Accumulating capital could be as simple as buying currency and subsequently selling it at a higher exchange rate (which happens on a grand scale nowadays). Thus, even if the growth rate of industrial production slows or stagnates, asset and property sales may boom. Within certain limits, the income generated by an asset boom may indeed stimulate additional demand in particular sectors, until the boom collapses.
In advanced capitalist societies such as the United States, the stock of constant capital applied in private sector productive activities represents only about 20–30% of the value of the total physical capital stock, and perhaps 10–12% of total capital assets owned, and therefore it is unlikely that a fall in the industrial rate of profit could by itself explain economic crises. Marxists ignored this, because they tacitly assumed in their economic models that the economy consisted just of factories, or that factories were the only thing that mattered in the economy, or that anything that was not a factory was "fictitious capital". They assumed that Marx's analysis of the capitalist mode of production was a complete analysis of the whole economy, which is not true.
In Capital, Volume I, Marx analyzed the direct production process of capital: the activities which create new commodities sold for profit. But when he analyzes the circulation and reproduction of capital in the second volume, he begins to develop the category of total capital or total social capital. In the third volume, the concept of the total capital of society is developed further, as it becomes apparent that there exist all kinds of capital funds and assets in society which are not directly related to production. Marx never completed his story with an analysis of the credit system as a whole, the housing market, international trade and public finance; his work was very much unfinished. Yet in a mature, developed capitalist society, such as it exists a century and a half after Marx's studies, it is typical that more capital assets exist outside private capitalist production than are invested inside it (excluding "human capital", a concept which Marx rejected.) That is the result of centuries of accumulation and concentration of capital, which have mechanized production, reshaped the environment and created a massive stockpile of wealth in private or public hands.
Profit statistics versus true business profit
Now that more is known about empirical measures of profitability, the debate focuses more on the underlying concepts. If the growth of the gross profit component of value-added (P) is statistically compared with the growth of the estimated fixed capital stock plus inventory holdings (C), it is certainly true that almost all measures will show that the ratio P/C does drop over time. The real value of the physical capital stock appears to grow faster in real terms than the real value of the operating surplus associated with that physical stock, in the long run. The same effect persists even when various different depreciation techniques are used. That makes Marxists very enthusiastic, because it seems to prove them right. Yet,
- It is a simple accounting error to think, that the gross profit share of value-added is equal to true business profit. Paul Baran and Paul Sweezy already pointed out in 1966 that "As a matter of fact, statistically recorded profits are far from comprising the entire economic surplus." A business can make profits from transactions which have nothing directly to do with value-adding production, for example by buying and selling already existing assets, share repurchase or through various forms of capital gains. Just because these profits may appear only in the accounts of subsidiaries or affiliated companies of the corporation, or emerge offshore, should not obscure this reality. Considerable interest, rent and property income is excluded from the official measurement of value-added, on the ground that it is not directly related to production.
- It is an accounting error to think that constant capital invested in physical assets (fixed equipment and inventories) is the only capital that an enterprise has, other than a fund to pay wages. That can be verified from any corporate balance sheet.
- If an enterprise borrows or leases capital for production rather than investing its own, this affects the cost of capital that is tied up at any particular time. How the profitability of capital is accounted for, depends very much on who owns the capital, as distinct from who borrows it, or who uses it. For example, the German railways system may not be profitable, if it is state-owned. But the same railways system can be carved up into a large number of separate private business units which are profitable, as long as the state continues to maintain some basic infrastructure. In the real world, profitability all depends on who pays what to whom, and who gets the income. If, after privatisation, business becomes less profitable, an industry can be nationalized again, at no extra cost to business. In New Zealand, for example, the state railways were corporatized in 1982 and fully privatized in 1993, but nationalized again in 2002-2004 and then reorganized, with some corporate participation. It cost the taxpayers a lot of money.
So the rate of profit concept which Marx uses in his theoretical analysis of capitalist production (i.e. S/(C+V)) differs from the actual business concept of the rate of profit, because it disregards all sorts of financial and ownership issues.
While Marxists are convinced that the statistical data show that profitability is falling, businessmen can often happily see their profits grow anyway, and have more real money in the bank. In theory they should have less money, but in practice they have more. That is because financial relationships between quantities of money (defined using a currency unit) can vary from the value proportions that exist between products or physical assets (defined in terms of average costs in labour-time). If there is a significant drop in overall profitability, this will very likely also be reflected in data about the profit included in value-added, but that is only a rough indicator of the trend (the data quality may not be very great).
Official statistics include in value-added only the net value of new production; if a business makes money simply from selling an asset it has, or from asset appreciation, this is not normally considered "value-added", but property income. If that wasn't the case, then any kind of business income (or just about any kind of income) would represent value-added. It doesn't.
The original designers of gross product accounts (such as Simon Kuznets and Richard Stone) aimed precisely to exclude any capital gains (or other income from asset transactions and revaluations) from their measure of gross output, just like transfer payments. They wanted a reliable standard measure that would indicate changes in the value of the net new addition to wealth per year or per quarter: roughly, the total sales less costs, or, the value of total outputs produced less the value of goods and services used up to produce them, or the sum of factor incomes directly generated by production. The issue then is, how exactly the grossing and netting must be done to obtain the value of total output, and it is done in a different way than business itself would do it (to eliminate non-production income/expenditure, and remove double counting; from the point of view of national accounts, in fact real credits can become theoretical debits, and real debits can become theoretical credits).
For example, to obtain the true value-added represented by a change in the physical amount of inventories held by enterprises, statisticians adjust the value of inventory for price changes to obtain an average value. Arguably, this procedure yields a more realistic valuation of the real change in the value of inventory holdings, usually positive but sometimes negative. Yet, if the market price of inventories increased after they were bought or created, or before they were sold, the inventories are often valued higher in the business account, and the business itself will show a bigger profit as a result. Indeed, revaluing inventory is an often-used technique in creative accounting to help produce the profit figure that is most desirable for the enterprise.
Normally, true gross profit is larger than the profit component of value-added shown in official statistics, because true profit typically contains net property income plus part of the depreciation write-off. This creates the logical possibility that although the profit rate does indeed fall, if aggregate profit is measured only as the profit component of value-added, it does not fall, or not as much, in real terms, simply because:
- business increasingly makes profit from trading in already existing assets which are not used by them to produce any new products and services with.
- Various interest payments, rents and capital gains have been excluded on the ground that they are not production expenditure.
- Remuneration packages for corporate officers, including stock-options and profit-sharing, have been included under "compensation of employees" as a labor cost, rather than being included in gross profit.
- income from ordinary land sales, for example, is not included in official value-added, since it does not result in additional land (See also differential and absolute ground rent and land grabbing).
- all sorts of differences in valuation practices ( historic cost, current replacement value, current sale value etc.) affecting fair value and GAAP-based accounting (among many other issues, if the profitability of a capital asset falls, the market value of the capital asset itself will fall as well, in response - irrespective of whether it is a physical asset or a financial asset, and irrespective of its acquisition cost; this reduces the fall of the profit rate). See further real prices and ideal prices.
- tax-dodging techniques of various kinds (legal constructions, creative accounting techniques, offshoring, tax havens etc.).
- the use of credit instruments, capital insurance and various ownership constructions which split out the ownership, control, financing, management and use of capital, permitting costs, sales and profits to be arranged in ways more favourable to the enterprise or corporate group.
- government tax incentives for depreciation write-offs, guaranteed minimum prices, economic subsidies etc.
- statistical inclusions and exclusions, and survey accuracy problems.
Marxists have rarely analyzed the differences between true business profit and statistical profit figures; they took the concept of value-added for granted, and did not inquire further into it. When statisticians survey the value-added of enterprises, they typically do not derive it themselves, by starting out from data about the components of total gross income of enterprises within the production grid, but instead they ask businesses directly to state what, according to their accounts, their value-added and intermediate expenditure is. Thus, already at the base level of survey questionnaires, there are possible discrepancies between the actual and surveyed business income/expenditure.
In short, the empirical arguments about profitability among Marxists have to deal with five ideas:
- the true (but perhaps unknown or unstated) profitability of enterprises in terms of their true net gains, regardless of how they are reported.
- the stated business rate of profit, about which information can vary between internal reports, published company reports, survey reports and tax reports.
- Marx's theoretical rate of profit in industries, which measures the relationships between the value of surplus labour and the value of the material components of production capital.
- the statistical rate of profit, based on the estimated magnitude of accounting categories that are defined according to a theory of social accounting (what matters here most of all, is whether an economic activity or transaction which generates income can be statistically counted as "production" or not).
- the statistical rate of profit as modified by Marxists, through various re-aggregations, recalculations and adjustments.
These five ideas turn out to be discrete variables. The problem is not just that "Among economic researchers there is a world wide illiteracy in national accounting" but also that, because the structure of modern capitalism is different from half a century ago, a macroeconomics based on traditional national accounting concepts can no longer credibly represent economic activity. The 2008 revision of the UNSNA standard national accounts tries to realign the system more with the modern realities of capital finance, but in the process, the original intention of the accounts to measure "physical" changes in wealth is, in some respects, superseded. The contemporary concept of "wealth creation" is substantially different from the concept that was entertained in the mid-20th century, among other things because who exactly and legally owns the wealth, often becomes a secondary issue. An asset may be held which generates income, but it could be a borrowed asset via-via, or an asset the value of which can be difficult to define. This can create new problems for statisticians seeking to estimate additions to wealth.
Orthodox Marxists such as Andrew Kliman have decried a "physicalist" interpretation of value along Sraffian lines, but their own interpretation of profit is (arguably) "physicalist", because, basing themselves on value-added statistics, they tacitly permit only the existence of profits that appear out of a physical increase in the stock of new goods and services newly produced. Income from asset transactions is largely disregarded. The important point here is, that profits can be made from producing more value than there was before, but also from transferring already existing value from owner A to owner B. In addition, it is ignored that the physical cost of producing a product is nowadays typically only a small part of its final sale value, and that the largest part of the revenue from the product consists of various distribution and marketing expenses. Thus, after globalisation and financialization, the cost of intermediation between the original producer and the final consumer (which also requires labour-time) often represents the largest part of the final value of a commodity. Disregarding this reality of the cost structure of commodities leads to a distorted understanding of the capitalist economy in the real world.
Productive and unproductive labour
Some claim that for Marx, commercial trade and asset speculation were unproductive sectors, in which no value can be created. Therefore, they argue, all income of these sectors represents a deduction from the new value created in the productive sectors of the economy. Booms in unproductive sectors may temporarily act as a countervailing factor to the TRPF, but not in the long run. Professor Fred Moseley argues that in the United States the rate of profit is lower than it was in the decades after World War II, because of a rising share of unproductive labor in the total workforce. This is a reason of its own for a falling average rate of profit.
How the distinction between productive and unproductive labour is drawn obviously has a big mathematical effect on the estimated total profit rate on production, if unproductive labour costs are excluded from the total variable capital outlay, and included in the part of total net output which represents total surplus value produced. If the proportion of unproductive labour increases, total surplus value will then also increase, with the effect of raising the rate of profit. Moseley's calculations and his definition of unproductive labor have been criticised by other Marxists. The main objections discussed are conceptual and empirical.
- The main conceptual objection is, that the distinctions between productive and unproductive labour offered by various Marxists are essentially arbitrary, and without a genuine, scientifically sound foundation. In a complex division of labour, specialist productive work relies on a network of indispensable managerial, facilitary and technical support services, without which it could not take place at all. Marx himself never said that managerial functions were wholly "unproductive", but rather that they combined productive and unproductive tasks. Whether workers physically and directly produce something tangible or not, they are all necessary, or at least most of them are (as Marx acknowledges with his concept of the "collective worker" or, in German, Gesamtarbeiter). It is therefore impossible to attribute the creation of new value only to workers who directly produce a tangible product. Marxists often assume in their social accounts that the total payment of unproductive labour is made from a redistribution of part of the current surplus value produced by productive labour, but there is no proof of that assumption whatsoever, and indeed some Marxists have argued that the "overhead expense" of unproductive labour represents an outlay of circulating constant capital.
- The main empirical objection is, that there exists no accurate way to separate out productive and unproductive labour in official statistics (and the value each represents), even if the conceptual distinction could be validly defined. The main reasons are that "productive labour" is not equal to "productive worker", that the same worker may perform tasks which are classified as partly productive and partly unproductive, and that how the product of various services (or the role of services in production) should be defined remains controversial. For example, some Marxists believe that bank employees do not produce anything. Other Marxists believe they do produce something, but that it is not productive labour because banks do not produce any surplus-value. Still other Marxists think that, because banks often own producing companies, it is difficult to disentangle what is productive and what is not, or what the true source is of the realized surplus value.
A businessman looks at the deployment of labour in a different way, but faces a similar analytical problem. All labour produces something, but it does not necessarily help to create profit for one reason or another. What interests a businessman in a financial sense, is the cost of labour which directly creates the product or service that generates profit, versus the cost of labour that is effectively only a necessary overhead expense for his own business. The general aim is, to maximise productive labour in this sense, and minimize unproductive costs. That is the efficiency principle that guides the development of the division of labour organizationally. The trouble though is, that this distinction is not easily made in practice, given changes in the market, in social-organisational efficiency, and in production techniques, and it does not necessarily have anything to do with whether a worker produces something tangible or not. What looks like an efficiency gain from "weeding out" seemingly unproductive activity may in fact not be an efficiency gain in total, or it may be very difficult to prove that it is. Hence there is continual debate in management theory about these issues, with few "general" answers being available, since much depends on the specific organisational technique of enterprises. The only "general" answer there is, is to recast the accounting for every detailed activity that workers perform as a statistically observable input-output relationship which results in a "product", even if the "product" is no real product at all, but some kind of service or performance result. By describing a labour-service or a task performance as a product, it seems identifiably productive, although substantively it may not create any new product.
What Marxists traditionally tried to do, is to create concepts for a very precise standard classification schema of occupations and output-defined industrial activities, which divide the working class into productive and unproductive employees. But what Marx himself was concerned with was something else: the evolutionary tendencies of the capitalist division labour, from the first urban workshops in medieval times, to large joint-stock companies employing thousands of workers in different countries. Since the division of labour changes when new technologies and forms of organization are introduced, the definition of what is "productive" labour must change as well. What the labour requirements will be, for the most profitable result, is something which changes all the time, through reorganizations and restructuring. It is therefore not possible to have a valid classification of productive labour which holds good for all time. Any credible classification should be based on an analysis of the changing division of labour, and how work processes function within it.
The profit rate and economic crises
The traditional orthodox Marxist narrative is that capitalist crises are crises of profitability: the economic disturbance is caused by the circumstance that capitalists are making insufficient profits, and not because there are insufficient goods for everybody. That situation is bound to happen, because of the tendency of the rate of profit to fall. Once workers understand it, they can break with illusions about reforming capitalism and prepare for revolution. Critics point out, however, that this kind of interpretation - however morally satisfying it may be to Marxist critics of capitalism - explains everything and nothing. There are two main reasons.
- Firstly, in any significant economic slump, all economic indicators of output production, market sales, investment and employment are down, not just average profitability. If (for example) sales are down, it is logical that profit income will be down as well, but this does not mean automatically that lower profitability causes the downturn in sales. It all depends on how exactly "macro" and "micro" trends are related. Post-Keynesian economists are apt to point out that, whether people are buying or not, matters a great deal to the overall functioning of the economy, and matters a great deal to overall profitability.
- Secondly, average profitability is itself determined by a huge variety of influences on costs, sales and income which are all linked together in various ways. Therefore, if the crisis is blamed on lower profitability, this either states a tautology which must be true by definition ("people aren't making as much money as they used to"), or else it is substantially false - since the crisis is just as much caused by a drop in sales, output, investment, incomes and employment - which all react on each other.
Profitability may be observed to fall, along with other variables, but that says nothing about the true interrelationship of the determinants which explain why it falls. In fact, Paul Mattick even claimed "that the conditions both of the crisis and its solution are so complex that they cannot be empirically determined. When the crisis will break out, its extent, and its duration cannot be predicted; only that there will be a crisis can be expected with certainty." Causal chains could be traced out in all sorts of directions, using the same econometric evidence. Thus, to ascertain what independent role profitability actually plays in economic development requires a much more precise analysis than Marxists have ever provided. Marxists simply assumed the centrality of profitability in capitalist production, but they failed to prove that falling profitability is the root cause of all crises, rather than (say) one of the effects that are visible in crises.
In reply to this kind of criticism, orthodox Marxists such as Andrew Kliman, Michael Roberts and Guglielmo Carchedi admit that the crisis may not be directly caused by an insufficient mass of profit to valorize all the capital there is (the traditional Fraina-Grossmann-Mattick argument). After all, this is not really credible in view of the great financial crisis of 2007-2009, which arose out of a financial panic about dodgy securitized products that occurred when average business profitability was high. Rather, these Marxists argue, the historically low average profitability of industry explains why depressed conditions persist, instead of a quick recovery happening after a credit bubble pops. Thus, low industrial profitability is the "underlying factor" explaining general economic stagnation.
According to this narrative, in recent decades "economic fundamentals" were in a poor state; nothing much was done about that, except that workers were beaten down; instead, the economy was artificially pumped up with cheap credit and cheap imports, prompting a housing and spending boom; when the credit bubble popped, the economy sagged right back into its poor state. Such arguments may have some plausibility, but if they are examined in fine detail, it is clear that a whole series of different arguments are actually being made about the way that falling profitability is connected to economic slumps. In reality, therefore, it is still far from resolved what the role of profitability in crises actually is.
In the aftermath of the 2007-2009 slump, corporate profits surged to new heights at the expense of wages, but this did not lead to a full recovery of real employment, real output growth and real fixed investment. As Mohamed El-Erian of Pimco predicted fairly accurately in 2009, the official unemployment rate in the US economy has settled at a higher level (roughly 7%-8% instead of 4% - real unemployment is higher, since many workers dropped out of the labour force altogether), that looks like persisting in the longer term. Just as in the 1970s and 1980s, the historical grand-average unemployment rate has roughly doubled. This creates a downward pressure on the modal average real wage, though at the top end salary packages still increase.
In 2010, a fierce debate occurred about the rate of profit between leading Marxist economists from various political organizations in Western Europe and North America. According to the French Marxist economist Michel Husson, there were basically four bones of contention: (1) how had the average rate of profit in industries evolved since the early 1980s, in the larger developed capitalist countries? (2) what is the theoretical status of the tendential fall in the rate of profit in the Marxist analysis? (3) what is the nature of the capitalist crisis today? (4) what is the political relevance of this discussion? However, there was very little agreement about concepts, measurement principles, and political perspectives among participants. According to some, the rate of profit had gone up again, while others thought it had stayed down. All kinds of different political conclusions were being drawn from the econometric evidence.
Yates and the Monthly Review debate
In 2012, Monthly Review Press published Michael Heinrich's An introduction to the three volumes of Karl Marx's Capital In this book, which was endorsed by leading Western Marxist professors as the best introduction to Marx's Capital, and which received some glowing reviews, Heinrich argued that the rate of profit can both rise and fall. Therefore, "A long-lasting tendency for the rate of profit to fall cannot be substantiated at the general level of argumentation by Marx in Capital.
By the end of 2013, leftwing economist Michael Yates stated: "What exasperates me more and more is the certainty with which so many people pontificate [about the tendency of the rate of profit to fall]". He argued the evidence for the tendency was tenuous, and that "Marx analyzed capitalism in its “ideal average,” at a high level of abstraction. This “ideal average” can serve as a guide to examining the societies in which we live... but the two are not the same, something the disciples of the “tendency of the rate of profit to fall” school do not seem to grasp."
The socialist journal Monthly Review with which Yates is associated hosted a special debate about the falling rate of profit and crisis theory, featuring Michael Heinrich, Shane Mage, Fred Moseley, and Guglielmo Carchedi. Michael Heinrich argued that there is now considerable evidence that in the original draft manuscripts Marx left behind, he never proposed a crisis theory in terms of the falling rate of profit, or that if he did, he was reconsidering that theory at the end of his life. The outcome of the debate was inconclusive, since the rival Marxists could not find much agreement among themselves about what is the correct interpretation.
Marx (as he said himself) only intended to provide an analysis of the capitalist mode of production in its "ideal average". Yet the categories of modern macroeconomic statistics are also idealizations and stylized facts, even although people might often believe the macroeconomic categories exist as an objective, mind-independent reality. The more important point is, that Marx's analysis of capital never was an analysis of the whole economy, or of the whole of bourgeois society. Consequently, Marx's analysis largely disregarded profits which did not arise directly from new production by living labour (i.e. profits which did not arise from the valorisation process).
Unequal exchange and the rate of profit
According to orthodox Marxism, profits can only arise from surplus labor, and therefore, it is argued that the direct source of all capitalist profits is the exploitation of wage labor. This principle is often called the Fundamental Marxist Theorem: a necessary and sufficient condition for the existence of positive profits is that surplus value is positive. It is an interpretation which certainly makes sense from the point of view of Capital, Volume I where Marx assumed, for the sake of argument and for the sake of simplicity, that the prices at which the inputs and outputs of capitalist production are traded are equal to their value. In Capital, Volume I, Marx aimed to show, that even if all commodities were fairly traded on the basis of equal exchange, exploitation could nevertheless occur within capitalist production, and that if more value did not come out of production than went into it, it would be impossible to explain economic growth. Thus, more value could come out of production than went into it, even supposing completely equal exchange for all commodities traded. The reason was simply that workers together could produce more value than they needed themselves to live. That was, according to Marx, exactly the reason why the owners of capital hired those workers.
However, the analysis of capitalist competition offered in Marx's Capital, Volume III is completely based on the principle that commodities, human labor capacity, currencies and assets (physical or financial) in reality do not trade at their value. Rather, they are constantly being traded at margins above their value and below their value, in markets where sales are constantly fluctuating. It is, as Marx explains in the first chapter of Capital, Volume III, precisely the difference between the necessary cost-prices and the possible selling prices of commodities which is critical for profit margins, and which is therefore at the epicenter of competition. Commodities could be sold below their value, at a good profit.
As soon as it is admitted that, in the real world, all economic goods can trade at prices above or below their production-value, it can no longer be true, that the only source of all profits is the exploitation of wage labor. The reason is, that profit income can arise simply from selling the same priced good for more than it was purchased for, resulting in a capital gain for the seller, where this capital gain can be completely unrelated (or quite disproportional) to any identifiable labour cost. Effectively, more labour can exchange for less labour, and vice versa, and in the real world, this happens - fortunately or unfortunately - all the time. That insight is the basis of the theory of unequal exchange. According to this theory, exploitation is not something that is limited only to "the point of production" of the orthodox Marxists. Exploitation could occur in all sorts of ways, including at the level of international trade. In turn, that means that profit rates can be influenced by the terms of market trade, quite independently of production.
The theory of unequal exchange nevertheless remains very much contested among Marxists, because they are unsure about how it could be reconciled with the pure revolutionary Marxist orthodoxy. Three reasons are:
- If the values and prices of goods can vary independently in all kinds of ways, then the orthodox Marxist principle that total product-prices are equal to total product-values cannot, realistically, be true; there exists no causal mechanism by which such price-value fluctuations perfectly compensate each other in aggregate, so that total product value equals total product price. The principle can then be true only in an abstract theoretical model, but not in reality. Yet, if that orthodox principle is not true in reality, then it seems to follow there cannot be any systematic relationship in the real world between the Marxist labour-values and the actual price-levels for products - which was precisely what critics argued during the 20th century about the insolubility of the transformation problem. If product-values are determinants of product-prices, is there a way to express that relationship, other than as an accounting consolidation? There is no consensus about that issue. Indeed, modern financial capitalism has put into question traditional models of causal chains in the economy.
- The theory of unequal exchange talks about exploitation in the sphere of distribution, rather than the sphere of production. This is regarded as a reformist threat to the core revolutionary Marxist principle that exploitation occurs only at the point of production, and that capitalism cannot be made fair through fair trade, only abolished by abolishing wage labor. Thus, for example, Paul Cockshott and Allin Cottrell prefer a Ricardian theory of comparative advantage to explain world trade. One Marxist states that "Radicals assume unequal exchange after Ricardo and want the state to intervene to equalise exchange. Marxism critiques both these theories as limited by the level of analysis."
- Even if the existence of unequal exchange is accepted as a reality, it is not yet clear how it mainly occurs, or what its modalities are. There have been many different theories about how unequal exchange actually works.
Is pollution profitable?
One of the first ecological Marxists, Elmar Altvater, argues that "The costs of clean air and clean water belong to the capital outlays and therefore increase the amount of constant capital fixed in the production process with the effect of an increasing organic composition of capital. Hence, the profit rate will fall (of course ceteris paribus)." However, not everyone agrees with that idea. Firstly, it all depends who has to pay for the cost, and what kind of sanctions there are for polluters. If the state pays the cost out of general taxes, the costs to individual private enterprises would be much lower compared to their gains. It may be that some businesses gain from an environmentally friendly policy, while others do not, so that they are in competition with each other. Some argue that corporations are profitable precisely because they don't pay for externalities. Secondly, the anti-pollution and rubbish-recycling industries can be profitable; additional income is generated by cleaning up the environment after it has been fouled up. Thirdly, the new technologies may be cleaner and cheaper, rather than more expensive and more polluting. So far, there is no scholarly consensus yet about what the overall long-term effect will be of environmental pollution on the average rate of profit for industries.
Profitability in mainstream economics
In neoclassical economics, economic growth is described with growth models (e.g., the Solow-Swan growth model) in terms of equilibrium ("steady state"). Input per worker and output per worker grow at the same rate. Therefore, capital intensity remains constant over time. At the same time, in equilibrium, the rate of growth of employment is constant over time. Translated into terms of labor theory of value, this means that the value composition of capital does not rise, and the constant rate of growth of employment also indicates, in terms of the labor theory of value, that there is no reason for the rate of profit to decline.
In this framework, a tendency of the rate of profit to decline would mean that input per worker is increased by business managers at a larger rate than output per worker, because:
1) overcapacity is encouraged to fend off competition. 2) it results in a larger percentage increase of output per worker.
Thus an alternating movement occurs, where capitalists increase input per worker at a larger percentage than output per worker has risen, which, in the next period, leads to a larger percentage increase of output per worker than that of the previous input per worker. The rate of growth of employment declines in such a scenario.
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. From time to time, the research units of banks and government departments produce studies of the rate of return in various sectors of industry.
- Marginal utility
- Crisis theory
- Crises (economic)
- Economic stagnation
- Profit (accounting)
- Rate of profit
- Profit margin
- Internal rate of return
- Return on capital
- Capital accumulation
- Diminishing returns
- "Profit", p. 595 in: The standard library cyclopedia of political, constitutional, statistical and forensic knowledge. Vol. 4. London: Henry G. Bohn, 1860.
- Adam Smith, The Wealth of Nations, chapter 9. See also Philip Mirowski, "Adam Smith, Empiricism, and the Rate of Profit in Eighteenth-Century England." History of Political Economy, Vol. 14, No. 2, Summer 1982, pp. 178-198.
- John Stuart Mill, Principles of Political Economy (1848), Book 4, chapter 4.
- W. Stanley Jevons (1871), The Theory of Political Economy. Harmondsworth, Penguin Books, 1970, pp. 243-244.
- Marx Engels Collected Works, Volume 33, p. 104. Grundrisse, Penguin edition 1973, p. 748.
- Karl Marx, Capital, Volume III, Penguin ed. 1976, pp. 317-375.
- See however Steve Cullenberg, The Falling rate of Profit. London: Pluto, 1994. M.C. Howard and J.E. King, A history of Marxian economics (2 Vols.) Princeton University Press, 1989.
- The Wealth of Nations, chapter IX 
- Marx, Karl, Capital, vol. 3, edited by Frederick Engels. New York: International Publishers, 1967 (orig. ed. 1894). Chapter 2, "The Rate of Profit", and chapter 13, "The Law as Such". John Weeks, Capital and exploitation, chapter 8. Princeton University Press, 1980).
- Ernest Mandel, "Economics", in: David McLellan (ed.), Marx - the First 100 Years. Fontana, 1983.
- Marx, Capital, Volume III, Penguin ed. 1981, p. 339f.
- Ernest Mandel, Late Capitalism. London: NLB, 1975.
-  Allin Cottrell and Paul Cockshott, "Demography and the falling rate of profit". Wake Forest University & Department of Computing Science, University of Glasgow, February 2007.
- Harris, Seymour E. (1943). Postwar Economic Problems. New York, London: McGraw Hill Book Co. pp. 67–70<Chapter IV Secular Stagnation by Alvin Sweeny.>
- Ayres, Robert U. (1998). Turning Point: The end of the Growth Paradigm. London: Earthscans Publications. p. 4.
- Ernest Mandel, "Economics", in: David McLellan (ed.), Marx - the First 100 Years. Fontana, 1983; M.C. Howard and J.E. King, A history of Marxian economics (2 vols). Princeton University Press, 1989.
- Nobuo Okishio, "Technical Change and the Rate of Profit", Kobe University Economic Review, 7, 1961, p. 92.
- Anwar Shaikh, The Current Crisis: Causes and Implications (a Solidarity pamphlet)
- This was first argued by Marx himself, Capital, Volume III, Penguin 1981, p. 337-338. See also Ernest Mandel, Late Capitalism. London: NLB, 1975.
- Ernest Mandel, "Introduction" in Karl Marx, Capital, Volume III, Penguin 1981, p. 33.
- Marx, Capital, vol. 3, p. 216.
- Marx, Karl. Grundrisse. Translated by Martin Nicolaus. Middlesex, England: 1973 (orig. ed. 1939), p. 745. 
- Eugen von Böhm-Bawerk, Karl Marx and the Close of his System. London, T.F. Unwin, 1898 (various reprints).
- Ladislaus von Bortkiewicz, "Wertrechnung und Preisrechnung im Marxschen System", in: 1907, Archiv fur Sozialwissenschaft und Sozialpolitik, XXIII-1 (1906) pp. 1–50, XXV-2 (1907) pp. 10–51, XXV-2 (1907) pp. 445–488. This article was translated into English in 1952 as "Value and Price in the Marxian System", International Economic Papers, no. 2, 1952.
- Karl Marx, Capital, Volume III, Penguin 1981, p. 264-265.
- Ian Wright, "Prices of production are proportional to real costs". Discussion Paper ISSN1753-2590, Economics Department, Faculty of Social Sciences, The Open University, Milton Keynes, January 2007.
- Rick Kuhn, Henryk Grossman and the recovery of Marxism. Urbana: University of Illinois Press, 2007.
- Henryk Grossman, The Law of Accumulation and Breakdown of the Capitalist System. Pluto 1992; Lewis Corey (pseud. Louis C. Fraina), The Decline of American Capitalism. New York: Covici-Friede, 1934; Paul Mattick, Marx and Keynes: The Limits of the Mixed Economy. Boston: Porter Sargent, 1969.
- Ernest Mandel, "Introduction" to Capital, Volume III, Penguin 1976, p. 38ff.; Anwar Shaikh, "An introduction to the history of crisis theories". In: U.S. Capitalism in Crisis. New York: Union of Radical Political Economics, 1978. pdf
- For example, Ernest Mandel, Late Capitalism. LOndon: NLB, 1975, chapter 1; Ernest Mandel, The second slump: a Marxist analysis of recession in the Seventies. London: Verso, 1978, p. 168.
- André Mommen, Stalin's Economist. The Economic Contributions of Jenö Varga. London: Routledge, 2011, chapter 7.
- Joseph Gillman: The Falling Rate of Profit, London, Dennis Dobson, 1957 (the first attempt to test Marx's hypothesis empirically).
- Shane Mage, The Law of the Falling Tendency of the Rate of Profit; Its Place in the Marxian Theoretical System and Relevance to the US Economy. Phd Thesis, Columbia University, 1963.
- Ernest Mandel, "The economics of neocapitalism". Socialist Register 1964; Ernest Mandel, Long Waves of Capitalist Development, 1978.
- Alfred Kleinknecht, Ernest Mandel and Immanuel Maurice Wallerstein (eds.), New findings in long-wave research. New York, N.Y.: St. Martin's Press, 1992. Gerard Duménil and Dominique Lévy, The Economics of the Profit Rate: Competition, Crises, and Historical Tendencies in Capitalism. Aldershot, England: Edward Elgar, 1993.
- Ernest Mandel, Late Capitalism. London: NLB, 1975, chapter 1.
- Robert Rowthorn, "Late Capitalism", in: Bob Rowthorn, Capitalism, conflict and inflation. London: Lawrence & Wishart, 1980, p. 97. Article first published in: New Left Review, July–August 1976.
- Gerd Hardach, Dieter Karras and Ben Fine, A short history of socialist economic thought. New York: St Martin's Press, 1978, p. 62. Paul A. Baran & Paul M. Sweezy, Monopoly Capital. An essay on the American economic and social order. New York: Monthly Review Press, 1966, p. 72.
- Gerd Hardach, Dieter Karras and Ben Fine, A short history of socialist economic thought. New York: St Martin's Press, 1978, p. 63f. Traite Marxiste d'économie politique. Le Capitalisme Monopoliste d'État, Tome 2. Paris: Editions Sociales, 1971, p. 13f, 215f.
- David Yaffe, "The crisis of profitability: a critique of the Glyn-Sutcliffe thesis." New Left Review, I/80, July–August 1973. Andrew Glyn and Bob Sutcliffe, British Capitalism, Workers and the Profit Squeeze. Penguin Books, 1972. Raford Boddy & James R. Crotty, "Wages, prices and the profit squeeze." Review of Radical Political Economics, vol. 8, no. 2, July 1976, pp. 63-67; William Nordhaus, "The falling share of profits", in: A. Okun & L. Perry (eds.), Brookings Papers on Economic Activity, No. 1, 1974; S. Marglin & A. Bhaduri, "Profit squeeze and Keynesian Theory." In: Stephen A. Marglin & Juliet B. Schor (eds.), The golden age of capitalism: reinterpreting the postwar experience. Oxford: Clarendon Press, 1990, pp. 153-186.
- Prunella Knaur (pseud. John Sullivan), Go fourth and multiply. The British Left in 1983. London: Dialogue of the deaf publishers, 1983, p. 14.
- Bob Rowthorn, “Neoclassicism, Neo-Ricardianism and Marxism.” New Left Review, July–August 1974; Ben Fine & Laurence Harris, ‘’Re-reading Capital’’. London: Macmillan, 1979; Ernest Mandel & Alan Freeman, ‘’Ricardo, Marx, Sraffa’’. London: Verso, 1984.
- Ronald L. Meek, Economics and Ideology and Other Essays, 1967; Geoff Hodgson, "The theory of the falling rate of profit". New Left Review I/84, March–April 1974; Ian Steedman, Marx after Sraffa. London: NLB, 1977.
- Ben Fine and Laurence Harris, "Controversial Issues in Marxist Economic Theory", Socialist Register 1976; Geoff Hodgson, "Papering over the Cracks". Socialist Register 1977; Ben Fine and Laurence Harris, "Surveying the foundations." Socialist Register 1977.
- "The falling rate of profit and capitalism today" in International Socialism 115 (Summer 2007). See also: * Chris Harman: Explaining the Crisis - a Marxist Reappraisal. London Chicago Sydney, Bookmarks 1999.
- Alex Callinicos, "Underconsumption Theories". International Socialism (1st series), No.95, February 1977, p.27.
- Anwar Shaikh & Ergutul Ahmet Tonak, Measuring the Wealth of Nations: The Political Economy of National Accounts. Cambridge University Press, 1994.
- Robert Brenner, The Economics of Global Turbulence. London: Verso, 2006; Robert Brenner, The Boom and the Bubble - the US in the World Economy. Verso London, New York 2002.
- Anwar Shaikh, "Explaining the Global Economic Crisis: A Critique of Brenner" in Historical Materialism, No. 5, 1999.
- Riccardo Bellofiore, Marxian Economics: A Reappraisal. Volume 2: Essays on Volume III of Capital - Profit, Prices and Dynamics. Palgrave Macmillan, 1997.
- Alan Freeman & Guglielmo Carchedi (eds.).Marx and Non-Equilibrium Economics. Cheltenham, UK: Edward Elgar, 1996.
- Alan Freeman: Price, value and profit - a continuous, general, treatment in: Alan Freeman and Guglielmo Carchedi (eds.)Marx and non-equilibrium economics. Cheltenham, UK: Edward Elgar, 1996.
- Fawzi Ibrahim, Capitalism versus Planet Earth, an Irreconcilable Conflict, Muswell Press, 2012.
- Reuben L. Norman Jr., "The Internet, Creative Destruction and The Falling Rate of Profit Crisis", February 8, 2000.  See also: Notes on a Combined Falling Rate of Profit and Internet Crisis and Theories Combining Keynes, Kondratieff, Marx and Smith: R. L. Norman, Jr.
- Doug Henwood, Wall Street. London: Verso, 1997; Robert Pollin, Contours of Descent: U.S. Economic Fractures and the Landscape of Global Austerity. London: Verso, 2005; Michael Hudson, The bubble and beyond. Institute for the Study of Long-term Economic Trends, 2012; Costas Lapavitsas, Profits without producing; how finance exploits us all. London: Verso, 2013. David Blacker, The Falling Rate of Learning and the Neoliberal Endgame. Zero Books, 2013.
- Jurriaan Bendien, "Where Marxist interpretations of national accounts went wrong", unpublished paper, Amsterdam, 2014.
- Jurriaan Bendien, "Where Marxist interpretations of national accounts went wrong", unpublished paper, Amsterdam, 2014.
- Jurriaan Bendien, "Where Marxist interpretations of national accounts went wrong", unpublished paper, Amsterdam, 2014.
- Karl Marx, Capital, Volume II, Penguin 1978, Part 1.
- Ernest Mandel, "Die Marxsche Theorie der ursprünglichen Akkumulation und die Industrialisierung der Dritten Welt". In: Folgen einer Theorie: Essays über "Das Kapital" von Karl Marx. Frankfurt am Main: Suhrkamp, 1967, p. 71-93.
- Analytical Perspectives 2010 (US Budget annex), Table 13-5, p. 199. McKinsey Quarterly, various issues.
- Marx, Capital, Volume II, Penguin edition 1978, p. 427.
- “As far as the total social capital is concerned, … a part of this capital is required for secondary operations that are not a part of the valorization process, and … this part of the social capital has to be constantly reproduced for this purpose.” – Marx, ‘’Capital, Volume III’’, Penguin 1981, p. 405.
- Karl Marx, Capital, Volume II, Penguin ed., chapter 20 section 10, pp. 515-516.
- "In 2014, for example, London had about 3.5 million dwellings, with a reported average market value of £410,000 (US$680,000) each (that's about 15.5 times the average annual wage). The total London housing stock by itself must therefore be worth about £1.4 trillion (US$2.3 trillion). Added to this is about £700 billion (US$1.1 trillion) worth of commercial and other non-residential real estate, giving a total of £2.1 trillion (US$3.4 trillion). This total does not include the (unknown) value of public infrastructure (road networks, pipelines, cables, installations, etc.) nor consumer durables (which could be estimated at circa £20,000 per household, i.e. a total of at least £700 billion). Thus, the total value of the London built environment must be in excess of £3 trillion (or US$5 trillion)." - Jurriaan Bendien, "Where Marxist interpretations of national accounts went wrong", unpublished paper, Amsterdam, 2014.
- Duménil G.,; Glick M.,; Rangel J. 1984. "The tendency of the rate of profit to fall in the United States, part 1". Contemporary Marxism 9: pp. 148-164. "The Tendency of the Rate of Profit to Fall in the United States, Part 2", Duménil, Gérard; Glick, Mark; Rangel, Jose, Contemporary Marxism 11, 1985, pp. 138-152.
- Philip Armstrong et al., Capitalism since World War II. Fontana Paperbacks, 1984, pp. 458-460.
- Paul Baran & Paul Sweezy, Monopoly Capital. New York: Monthly Review Press, 1966, p. 72 note 22.
- Jason Zweig, "Will Stock Buybacks Bite Back?" Wall Street Journal, March 21, 2014.
- Steven Mufson and Jia Lynn Yang, "Capital gains tax rates benefiting wealthy feed growing gap between rich and poor", in: Washington Post, 12 September 2011.
- Richard Ruggles and Nancy D. Ruggles, National Income Accounts and Income Analysis. New York: McGraw-Hill, 1956, chapters 1-4.
- Charles W. Mulford and Eugene E. Comiskey, The financial numbers game: detecting creative accounting practices. John Wiley & Sons, 2002, p. 20f.
- Anwar Shaikh & Ahmet Tonak, Measuring the wealth of nations (Cambridge University Press, 1994), p. 111 note 10, and p. 321.
- Geoffrey Whittington, Profitability, Accounting Theory and Methodology. Abingdon: Routledge, 2007.
- Frits Bos, The national accounts as a tool for analysis and policy; past, present and future. Phd Dissertation, University of Twente, The Netherlands, 2003, p. 3.
- Michael Hudson & Dirk Bezemer, "Incorporating the rentier sector into a financial model". World Economic Review, Vol. 1, 1-12, 2012.
- Andrew Kliman, The failure of capitalist production. London: Pluto, 2011, chapter 6.
- Fred Moseley, "Marx´s concepts of productive labor and unproductive labor: an application to the postwar U.S. economy". Eastern Economics Journal, Volume IX, no. 3, July/September 1983, pp. 180-189. Fred Moseley, "The Decline of the Rate of Profit in the Postwar U.S. Economy: An Alternative Marxian Explanation". Review of Radical Political Economics, vol. 22, no. 2-3, Summer-Fall 1990, pp. 17-37.
- Fred Moseley, The Falling Rate of Profit in the Postwar United States Economy. London: Palgrave Macmillan, 1991. See also: Fred Moseley, The rate of profit and economic stagnation in the United States economy. Historical Materialism, Volume 1, Number 1, 1997.
- Stephen Cullenberg, "Unproductive Labor and the Contradictory Movement of the Rate of Profit: A Comment on Moseley," Review of Radical Political Economics, 26:2, (1994): 109-119. Thomas E. Weisskopf, The rate of surplus value in the postwar US economy: a response to Moseley's critique". Cambridge Journal of Economics 1985, 9, pp. 81-84.
- Karl Marx, Das Kapital Vol. 3 (1894), Dietz ed. p. 397. Penguin edition, p. 507.
- Marx, Capital, Volume I, Penguin edition, 1976, pp. 1040, 1052-1055.
- One of the first to make the argument was Shane Mage, The Law of the Falling Tendency of the Rate of Profit; Its Place in the Marxian Theoretical System and Relevance to the US Economy. Phd Thesis, Columbia University, 1963.
- David Harvie, "All labour is productive and unproductive." Discussion paper in political economy, no. 2003/2 ISSN 1479-2664. Department of Economics and Politics. The Nottingham Trent University, June 2003.
- Nicos Poulantzas, Classes in contemporary capitalism. London: New Left Books, 1975, p. 209f. Sungur Savran and Ahmet E. Tonak, "Productive and Unproductive Labor: An Attempt at Clarification and Classification", Capital & Class, V. 68, 1999, pp. 113–152
- Ali Rattansi, Marx and the Division of Labour (Macmillan, 1982). André Gorz (ed.), The Division of Labour: The Labour Process and Class Struggle in Modern Capitalism. Harvester Press, 1976. Harry Braverman, Labor and Monopoly Capital: The Degradation of Work in the Twentieth Century. New York: Monthly Review Press, 1974.
- Lewis Corey, The Decline of American Capitalism. New York: Covici-Friede, 1934. Paul Mattick, Marx and Keynes: The Limits of the Mixed Economy. Boston: Porter Sargent, 1969 and Economic Crises and Crisis Theory (1974), chapter 2; Henryk Grossman, The Law of Accumulation and Breakdown of the Capitalist System. Pluto 1992. Steve Cullenberg, The Falling rate of Profit. London: Pluto, 1994.
- Such as Frank Beckenbach & Michael R. Krätke, "Zur Kritik der Uberakkumulationstheorie". Prokla Vol. 8 No. 1 (3), p. 43-81, and Ernest Mandel, "Introduction" to Capital, Volume III. Penguin, 1981, p. 38ff.
- L. Randall Wray, "Saving, Profits, and Speculation in Capitalist Economies," Journal of Economic Issues, Vol. 25, December 1991, pp. 951-975. Frederic S. Lee, Post-Keynesian Price Theory. Cambridge University Press, 1999. Wynne Godley and Mark Lavoie, Monetary Economics: An Integrated Approach to Credit, Money, Income, Production and Wealth. Houndmills, UK: Palgrave Macmillan 2007. Steve Keen, "Minsky's thesis: Keynesian or Marxian?". chapter 6 in: Riccardo Bellofiore & Piero Ferri (eds). Financial Keynesianism and Market Instability. The Economic Legacy of Hyman Minsky, Volume I. Edward Elgar, 2001.
- Paul Mattick, Economic Crisis and Crisis Theory (1974), chapter 2
- Andrew Kliman, The Failure of Capitalist Production: Underlying Causes of the Great Recession, 2011. Guglielmo Carchedi, Behind the Crisis. Michael Roberts blog http://thenextrecession.wordpress.com/.
- Interview with Andrew Kliman, "The relevance of Marxian Economics Today". Socialist Standard, April 2014, p. 13.
- Doug Henwood, "A Return to a World Marx Would Have Known". New York Times, 30 March 2014.
- Emily Kaiser, "U.S. productivity boom a bust for workers", Reuters press agency (Washington DC), 20 July 2009.
- Mohamed El-Erian, "American jobs data are worse than we think". Financial Times, 2 July 2009.
- Michel Husson, "The debate on the rate of profit". International Viewpoint, n°426, July 2010.
- Michael Heinrich, An introduction to the three volumes of Karl Marx's Capital. New York: Monthly Review Press, 2012.
- Chris O’Kane, "Review of Michael Heinrich, An Introduction to the Three Volumes of Karl Marx’s Capital." In: Marx & Philosophy Review of Books, January 2013.; Dominic Alexander, "An Introduction to the Three Volumes of Karl Marx’s Capital". Counterfire, 26 Octovber 2012.; Carl Cassegard, "Heinrich's introduction to Marx' Capital". The world (and books) blog, 8 May 2013.
- Ibid., p. 153.
- Michael Yates, "Profits May Rise, Profits May Fall, the Capitalist System Doesn’t Care at All." Counterpunch, 31 December 2013.
- "Exchange with Michael Heinrich on Marx's Crisis Theory", in Monthly Review (New York), December 2013.
- Michael Heinrich, "Crisis Theory, the Law of the Tendency of the Profit Rate to Fall, and Marx’s Studies in the 1870s." Monthly Review, Vol. 64, No. 11, April 2013.
- Karl Marx, Capital, Volume III, Penguin ed. 1981, p. 970.
- Kozo Uno, Principles of Political Economy. Harvester Press, 1980. Leszek Nowak, The Structure of Idealization. Towards a Systematic Interpretation of the Marxian Idea of Science. Dordrecht: Reidel, 1980.
- Alfred Korzybski, Science and Sanity: An Introduction to Non-Aristotelian Systems. Institute of General Semantics, 5th ed. 1995.
- John E. Roemer, Analytical foundations of Marxian economic theory. Cambridge University Press, 1981, p. 62f. M.C. Howard and J.E. King, A history of Marxian economics, Vol. 2. Princeton University Press, 1989, p. 230.
- Karl Marx: A Contribution to the Critique of Political Economy (1859), chapter 1, Note A. "Historical Notes on the Analysis of Commodities." Frederick Engels, Anti-Dühring (1877), Part 2, chapter 7.
- Geoffrey Pilling, "Imperialism, Trade and 'Unequal Exchange': The work of Aghiri Emmanuel", Economy and Society, Vol. 2, 1973.
- W. Paul Cockshott & Allin Cottrell, Toward a New Socialism. Coronet Books, 1993, chapter 10.
- Raved (pseud.), "Living Marxism archive. Crisis of Overproduction." 18 March 2009.
- John Brolin, The Bias of the World. Theories of Unequal Exchange in History. Lund: Lund University, 2006.
- Elmar Altvater, "Is there an ecological Marxism?". In: Amandla!, 20 November 2011.
- David Roberts, "None of the world’s top industries would be profitable if they paid for the natural capital they use." Grist, 17 April 2013.
- Fred Smith, "Profits, Despite What You Hear, Do Not Equal Environmental Pollution." Forbes Magazine, 29 May 2013. Anuradha Shukla, "Going "Green" is Profitable". Asia-Pacific Business Technology Report, 1 December 2009..
- Frank Richards (pseud. Frank Furedi), "Can capitalism go Green?", Living Marxism, No. 4, February 1989, p. 18.
- A mathematical description of traditional growth models is, for example, here: * Allen, R.G.D.: Macro-Economic Theory : A Mathematical Treatment. - London, Melbourne, Toronto: Macmillan, 1968.
- For example, T.P. Hill, Profits and rates of return. Paris: OECD, 1979; James H. Chan-Lee and Helen Sutch, "Profits and rates of return". ; Daniel M. Holland (ed.) Measuring profitability and capital costs : an international study. Lexington, Mass. : Lexington Books, c1984.; Elroy Dimson, Paul Marsh, and Mike Staunton, The Millennium Book, A century of Investment Returns. London: London Business School and ABN AMRO, 2000. Elroy Dimson, Paul Marsh, and Mike Staunton, Triumph of the Optimists: 101 Years of Global Investment Returns. Princeton, N.J.: Princeton University Press 2002.
- Martin Feldstein & Lawrence Summers, "Is the rate of profit falling?". Brookings Papers on Economic Activity, 1, 1977.
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