Rising capital intensity is claimed to depress the rate of profit over time, driving crises.
Long contested inside and outside Marxian economics, and the empirical record does not clearly support it. Countervailing tendencies Marx himself listed make the prediction hard to test at all.
In practice
- A haulage firm replaces loaders with automated handling, and its margin per delivery falls while its total profit rises.
- The same firm's margin recovers when fuel cheapens and a rival closes, which are two of the countervailing tendencies and leave the trend unreadable.
- Possible explanations
- The proposed explanation is composition: as firms substitute machinery for labour, and labour is held to be the source of surplus, the ratio of profit to total capital falls even as output rises.
- In its favour
- It gave an internal account of crisis rather than treating downturns as external shocks, and Marx himself listed the countervailing tendencies, which is unusually explicit.
- Against it
- The empirical record does not clearly support a long-run fall, the countervailing tendencies make the prediction hard to test at all, and the argument depends on the labour theory of value, which most economists reject.
- Standing
- Long contested inside and outside Marxian economics; the empirical record does not clearly support it.
- Further reading
- Wikipedia
- Subject
- Economics & Incentives
- Essay
- The theories behind every argument about money