On the Law of the Tendency of the Rate of Profit to

fall, and its discontents

drustvenaanaliza.blogspot.be /2015/03/on-law-of-tendency-of-rate-of-profit-to.html
Sao Furlan

Introduction
Amongst the major classical political economists of the late 18th and early 19th century, the notion that the
average rate of profit has a tendency to decline on the long term was widely accepted and considered as an
evident fact. Bourgeois economists, such as Adam Smith, David Ricardo and John Stuart Mill, treated it as an
empirically confirmed and therefore indisputable law that is of utmost importance for the political economy. But
although they were in agreement when it came to the simple task of asserting the existence of the law, they
departed when it came to a much harder task of theoretically grasping and articulating this law. When they
struggled to explain the structural causes of the decline in the average rate of profit they offered various
diverging and dubious explanations that were far from evident and clear. When Marx first dealt with the law of
the tendency of the rate of profit to fall (LTRPF) in his 1857-1858 Manuscripts (Grundrisse), he could thus stress
the following: This is in every respect the most important law of modern political economy, and the most
essential for understanding the most difficult relations. () It is a law which, despite its simplicity, has never
before been grasped and, even less, consciously articulated (Marx 1973, p. 675).
In the Grundrisse, and the third Volume of Capital, Marx developed his own, rather sophisticated, demonstration
of the LTRPF. And ever since his account was laid out it remained a highly controversial and continuously
disputed subject, especially among Marxist scholars. Some of them have praised Marxs account of the law,
considering it as a final and irrefutable solution of a riddle that occupied political economists for more than a
century, and used it as a foundation of Marxs theory of crisis. Yet others have criticized it and denounced it as
irrelevant in regards to his theory of crisis. It was the supposed intertwined connection between the LTRPF and
Marxs theory of crisis that made the discussions around this law so polemical and contentious. Since the
proponents of LTRPF saw it as the ultimate argument for why the inherent systemic dynamics of growth in
capitalism undermines its very conditions, and consequentially leads to periodic crises that necessitate the
revolutionary overthrow of capitalism, the opponents of the law were often viewed as some sort of heretics or
revisionists whose denouncement of the law also discredits its profound revolutionary political implications.
Anyhow, after more than a century of heated debates amongst Marxist scholars, there is still no general
agreement about the validity of Marxs proof of the LTRPF, as well as no consensus on the question of the
implications of this law for a theory of crisis and political strategy. Hence, it seems as if the tradition of the
controversies about the LTRPF still weighs like a nightmare on the brains of contemporary Marxists.
The preparatory chapter, which is dedicated to a preliminary clarification of the quantitative aspect of the
categories, by means of which the LTFRP can be grasped, will be followed by a chapter dedicated to an
illustration of Marxs account of LTRPF in the third volume of Capital. The proceeding chapters will depict the
most far reaching controversies over LTFRP amongst Marxist and other economic scholars in the 20th and 21st
century. Special attention will be dedicated to Michael Heinrichs critique of Marxs elaboration of the LTRPF.
The political implications of the LTFRP and the disputes revolving around it will be dealt with in the last chapter.

Preliminary clarifications
Before we get to the exposition of the LTRPF we will have to make a detour, since a few preliminary
clarifications are needed. We will start with the quantitative depiction of the value of the commodity (C), which is
produced in the capitalist mode of production (see Marx 1999, p. 16). Marx outlines it in the following formula:

C=c+v+s
Constant capital (c) is the portion of value laid out in means of production, such as machines and raw materials
that are used in the capitalist process of production, whereas variable capital (v) stands for the portion of value
that is used to pay workers wages, and therefore equals the value of labour power. These two components of
capital play qualitatively different roles in the determination of the value of the commodity. Namely, the means of
production do not create any new value in the process of production, but only transfer their value or a portion of
their value to the final product. Labour power, however, does not transfer its value to the final product, but rather
creates new value in the process of production. Particularly, labour power creates a new amount of value which
is needed to cover the costs of its reproduction, and an additional amount of value which is called surplus value
(see Marx 2010, p.139-46). So, if the value of the means of production constitutes one portion of value of the
commodity by means of the transfer of value, which equals c, labour power constitutes the other portion of value
of the commodity by means of the creation of new value, which equals v + s. Workers therefore produce the
whole value added, but only receive a part of this newly created value in wages. This implies that during the
process of production workers are exploited, since they are only paid with wages that equal the value of
variable capital, even though they also produce surplus value.
In view of the fact that, in the capitalist mode of production, only labour power or living labour produces value as
well as surplus value, the valorisation of capital rests solely on the component of variable capital. The rate of the
valorisation of capital is thus a certain ratio of surplus value to variable capital, which is called the rate of surplus
value (see Marx 2010, p. 147-151). It can be formulated as follows:
r(s) = s/v
The concept of the rate of surplus value is of great relevance from the standpoint of theory, since it, among
other things, designates the rate of exploitation. Yet from the standpoint of the individual capitalist it is practically
irrelevant. A capitalist does not perceive any difference between constant and variable capital as far as their role
in the creation of value is concerned. He is rather interested in the yield on total capital advanced. At the start of
the production process, the capitalist is mostly interested in the sum of money that designates how much the
commodities which are needed for production will cost him. The crucial quantity for the individual capitalist is
therefore the cost price (see Marx 1999, p. 16-17), which is formulated by Marx as:
Cp = c + v
But when the commodities are produced and about to be sold, he is mostly interested in the sum of money
against which these commodities will be sold. He is thus interested in the surplus of money over the initial cost
price, i.e. the difference between the sale price of commodities and the cost price. This difference, which is of
utmost importance for the capitalist, is called profit.
Profit is a form of realization of surplus value; it is surplus value that is realized as the yield on total capital
advanced (c + v). But note that as soon as surplus value is realized in the form of profit, its own source becomes
concealed. We have stressed that surplus value originates in the exploitation of labour power in the process of
production. However, when profit is realized, this fact becomes veiled. The return on capital is considered, by
the capitalist, as the yield on the whole capital advanced, i.e. the yield on c and v. This is why it seems as if
surplus value does not originate from a specific part of capital, from variable capital, but from constant and
variable capital equally. The actual conditions of the creation of surplus value are thus mystified in its realization
in the form of profit (see Heinrich 2012, p. 143-144). From the point of view of the capitalist, the rate of
valorisation of capital is not the ratio between surplus value and variable capital but the ratio between surplus
value and the whole capital advanced. This rate of valorisation is outlined in the formula of the rate of profit
(Marx 1999, p. 27):
r(p) = s / (v + c)
Every time capital is advanced, the capitalist is, of course, interested in the highest possible rate of profit. The
basic way in which the rate of profit can under otherwise constant conditions be raised, is by an increase in
the rate of surplus value. This can be done in two different ways, either by the increase in the production of
absolute surplus value or by the increase in the production of relative surplus value . The increase of the
production of absolute surplus value is achieved by lengthening surplus labour time (i.e. the time in which
workers produce surplus value), which is achieved by the method of lengthening the workday. On the other
hand, the increase of relative surplus value is achieved by an increase in the productivity of labour. The most

important mechanism for increasing the productivity of labour in the capitalist mode of production is the use of
(heavy) machinery. When the productivity of labour, in the branches that produce the means of subsistence or in
the branches that produce inputs for those branches, increases due to introduction of labour saving technology,
the value of the means of subsistence decreases. Since the value of labour power is determined by the value of
the means of subsistence, by the value necessary for the reproduction of labour power, the value of labour
power also decreases. Socially necessary labour time for the production of commodities therefore falls, and
although the workday does not increase, surplus labour time relative to necessary labour time increases (see
Marx 2010, p. 354-361). It has to be stressed that in the context of the capitalist mode of production, the
production of surplus value in general or of relative surplus value in particular, is for an individual capitalist, a
necessity. Should a certain capitalist lack far behind in productivity increases relative to his competitors, he
would soon lose his market share, and in turn go out of business.
We have shown how an increase in the rate of surplus value can - under otherwise constant conditions - affect
the rate of profit. The rate of profit, however, does not fluctuate only due to changes in the rate of surplus value.
Capitals which produce with the same rate of surplus value can have different rates of profit. This is because
different capitals can have different compositions of capital. According to Marx the composition of capital should
be understood in a two-fold sense. On the side of value it is determined by the proportion in which it is divided
into constant capital and variable capital, whereas on the side of the material it is determined by the relation
between the mass of the means of production employed and the mass of labour necessary to employ them
(Marx 1999, p. 428). The composition of capital on the side of value is value composition of capital ; it is a ratio
of constant to variable capital in value terms:
Vcc = c / v
The composition of capital on the side of material is the ratio of the mass of means of production to the mass of
labour employed. This ratio is the technical composition of capital . Value composition of capital and technical
composition of capital are in a certain correlation. Marx expresses this correlation with the concept of organic
composition of capital, which is the value composition insofar as it is determined with the technical composition
of capital. Organic composition of capital can therefore be mathematically portrayed in the same way as value
composition of capital:
Occ = c / v
Yet, the organic composition of capital only varies as a consequence of changes in the technical composition of
capital, but it does not reflect changes in value of variable and constant capital that might occur due to other
reasons.
We have said that different capitals with equal rates of surplus value can have different rates of profit.
Particularly, capital with a low organic composition of capital will realise a higher rate of profit then capital with a
high organic composition of capital. This can be illustrated by a numerical example:
I) Occ = c/v = 40/60 ; r(s) = s/v = 100% ; r(p) = s/(c+v) = 60/(40+60) = 60%
II) Occ = c/v = 60/40 ; r (s) = s/v = 100% ; r(p) = s/(c+v) = 40/(40+60) = 40%
We can see from the equations that in otherwise constant conditions the higher the organic composition of
capital, the lower the rate of profit, and vice versa.
Following this conclusion, we are immediately faced with a problem, because, in reality, capitalists tend to realize
a certain unified rate of return on their capital advanced, which seems to be totally independent of organic
compositions of their capitals. Marx explains why this is so (see Marx 1999, p. 118-133). Following the thesis
that the sole interest of an individual capitalist is the maximization of profit, the capitalist recognizes that, if some
branches offer lower rates of profit than others, then he will pull out his capital from these branches and invest it
in branches with higher rates of profit. The rates of profit in different branches will thus tend to converge,
because capital will flee from the branches with low rates of profit to branches with high rates of profit.
Equalization of the various rates of profit will, according to Marx, at least in the context of free movement of
capital, take place automatically by the mechanism of competition. Namely, if capital is withdrawn from the
branches with low rates of profit, the supply of commodities in these branches will shrink. Consequentially, the
prices of commodities will rise, and, in turn, cause the rates of profit in these branches to rise again. On the
other hand, if the branches with high rates of profit are witnessing an influx of capital, this will cause the supply

of the commodities in these branches to rise. Their prices will therefore fall and automatically cause the rate of
profit to also fall. That is why the mechanism of competition will produce a tendency for the rates of profit in
branches with different organic compositions of capital to equalize. Rates of profit of different capitals will thus
equalize into a general or average rate of profit .
But, this same mechanism will, in the eyes of an individual capitalist, also additionally conceal the fact that
surplus value originates from labour, since it will solidify the illusion that surplus value is but a rate of return on
the whole capital advanced. Under the conditions of equalizing rates of profit, each individual capitalist receives
an average rate of profit no matter how big the ratio of variable to constant capital in his capital advanced
(Heinrich 2012, p. 147). Average profit can be mathematically depicted as:
p(a) = (c + v) x r(pa)
With the quantity of average profit at hand we can also calculate what Marx calls the price of production, which
is a sum of cost price and average profit:
p(p) = c + v + p(a)
Note that the price of production is basically a sale price of a commodity by means of which a capitalist realises
an average rate of profit.
We stressed that production of relative surplus value, which is achieved by increases in the productivity of
labour by means of the introduction of labour saving technology, is, for an individual capitalist, a necessity.
However, the capitalists do not increase productivity by the introduction of machines for its own sake, but rather
for the sake of extra-profits. Extra-profit is defined as profit above the average profit (Marx 1999, p. 33). An
individual capitalist can realize an extra profit if he reduces his costs of production below the social average.
Hence, the capitalist will introduce machinery only if a boost in productivity will lower his cost price and hence
raise his rate of profit. We can illustrate this with a simple numerical example. Suppose that in a branch that
produces cars, all commodities, i.e. cars of all companies are sold at the uniform price of production, which is
denoted as:
p(p) = c + v + p(a) = 100 + 100 + 50 = 250
Note that the average profit equals 50. Now lets assume that in one of the car companies a new labour saving
technology is introduced, and that, by means of this technology, labour productivity increases substantially.
Should the productivity increase for 100%, the time that is needed for the production of a car would be cut in
half. This means that the capitalist would now be able to produce the same car with 50% less variable capital. If
we assume that c would increase for 10 units his new cost price would be:
c(p) = c + v = 110 + 50 = 160
We can see that the cost price for the car selling capitalist has shrunk for 40 units: from 200 to 160. But we have
said that all commodities in the branch are sold according to the uniform price of production. Should our
capitalist sell the car for the cost of production, his new profit would be:
p = p(p) c(p) = 250 160 = 90
The capitalist will thus realize an average profit of 50 and an additional extra-profit of 40. The labour saving
innovation and the corresponding productivity boost in the car factory in question will of course lead to the
increase of the output. However, this increase of the output, i.e. the magnitude of cars produced, is worth
nothing for the capitalist, if it is not accompanied by a corresponding increase in the demand for his cars. The
usual way to take care of this problem, for the individual capitalist, is to lower the prices of his commodities. It is
evident that the discussed capitalist can sell the cars below the price of production by which the cars are sold by
his competitors, and still realize an extra-profit. For example, he can sell the cars at the price of 240, and still
realize a substantial amount of extra profit.
p = p(n) c(p) = 240 160 = 80
In these conditions the capitalist will realize an average profit of 50 and an extra profit of 30.

However, the capitalists decision to lower the prices of commodities is not without consequences for his fellow
capitalist competitors. Insofar as their cars become relatively dearer in comparison with the cars of the
innovative capitalist, they start to lose their market share. They will thus be structurally compelled by the iron
laws of competition to follow the paths of the innovative capitalist and increase the productivity of labour in order
to bring down their cost price. In this fashion capitalist competition tends to generalize the productivity boosts
and cost reductions. Conceding that the productivity hike is generalized throughout the whole branch, the extraprofit of the aforementioned capitalist disappears (see Marx 2010, p. 218-221; Heinrich 2012, p. 106-108). In as
much as the cost price now sinks for all the capitalists, the advantage for the capitalist that initiated the increase
in productivity ceases to exist.

Marxs exposition of LTRPF

In the third volume of Capital, Marx tried to illustrate that the average rate of profit has a tendency to decline,
which originates in the peculiar nature of the capitalist mode of production itself1 . Marx did not argue that the
rate of profit in capitalism is subjected to a certain straightforward decline no matter the circumstances. Marx
was of course aware that a rising average rate of profit may very well be the case. He considered various
countervailing factors that can either postpone the fall or result in a temporary rise in the rate of profit.
Particularly, in Capital volume 3 Marx discussed several so called countertendencies of the LTRPF, such as
reduction of wages below the value of labour power, cheapening of the factors of constant capital by various
means, reduction of the costs of industrial inputs and consumer goods by means of foreign trade, the increase
in share capital, which devolves part of the costs for the usage of capital to others, etc. (see Marx 1999, p. 159164) Marx did not at any point deny that these countertendencies may very well result in a rise of the rate of
profit. However, he did argue that these countertendencies are of temporary nature. From the standpoint of the
inherent dynamics of the capitalist mode of production they are but contingencies. Hence, in his exposition of
the LTRPF Marxs intention was to prove that independent of such contingent factors of temporary nature, the
rate of profit has a tendency to fall due to the inherent dynamics of the capitalist mode of production.
This peculiar dynamics of the capitalist mode of production rests on the production of relative surplus value. We
have shown that the production of relative surplus value depends on technical innovation, in other words, on the
adoption of labour saving technologies. An obvious result of constant adoption of new and ever more efficient
means of production is the displacement of human labour from the process of production. Herein lays the crux
of Marxs argument. Since profit crucially depends on the production of surplus value, which rests on surplus
labour, performed solely by living labour in the process of production, the displacement of living labour with
machines will in otherwise constant conditions result in a fall in the rate of profit. It is obvious that increases
in productivity, by means of displacing living labour by machines, necessitates a rise in the organic composition
of capital. Now lets see how the rise in organic composition of capital affects the rate of profit. The general
formula of the rate of profit is:
r(p) = s / (c + v)
If we divide the numerator and the denominator with v, we get the following formula:
r(p) = (s/v) / (c/v + 1)
Note that the denominator of the equation now expresses the organic composition of capital, and the numerator
indicates the rate of surplus value. Following this equation it is easy to show that the rise in the organic
composition of capital, a result of the adoption of labour saving technologies, will in otherwise constant
conditions necessitate a fall of the rate of profit.
I) r(p) = 2 / (1 + 1) = 1 = 100%
II) r(p) = 2/ (3 + 1) = 0,5 = 50%
We can see that the rise in the organic composition of capital from 100% (1) to 300% (3) results in a fall in the
rate of profit from 100% to 50%.
Nonetheless, Marx was well aware that this is not enough to prove the LTRPF. We mentioned that the
production of relative surplus value is achieved by decreasing the value of the means of production which
translates in to sinking value of labour power which is equal to the value of variable capital. This means that the

factors that necessitate a rise in the organic composition of capital also necessitate a rise in the rate of surplus
value. Since the rate of surplus value is depicted as s/v, it is evident that the fall in the value of labour power (v)
will result in a rise of the rate of surplus value. Taking this effect into account, the proof for the fall in the rate of
profit becomes much more difficult, because we can now easily imagine how the adoption of labour saving
technologies results ether in a fall or in a rise of the rate of profit. A simple numerical example should suffice:
I) r(p) = 2/ (1 + 1) = 1 = 100%
II) r(p) = 3/(3 +1) = 0,75 = 75%
III) r(p) = 5/ (3 + 1) = 1,25 = 125%
We can see that the rate of profit can either fall, as is the case in the second equation where the rate of surplus
value increases from 200% (2) to 300% (3), or rise, as is the case in the third equation where the rate of surplus
value increases from 200% (2) to 500% (5) . Thus and thus, it becomes clear that the LTRPF cannot be simply
deduced from the fact of the rising organic composition of capital. For the proof to be logically valid, another
condition has to be fulfilled. It has to be proved that the rise of the organic composition of capital will on the long
term compensate for the rise in the rate of surplus value. Namely, it has to be shown that the organic
composition of capital will tend to rise faster or to a higher degree then the rate of surplus value (Heinrich 2012,
p. 151-152). Marx provided one argument for why this would be the case. He argued that, as opposed to the rise
of the organic composition of capital, the level of the increase in the rate of surplus value is limited, since the rise
in the mass of surplus value has definite limits that cannot be surpassed (Marx 1999, p. 272). This argument
can again be depicted with a numerical example. We presuppose that 100 workers are employed in a certain
factory. Each of them performs 5 hours of daily surplus labour, which produces surplus value. The sum of daily
hours of surplus labour performed is thus:
h(s) = 100 x 5 = 500h
Lets now assume that, due to the adoption of labour saving technology, the amount of living labour employed
reduces substantially: from 100 to 10. Consequentially, it becomes evident that, no matter what, 10 workers are
not able to produce as much surplus labour (500h) as the aforementioned 100 workers, even if we assume that
all of the 10 workers are performing 24 hours of surplus labour a day:
h(s) = 10 x 24 = 240h
It becomes clear that the rise in the mass of surplus value has unsurpassable limits. If this is so, then the rise in
the rate of surplus value also has definite limits, because sooner or later, the displacement of workers will lead
to a fall of the numerator in the equation of the rate of surplus value (s/v). According to Marx, the rise in the
organic composition of capital, on the long term, cannot be compensated by a rise in the rate of surplus value to
a higher degree. Thus, on the long term, the rate of profit will under otherwise constant conditions
necessarily fall. On these grounds Marx concluded:

The progressive tendency of the general rate of profit to fall is, therefore, just an exposition
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 the 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. (Marx 2010, p. 146)

A brief history of the LTRPF controversy

We have mentioned that as soon as Marxs account of the LTRPF was put forth, it became a highly controversial
and exceedingly disputed topic. We will depict the most important controversies around Marxs LTRPF in the
20th century2. The first decidedly influential critique of the LTRPF was elaborated by Ladislav Bortkiewitz in his
1907 article Value and Price in the Marxian System . Bortkiewitz argued that Marxs pivotal flaw lies in his
conflation of price calculations with value calculations when considering the dynamics of technical innovation
that supposedly lead to an inevitable fall in the rate of profit (Bortkiewitz 1952, p. 12). According to Bortkiewitz,
Marx wrongly alleged that the capitalists adopted new techniques of production in order to increase the
magnitude of products, which in turn lowers the values of wage goods (means of consumption) and capital
goods (means of production). Yet, Bortkiewitzs argument was that capitalists only introduce new techniques of
production if they will contribute to lowering the costs of production denominated in prices, and therefore result
in the rise of the rate of profit, which is also denominated in prices. Following these assumptions, Bortkiewitz
used a linear model of prices of production to illustrate that, if labour saving technologies are adopted, a new
rate of profit is established, which could not be lower than the rate of profit before technical change (Cullenberg
1992, p. 46-47). Bortkiewitz concluded that the inherent dynamics of capitalist production, based on technical
change, does not result in the decline in the rate of profit. In several aspects Bortkiewitz anticipated many other
critiques of Marxs that appeared more than fifty years later, amongst which that of Nobuo Okishio was the most
far reaching.
Another important critique of Marxs account of the LTRPF in the early 20th century came from Mikhail TuganBaranowsky. If Bortkiewitz was to be remembered for his arguments against Marxs LTRPF, Baranowsky was to
be recalled for his influential rejection of the LTRPF as a basis for a theory of crisis. Baranowsky was a member
of the so called school of legal Marxists in Russia. This group criticized the underconsumptionist theories of
crises, which held that capitalist crises originate from the lack of purchasing power of the working class, as well
as the theories that, following the LTRPF, argued that crises were a result of the contradictions inherent in the
dynamics of capitalist production. In contrast to these theories Baranowsky reasoned that crises are a result of
the anarchic nature of competition. Baranowskys argument was that crises in capitalism occur as a result of the
lack of coordination between capitalists, which constantly cause disproportionalities between different branches
of production (Millios and Soutiropoluos, p. 6-10). Such an account, however, implies that, crises, resulting from
the chaotic character of competition, can be prevented by state interventions, which would effectively inhibit the
disproportionalities between different branches of production. In future debates on the LTRPF Baranowskys
account was vastly controversial, since it implied that the crisis ridden dynamics of capitalism can be avoided
with reformist strategies of state interventionism.
For some of the Marxian proponents of the LTRPF, accounts such as Baranowskys were often fiercely
contested precisely due to their political implications. For authors such as Henryk Grossman denunciations of
the LTFRP were equal to the denigration of the historical imperative of socialism. In his 1929 work Law of the
Accumulation and Breakdown Grossman argued that Marxs LTRPF amounts to the law of imminent breakdown
of capitalism, which is the fundamental law that governs and supports the whole of Marxs thought (Grossman
2005), and tried to demonstrate that reformist strategies are futile attempts to eliminate the crisis ridden
dynamics of capitalism. He interpreted the LTRPF as a law with profound revolutionary implications, and
denounced the theories of disproportionality or underconsomptionism as theories with reformist political
implications. Grossman was the first broadly known Marxian scholar who ascribed to the LTRPF such a vast
political relevance.
Two significant critiques of the LTRPF were published in 1941, one in The Theory of capitalist development by
Paul Sweezy, and the other in An Essay on Marxian Economics by Joan Robinson. Sweezy and Robinson,
however, did not challenge the LTRPF as a basis for a theory of crisis or political strategy, but rather argued that
the infamous LTRPF is logically inconsistent. Sweezy and Robinson insisted that the long term trend of the rate
of profit is indetermined. Their argument was twofold. First, they challenged Marxs view that the adoption of
labour saving technologies will necessarily increase the organic composition of capital. According to Sweezy
and Robinson, mechanisation can, on the contrary, also result in a decline of the organic composition of capital.
They argued that the productivity increases in the branches that produce capital goods (means of production)
will cause the unit values of the means of production to decrease. That is why, they claimed rather convincingly,
it is easy to imagine that the rise in the technical composition of capital can result not in the rise but in the fall of
the organic composition of capital. That is to say, the productivity increases in branches producing capital goods
may very well result in the cheapening of the elements of constant capital in value terms, and thus overwhelm
the increases in the mass of constant capital. Consequentially, the devalorisation of the units of constant capital
can overpower the increase in the technical composition of capital and in turn cause the rate of profit to rise.

Second, they emphasised that the effects of the adoption of labour saving technologies and the subsequent
increase in the productivity of labour will also affect the branches producing wage goods (means of
subsistence). Particularly, the unit values of wage goods will fall, and in turn lower the value of variable capital,
and thus cause the rate of surplus value to rise. According to Sweezy and Robinson, the effect of the increase of
the rate of surplus value could theoretically very well surpass the effects of the rising organic composition of
capital, and, again, result in the rising rate of profit. Thus, Sweezy and Robinson claimed, that there is no a
priori reason to assert that the rate of profit will on the long term necessarily fall (Cullenberg 1992, p. 47-48).
Soon after the publication of their critique of the LTRPF, Sweezys and Robinsons account was contested.
Amongst the most influential challengers of their reasoning were Roman Rosdolsky and Ronald Meek. Against
Sweezys and Robinsons argument for the possibility of devalorisation of the capital goods to outstrip the
increase in the technical composition of capital, Rosdolsky in Kyklos (1956) presented a substantial amount of
empirical evidence, which implied that the mass of capital goods has risen to such an extent that no
devalorisation of capital goods can counteract it. Similarly, Meek in his article in Science and Society (1960)
demonstrated, by means of plentiful numerical demonstrations, that the scenario where productivity increases
resulting from introduction of labour saving technologies result in the fall in the organic composition off capital,
and in turn cause the rate of profit to rise, is highly unlikely. Both Rosdolsky and Meek also tackled the second
Sweezys and Robinsons argument that the rise in the rate of surplus value might overpower the rise in the
organic composition of capital. They claimed that Marx has already anticipated such counterarguments and
sufficiently rejected them, by showing that, as opposed to the rise in organic composition of capital, the rise in
the rate of surplus value has definite limits, since the growth of the mass of surplus value is limited, because of
the 24 hour limit of the workday (Ibid, p. 48).
The last amongst the most influential critiques of Marxs LTRPF in the 20th century was that of Nobuo Okishio,
portrayed in his article Technical Change and the Rate of Profit from 1961. In line with Bortkiewitz, Okishio
argued that Marx was wrong in depicting the rate of profit as aggregate surplus value divided by the sum of
constant and variable capital (s/(c+v)). According to Okishio, Marx should have used a depiction of the general
rate of profit in accordance with the linear price of production model, used by Bortkiewitz and other Ricardinan
and Sraffian economists. Moreover, Okishio argued that Marx was wrong in presupposing that capitalists would
adopt labour saving technologies in order to increase the productivity of labour. Okishio contended that
capitalists do not introduce new technology in order to upturn the productivity of labour as such, but rather
introduce it only if they result in the reduction of the costs of production. (Ibid, p. 49) By means of a linear price of
production model Okishio demonstrated that the adoption of labour saving technologies, which actually result in
the lowering of the price of production for the capitalist adopting this technology, can only result in the rise in his
rate of profit, and subsequently in a formation of the new general rate of profit, which cannot be lower than the
one in the previous period (Nakatani 1993, p. 3).
Okishios account served as a basis for further critiques of Marxs LTRPF, developed by scholars such as John
Roemer, Michio Morishima and Takesh Nakatani, yet it also became a subject of vehement critique by Marxist
authors such as John Weeks, Anwar Shaikh, Alan Freeman and Andrew Kliman. They have offered several
arguments against Okishio, which cannot be depicted here. For the purposes of this article, it is enough to
stress that they have credibly shown that critiques of LTRPF such as Bortkiewitzs and Okishios suffer from
serious methodological defects. Particularly, the critiques of LTRPF by Bortkiewicz, Okishio and their followers,
are based on the presupposition of perfect competition, characteristic of neoclassical economics. Their
refutations of the LTFRP are thus demonstrated by means of linear price of production models, which are
consistent with Ricardian and Sraffian general equilibrium models, but are in fact light years away from the
presuppositions of Marxs own depiction of the LTRPF. Moreover, the methodology used in linear price of
production models is strictly individualistic, since the criteria for the adoption of new technologies are deduced
from the considerations of the rationality of the individual capitalist in question. Such methodology, again,
diverges substantially from Marxs depiction, where the dynamics of technological change is considered to be
an effect of the impersonal dynamics of capitalist accumulation and competition. That is why Bortkiewitz and
Okishio fail to demonstrate the internal inconsistency of the LTRPF, since their refutation of the LTRPF is based
on an imposition, upon Marx, of the methodological assumptions which are external to his mode of presentation
of the LTRPF.
It could be argued that the only aforementioned critique of the LTRPF that actually tackles Marxs demonstration
on its own terms, and thus fulfils the criteria of immanent critique of the logic of Marxs elaboration of the LTRPF
is that of Sweezy and Robinson. Namely, Sweezy and Robinson accept Marxs account of the dynamics of
capitalist production that facilitates the increases of the technical composition of capital, and try to show that this
same dynamic can result in outcomes, which are opposed to what Marx has envisaged on the basis of this
dynamic. The first argument of their critique, portraying the possibility of the fall in the unit values of constant

capital, which can outdo the effects of the rising mass of constant capital, and thus cause the rate of profit to
rise, is hard to contest. We have seen that it was challenged by Meek and Rosdolsky, who claimed that
Sweezys and Robinsons argument is empirically incorrect. However, as Michael Heinrich has argued, the
LTRPF can neither be substantiated nor refuted on the basis of empirical evidence:

The law claims that a fall in the rate of profit results in the long-term from the capitalist mode of
development of the forces of production. If the rate of profit has fallen in the past, this does not
constitute a proof since the law purports to apply to future development, and the mere fact of a
fall in the rate of profit in the past says nothing about the future. If the rate of profit has risen in the
past, then this is also not a refutation, since the law does not require a permanent fall, but rather
merely a tendential fall, which can still occur in the future. Even if the law cannot be empirically
verified, the argumentative conclusiveness of Marxs reasoning can be discussed. (Heinrich
2013)

That is why we can assert that only the second argument made by Meek and Rosdolsky against Sweezy and
Robinson fulfils the criteria of immanent logical critique, which could show that Marxs LTRPF is logically
incoherent. In this case, Rosdolskys and Meeks refutation of Sweezys and Robinsons argument that we
cannot a priori conclude that the rate of profit will fall on the long term, since there is no reason to presuppose
that the rise in organic composition of capital will outstrip the rise in the rate of surplus value, can be considered
logically sound, because Sweezy and Robinson do not take into account Marxs clearly and irrefutably
demonstrated proof that the rise in the magnitude of surplus value has limits, due to the definite limit of the
workday (24 hours). Provoked with this simple counterargument made by Rosdolsky and Meek, Sweezys and
Robinsons argument proves to be insufficient. However, as we will see, Sweezys and Robinsons claim that
there is no reason to believe that the rise in the organic composition of capital will necessarily outstrip the rise in
the rate of surplus value, and therefore necessitate the fall of the rate of profit, can nevertheless be validated if
their account is substantiated with an additional argument, which can defend their claim against critiques such
as Rosdolskys and Meeks.

Heinrichs critique of the LTRPF

Meek, Rosdolsky and, so it seems, Marx himself, thought the proof that the rise in the mass of surplus value has
a definite limit, was sufficient to prove, on logical grounds, the LTRPF. As we have already demonstrated, Marx
was indeed right to point out that when the number of workers falls beyond a certain limit, the amount of surplus
value produced also necessarily decreases. We have verified this with a numerical example including the
reduction of the number of workers from 100 to 10. Nonetheless, Heinrich persuasively argues that this is not
enough to prove the LTRPF3. Heinrich starts by repeating Sweezys and Robinsons argument that it is
impossible to prove that the rise in the rate of surplus value cannot outdo the rise in the organic composition of
capital. But, as opposed to Sweezy and Robinson, Heinrich develops a supplementary argument that takes into
account the important claim, first stressed by Marx and repeated by Meek and Rosdolsky, that the rise in the
mass of surplus value has a limit, which cannot be surpassed.
According to Heinrich, the declining mass of surplus value indicates a certain fall in the rate of profit only when
we presuppose that the mass of total capital that is needed for the production of this surplus value does not
decline, but at least remains constant (Heinrich 2012, p. 153). This thesis can be demonstrated with a numerical
example, which depicts the effects of rising organic composition of capital, and the decline in the mass of surplus
value on the rate of profit:
I) s / (c + v) = 50 / (50 + 50) = 0,5 = 50%
II) s / (c + v) = 40 / (60 +40) = 0,4 = 40%
III) s / (c + v) = 40 / (60 + 10) = 0,57 = 57%
We can see that only in the second case, where there is a slight rise of the organic composition of capital and a
fall in the mass of surplus value, the profit rate declined, whereas in the third case the rate of profit increased

despite the fact that the mass of surplus value has declined and despite the fact that the organic composition of
capital has increased substantially:
I) c / v = 50 / 50 = 100%
III)

c / v = 60 / 10 = 600%

In the third case, the rate of profit has increased because the mass of total capital advanced has dropped from
100 to 70. The profit rate has fallen only in the second case in which the value of the total capital advanced
remained constant (100). This is precisely why the necessity of the fall of the mass of surplus value does not
also automatically dictate the fall in the rate of profit (see Heinrich 2012, p. 153). If we now return to our example
of the reduction of the number of workers, we can clearly see why such a reduction is insufficient to indicate a
certain fall in the rate of profit. Should the number of workers be reduced from 100 to 10, this would mean that
the value of variable capital would fall to 1/10 of its previous value. Keeping the general formula of the rate of
profit in mind (s / (c + v)), it is evident that this would result in a substantial fall of the denominator, which could
very well cause the rate of profit to rise. Moreover, the displacement of workers by introduction of labour saving
technology also implies the reduction of the value of means of subsistence that determine the value of labour
power. Along these lines, the effect would be a reduction of the value of labour power, which automatically
translates into a further decline in the variable capital. This means that variable capital that employs 10 workers
will shrink to even less than 1/10 of the value of variable capital that employs 100 workers (see Ibid, p. 152153).
In these conditions the proof that the rate of profit will fall is only possible if we can also prove that the constant
capital will increase by at least the same amount by which the variable capital has been reduced (Ibid, p. 153).
Only then can we exclude the possibility of a falling mass of the whole capital advanced and consequentially
prove that the fall in the rate of profit is certain. However, on such a general level, this simply cannot be proven,
since we cannot possibly know if the increase in productivity was implemented with a substantial or just a minor
increase in the value of constant capital. Heinrich outlines this dubiousness as follows:

If constant capital does not increase strongly enough to compensate the reduction of variable
capital, then the total capital advanced declines. In this case, we have a declining mass of surplus
value and declining capital. Whether the rate of profit falls depends upon what falls quicker, the
mass of surplus value or the advanced capital. If the mass of surplus value falls quicker than the
advanced capital, then the rate of profit declines; if the advanced capital declines quicker than the
surplus value, then the rate of profit increases despite the reduction in the mass of surplus value.
(Ibid, p. 153)

Hence, the conclusion would be that departing from that dynamics of the capitalist development we cannot
assume in advance that there is a law of the tendency of the rate of profit to fall. The rate of profit of course
might fall due to this dynamics this possibility cannot be excluded but it might very well rise due to this same
dynamics. Its long term course cannot be determined in advance.

Political implications of the LTRPF

Hence, we have come to a conclusion that we cannot logically derive the LTRPF from the dynamics of capitalist
development. But does this mean that we have adopted a cosy reformist political stance, and denounced the
need for the overthrow of capitalism, as the most ferocious proponents of the LTRPF would want us to believe?
We have mentioned that many of them treated Marxs LTRPF as the ultimate argument for why the inherent
systemic dynamics of growth in capitalism necessarily undermines its own conditions, and consequentially
leads to periodic crises that necessitate the revolutionary overthrow of capitalism. Authors such as Henryk
Grossman, Anwar Shaikh, John Weeks, Andrew Kliman, Michael Roberts and many others have emphasised
that a profound political issue is at stake in the debates on the LTRPF. In the words of John Weeks: What is at
stake is whether capitalism is by its very nature stable and capable of sustained dynamism, or whether the
accumulation of capital is self-limiting. Therefore, the debate over the tendency for the rate of profit to fall does
correspond to the debate over revolutionary strategy ... involved here is the debate over the possibility of a

peaceful road to socialist transformation. (Weeks 1982, p. 76) Weekss argument is in line with Grossman who
asserted that to deny that there is a LTRPF is to deny that there are objective revolutionary situations. If the
falling rate of profit and hence crises are not permanent built-in features of the capitalist mode of production,
then there is no objective necessity for the transcendence of capitalism.
However, to adopt a revolutionary political position that is straightforwardly deduced from an abstract law such
as the LTRPF seems farfetched, to say the least. It entails a rather mechanicistic political vision, embedded in a
deterministic worldview, which, in a theleological manner, views the end of capitalism, and often also a
proletarian revolution, as an inevitable occurrence irrespective of what happens in the actual course of history.
Moreover, the political position derived from the LTRPF is problematic, since it is derived from a general law,
which is depicted on a level of abstraction, where no consideration of concrete historical political conditions in
which politics is actually made, can be taken into account. Furthermore, such forthright derivations can lead to
rather bizarre conclusions. If we were categorically to claim that the affirmation of the LTRPF implies a
revolutionary position, this would mean that not Marx, but rather the bourgeois economists such as Adam Smith,
David Ricardo and even the champion of marginalist economics, William Stanley Jevons, were the ultimate
theoreticians of the revolution and implicit proponents of the overthrow of capitalism, since all of them had, each
in their own way, argued for the inexorable inevitability of the decline in the rate of profit. Considering the fact
that their political attitude was far from revolutionary, establishing direct connections between LTRPF and
political strategy seems highly unsound. In line with Heinrich we can conclude that to criticize theories such as
the LTRPF means in no way to defend capitalism. Such critiques just aim to fighting against capitalism without
illusions based on inconclusive or unverifiable theories.
***
References:
Bortkiewitz, Ladislaus. 1952. Value and Price in the Marxian System:
http://classiques.uqac.ca/classiques/Bortkiewicz_ladislaus_von/value_and_price_marxian_system/value
_price_marxian_system.pdf.
Cullenberg, Stephen. 1983. The Political Economy of Marxs Theory of the Falling Rate of Profit:
Methodological Considerations: http://www.helsinki.fi/jarj/inem/methodus/pdf/v4n1/v4n1p44.pdf.
Grossman, Henryk. 2005. Law of the Accumulation and Breakdown:
https://www.marxists.org/archive/grossman/1929/breakdown/index.htm.
Heinrich, Michael. 2012. An Introduction to the Three Volumes of Karl Marx's Capital. New York: Monthly
Review.
Heinrich, Michael. 2013. Crisis Theory, The Law of the Tendency of the Profit Rate to Fall, and Marx's
Studies in the 1870's: http://monthlyreview.org/2013/04/01/crisis-theory-the-law-of-the-tendency-of-theprofit-rate-to-fall-and-marxs-studies-in-the-1870s/.
Marx, Karl. 1973. [1857-1858] Grundrisse. London: Penguin Books.
Marx, Karl. 1993. Capital, Volume III:
http://www.marxists.org/archive/marx/works/download/Marx_Capital_Vol_3.pdf.
Marx, Karl. 2010. Capital, Volume I: https://www.marxists.org/archive/marx/works/download/pdf/CapitalVolume-I.pdf.
Nakatani, Takesh. 2000. The Theoretical Work of Nobuo Okishio: https://www.google.si/url?
sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CB8QFjAA&url=http%3A%2F%2Fwww.iwgvt.org%2Ff
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Millios, John and Sotiropoluos, Dimitris. 2007. Marxist Approaches to Economic Crises:
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Weeks, John. Equilibrium, Uneven Development, and The Tendency of the Rate of Profit to Fall:
http://cnc.sagepub.com/content/6/1/62.full.pdf.
***
This text was provided by the author for the conference on Critique of Political Economy held in Institute for

Philosophy and Social Sciences in Belgrade, December 2013.

1 Marx dealt with LTFRP in several writings. Our illustration, however, is limited to an examination of his account
in chapters 13 and 14 of the third volume of Capital.
2 What follows is a brief overview of the most influential discussions. An in-depth depiction and critical
evaluation of several complex arguments of all the authors in question is beyond the scope of this article. The
overview follows Stephen Cullenbergs chronological synopsis of the debates on the LTRPF presented in his:
The political Economy of Marxs Theory of the Falling Rate of Profit.
3 Heinrich first elaborated his critique of Marx's LTRPF in his book: Die Wissenschaft vom Wert in 1990. His
critique was presented to the english speaking public in his An Introduction to the Tree Volumes of Karl Marx's
Capital (2012) and in his article: Crisis Theory, The Law of the Tendency of the Profit Rate to Fall, and Marx's
Studies in the 1870's published in Monthly review in 2013.