The Falling Rate of Profit as a Research Program

Abstract

This paper argues that the Marxian law of the tendency of the rate of profit to fall defines an important analytical framework for studying the role of capital-using, labor-saving (Marx-biased) technical change in the accumulation process. Using a tractable one-sector model of growth and distribution, the paper examines two viability conditions used in the study of Marx-biased technical change. In the Standard Interpretation, capitalists choose techniques if they increase their transitional rate of profit. As Duncan Foley and others have observed, if wages are rising, Marx’s prediction of a declining rate of profit can go through conditionally. Anwar Shaikh has argued that under ”real competition” capitalists will be forced by competitive forces to choose techniques that increase their profit margins, even if they lower the rate of profit. While empirical research on the viability condition under the Standard Interpretation has generally found it to be comfortably satisfied (which would be consistent with real competition as well), there is enough ambiguity in the evidence to warrant further study. Theoretical research has only begun to explore the possibility that a game-theoretic approach might bridge the gap between these accounts. Other issues raised include the origin of Marx-biased technical change and the role of wage growth in mediating technical choices.