Question

If someone asked you does the rate of profit tend to fall under capitalism, what would you answer? What is the evidence? Note it is not a simple question. During periods when it falls what is the Marxist explanation for the decline?

Answer 1

Capitalism means an economic system in which the whole control is in the hands of private sectors and government plays no role in decision making . Government checks only the law and order. In capitalism the main aim is to earn profits .

Rate of profits in capitalism would increase as they have full control over the prices.Government as no role in decision making .The company set prices according to its own wish and it can set a monopoly. But if we see in long run the prices would fall in capitalism.It also depends on time factor ,It will make profits in short run due to technological innovations but if it continues for long term then may tend profits to fall as labour effeciency will be replaced by machines and they are not as valuable as labour. And it also depend on who you are? If you are a boss or a worker. In Case you are a owner of a company , you are sharing profits equally with workers, this will improve their standard of living and rate of consumption , leading to overall increase in rate of profits and the vice versa.

Marxist explains the fall in the rate of profits is due to the reason that though ,technological innovations would increase the efficient use of means of production leading to increase in physical productivity but this would replace the labour with machinery. He was of the view that labour would add more benefits and value to the economy rather than machines. He said that technological innovations can increase the marginal product of capital more than labour but long term effect of this will be falling rate of profits.