Question

This format should allow you more time to think about your answer. The length of your answers should range from 2-4 paragraphs, depending on the complexity of the question. Remember to use the readings and your class notes to answer the questions. Use citations/quotes and then go on to interpret and explain the quote in your own words.

The falling rate of profit is a fundamental theory in Marxist economics. Describe what the rate of profit is and how the capitalist goal of accumulating more and more profit leads to a general fall in the profit rate for the economy as a whole. Describe the countervailing forces that can reverse the tendency for the profit rate to fall. Finally what is “deskilling” and how can it be used to offset the falling rate of profit?

Answer 1

The mainstream economics is mostly concerned with the decision making problem within the current economic and social set up while Marxian economics looks to understand the changes in social and economic organizations . Marx argued that the capitalist production is characterized by the separation between means of production and the proletariat . The surplus produced in excess of the subsistence is always produced by laboring people. In a slave society surplus was produced by the slaves, in a feudal society by serfs and in a capitalist society by factory workers or proletariat. The idea that the rate of profit would fall over time is an important element of the classical writing. Marx's contribution was to explicitly linking it with the demise of capitalism . Marx maintained that the drive for profit would induce the capitalists to accumulate more capital which would bid up the wage and reduce profit . Capitalists would responds to it by employing more machinery that would displace labor . With capitalists replacing workers with machines   will go up reducing the rate of profit given that all other parameters are constant .

Things are not so straight forward if technological change takes place which changes the rate of exploitation . If technological change leads to higher rate of exploitation – the effect on the rate of profit is ambiguous . However, Marx maintained the position that rate of profit will decline in the long run and that will bring down the capitalism. Some of the twentieth century Marxist economists such as Paul Sweezy and Joan Robinson contested the idea of falling rate of profit . So technology is the countervailling force .

Reducing the skill level of workers r making them specialized in one aspect can also offset falling rate of profit . That would also lead to lower wage rates .