Economists' Views on the Falling Rate of Profit
Economists in the 19th century had their different and straightforward opinion on the falling rate of profit of the industries. For instance, Ricardo argued that profits due to a natural tendency cost by high cost of hiring labor to produce foodstuffs which demanded wages resulting in too high prices. Ricardo’s tendency was happily checked by the improvement in machinery at repeated intervals which was connected with the production of necessaries in the agricultural science. The checkup enabled to relinquish a portion of labor required to lower the cost of work to increase profit. Marx starts to analyze the development of the profit rate from the scope of industrial production, that aims to expand productivity activity and concerned with towards extracting maximum possible profit from the development of the manufacturing process. To extract most probable profit from capital in its effort, necessary precondition for its own survival is led to a front of competition.
Marx's Analysis of the Falling Rate of Profits
Marx later went into finding out more about the falling rate of profits (Dickson 1957, p. 121). After investigations, he realized that there was a general propensity in which the rate of profit fall resulting by putting more emphasis in constant capital production like machinery, and less on variable capital such as expenditure on wages. On the stationary state in the classical political economy, Marx's approach shots from a different perspective like the other authors like Mill. Marx viewed the steady state as an event which coincided with fall of capitalism and the arrival of socialism.
Counteracting Factors and Slow Fall of Profits
Basing on the falling rate of profit, as stated earlier, Marx believed that there must be some offsetting impact at the workplace, which invalidates and frustrate what the general law would have, hence leaving it merely a character of tendency. When Karl Marx realized about the counteracting factors, he then went ahead to deal with the factors which comprised of cheapening the elements of constant capital and factors that raised the intensity of exploitation. With this investigations and implementation, Marx expected a slow rate at which the profits fall. However, through deployments, he realized that the rate of profit not only falls but also rises. In his experiment using cotton spinning factory, Marx came out with the result of about percent which according to him was abnormally higher since cotton was cheap. From Marx’s scrutiny, it would be hard to find the average rate of profit over a whole field of cotton in a single period, and he therefore recommended that an average of fall of profit can be realized over a given period of years.
The Rate of Profit in the United States and Companies' Response
As a result of Marx’s result through the average rate of profits, it can be deduced that the rate of profits falls and rises due to the variation of bad and good trade with continued fall of the price of profit of a period of more than 149 years. From this results, and approximation of years, the rate of profit will be meager which is wrong. Marx’s investigations were used in the United States before and after world war I. It was found out that instead of the rate of profit expected to fall, was then rising contrary to the expectations. The contradictions after World War I led to more study on the falling rate of profit in manufacture of good and creation of services. However, some companies in 1951 to 1959 showed apparent slow fall which can be deduced from the fact that it was a reflection of inflation when the prices were steadily rising making the calculations of the balance sheet figures of depreciation and capital value. When the war ended, depreciation and capital assets still appeared at a figure not much higher than the pre-war heights. The probabilities are that it would have been stable or increase in steadiness if it was corrected at the outset rate of profit. Certainly, the total profit according to Marx, would be rising and also affect the rate of profit to rise. There is also the noticeable falling rate of profit rapidly which is argued based on Marx’s idea that because of the falling, capitalists have to keep on enlarging their capital to get same mass of profit out of the falling rate of profit.
The Minimum Rate of Accumulation and Reactions of Companies
The capitalist is enlarging their capital to get same mass of profit, is their original formula which is the minimum rate of accumulation. Marx suggests that whenever or if ever the rate of accumulation falls below that level, then the system either must or just jam. According to this argument, then when the capitalist makes more profit if they restrict than expand production. Most companies hold and use this view for their benefit. However, some board of directors of some companies may not follow this idea hence may take a longer look and not curtail investment because of the current fall in the rate of profit. However, some big companies in 1957 like Unilever group had a drastic fall in their rate profit, but since they took longer, they witnessed an increase in capital investment than expected a decline. The Unilever evidence seemed to show and uphold the rate of capital investment as less influential by then current rate of profit by the long-term expectations of over-production which was likely to arise in the nearby or more distant future.
Factors Affecting the Rate of Profit and Marx's Views on Capitalism
For companies to raise the rate of profit, one of the factors at present time to help is the economies of capital expenditure and the merger of many large groups of firms. Besides this, the growth of shift working to enables them to keep their plant running. Marx’s view on capitalism emphasizes that profit will tend to fall over a given period due to technological change (Clarke 1990, p. 444). Therefore, Marx referred to this as a tendency which the rate of to decrease which is an essential law in the modern political economy. Marx also emphasized the bill as one of his essential achievement over classical economics.
Criticisms of Marx's Theory and his Views on the Stationary State
However, the achievement of Marx, of the falling rate of profit has faced criticism. The disapprovals included: failure to attest that the capital composition must increase, inability to prove that capital composition even if it does not necessarily improve it must rise more rapidly than the level of surplus-value, and if the real wage is anticipated to keep on remaining relentless the technology prevents a deterioration in the degree of profit.
On the stationary state of an economy, Marx viewed it as an event which coincided with the arrival of socialism. He had a different view from other contributors to stationary state of the economy (Pigou 1943, p 348). When others argued that scarcity of resources determines steady state through the diminishing returns, Marx argued that stationary state was a seed of its destruction with a significant inner nature of capitalistic economic systems. He goes ahead stating that the policies cannot perpetuate themselves through time contrarily to socialism. Most of the economists like Mill conceived stationary state as a moment of stagnation, but Marx did side with them but viewed it as a very significant change within society, a social revolution which could end capitalism (Buckley 2011, p. 140). While other scholars concentrated on individual analysis, Marx focused on the concept of the class which made him not reach the same conclusions as opposed to single's people lives due to a stationary state. Therefore, the benefits that he came about with were of a typical working class which is exploited under capitalism which envisions its freedom through the harsh coming into being of the stationary state.
Incompatibility of Capitalism and the Stationary State
Marx views capitalism as a system that alienates people from themselves and which distribute neither for advantage nor their desires, thus in his opinion, he desired capitalism tone destroyed. However, capitalism cannot end when the stationary state is experiencing a falling rate of profit in a rather severe fashion but also present within socialist economies in which after such a fall, whatever they produce will consider it sufficient first to embark on it, with their view of satisfaction and happiness (Steedman 1971, p 65). Marx outlined that output and real wages would increase to the point at which the society would decide through the general mechanism. Entirely, Marx deals with a particular stationary state for the working class and contrary where the capitalist is aiming to make the profit themselves without replenishing the planet from where they are removing it from the planet.
The Unsustainability of the Stationary State in Capitalism
A stationary state is incompatible with capitalism and not sustainable. Therefore, Marx gives us an insight into this because a steady state triggers the collapse of capitalism system which signals the total incompatibility of the two. To keep up what Marx calls as simple reproduction and of the environment, which equals to the state, then there will need to assume a zero net investment which isn’t compatible with the notion of profit that drives that owns productive means.
References
Buckley M. (2011) John Stuart Mill and the Idea of a stationary State Economy, Humanistic Ethics in the Age of Globality, pp: 137-147.
Boulding, K. (1973) The Shadow of the Stationary State, Daedalus, 102(4)
Clarke S. (1990) The Marxist Theory of Crisis, Science and Society, 54, 4: 442-446
Dickson H.D. (1957) The Falling Rate of Profit in Marxian Economics, The Review of Economics Studies, Vol 24, No. 2: 120-130.
Pigou A. C (1943) The Classical Stationary State, Economic Journal, pp: 343-351
Steedman I. (1971) Marx on the Falling Rate of Profit, Australian Economics Papers, vol. 10, no. 16: 61-66.
