Karl Marx, the Declining Rate of Profit and British Political Economy

Marx's theory of the declining rate of profit is perhaps the most important single failure in the economic analysis of capitalism offered in Capital.' Not only has research lent no empirical support to the theory, but it contains a logical weakness which even commentators not hostile to Marx have been at a loss to explain. At the same time the theory occupies a crucial place in Marx's view of social development and he himself stresses its importance. No convincing explanation has been offered for this awkward conviction. The theory is set out in part III of volume III of Capital.2 We are not primarily concerned here with the validity of the economic aspects of Marx's teachings but rather with their importance to the internal consistency of Marx's thought as a whole. It will be necessary, however, as a preliminary, briefly to recapitulate Marx's theory of the tendency of the rate of profit to fall.3 Marx employs three basic categories in his economic analysis.4 Variable capital, represented by the symbol v, is his term for the capitalist's outlay on labour; variable, because labour, according to Marx, uniquely possesses the power to increase the of commodities which it is employed to manufacture by an amount greater than its own cost as a factor of production. This bonus, derived from the application of labour, he calls surplus value and represents by the symbol s. Surplus is the capitalist's profit. That part of the capitalist's outlay not devoted to labour is invested in constant capital, c; constant, because, unlike labour, v, it cannot create new value; it can only, in Marx's schema, transfer part of its own

Classical economics · Economic system · Economics · Economy · Keynesian economics · Market economy · Neoclassical economics · Political science · Politics · Profit (economics) · Profit rate · Rate of profit · Economic Theory and Policy · Law · Political Economy and Marxism