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Technical change, constant rate of exploitation and falling rate of profit in linear production economies

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  • Deepankar Basu
  • Oscar Orellana

Abstract

Can cost‐reducing technical change lead to a fall in the long run rate of profit if class struggle manages to keep the rate of exploitation constant? In this paper, we derive three results that, taken together, answer this question in the affirmative. First, we identify three properties that new real wage bundles must satisfy to keep the rate of exploitation constant and lead to a falling rate of profit. Second, we derive sufficient conditions for existence of an infinite number of such real wage bundles. Third, we show that, if the initial real wage bundle is such that the maximum price‐labor value ratio is larger than 1 plus the rate of exploitation, then starting from any configuration of technology, there always exists a viable, capital‐using labour‐saving technical change that satisfies the sufficient conditions of the previous result. These results vindicate Marx's claim that if the rate of exploitation remains unchanged then technical change in capitalist economies can lead to a fall in the long run rate of profit.

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  • Deepankar Basu & Oscar Orellana, 2023. "Technical change, constant rate of exploitation and falling rate of profit in linear production economies," Metroeconomica, Wiley Blackwell, vol. 74(3), pages 512-530, July.
    • Handle: RePEc:bla:metroe:v:74:y:2023:i:3:p:512-530
    DOI: 10.1111/meca.12425
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    References listed on IDEAS

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    1. Weikai Chen, 2019. "Technical Change, Income Distribution, and Profitability in Multisector Linear Economies," UMASS Amherst Economics Working Papers 2019-15, University of Massachusetts Amherst, Department of Economics.
    2. Junshang Liang, 2021. "The Falling Rate of Profit under Constant Rate of Exploitation: A Generalization," Review of Radical Political Economics, Union for Radical Political Economics, vol. 53(3), pages 501-510, September.
    3. Roemer, John E, 1979. "Continuing Controversy on the Falling Rate of Profit: Fixed Capital and Other Issues," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 3(4), pages 379-398, December.
    4. Bowles, Samuel, 1981. "Technical Change and the Profit Rate: A Simple Proof of the Okishio Theorem: Note [Technical Change and the Rate of Profit]," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 5(2), pages 183-186, June.
    5. Richard R. Nelson & Sidney G. Winter, 1975. "Factor Price Changes and Factor Substitution in an Evolutionary Model," Bell Journal of Economics, The RAND Corporation, vol. 6(2), pages 466-486, Autumn.
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