The Tendency for the Rate of Profit to Fall and the Realization Crisis

For Marx, the law of the tendency of the rate of profit to fall is an essential element in the laws of motion of a capitalist economy. It occurs in a dynamic context as technological change leads to the increasing productivity of labour with the increase in capital accumulation leading to an increasing organic composition of capital which effects a fall in the rate of profit. This in turn leads the capitalists to accumulate and innovate to prevent the fall, leading to centralization and concentration of capital. The law is composed of two opposing forces that are contradictory and the resolution of these contradictions is what creates the movement within the system. The realization crisis is a problem that is discussed throughout the history of economic thought either in explicit or implicit terms as underconsumption theory or problems associated with the lack of effective demand and is therefore not unique to a Marxian analysis. However, the manner in which Marx sets his discussion of the problems of realization is firmly set in the specific nature of the capitalist relations of production. Hence, the crisis occurs as a result of commodity production being motivated by accumulation rather than use-value, the dynamic nature of the system which involves economic change and disrupts the pattern of production, and the increasing division of labour produced by capitalist commodity production.