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Making Sense of the Rate of Profit

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  • Freeman, Alan

Abstract

This paper was produced as a study aid, to help people understand twentieth-century debates about Marx’s theory of the profit rate. It discusses and dissects the principal criticisms of Marx’s formulation of the ‘law of the tendential fall in the profit rate’. It is I think one of the more complete explanations of why and how Marx’s temporal conception of the profit rate leads to a different, and greatly more logically coherent, account of its movement than the simultaneist and physicalist alternatives which have dominated this field within academic Marxism since Sweezy’s (1942) endorsement of Bortkiewicz’s (1905) re-interpretation of Marx as a general equilibrium theorist manqué. It was originally presented at the Greenwich symposium on value theory in 2000, and is substantively the same as the paper distributed there; however I have completed the text and the references where there were minor gaps in the original. To aid the reader, its central focus is the criticism first articulated by Moszkowska, but popularised by Joan Robinson, according to which Marx erred because the value of capital advanced must fall, along with prices, in such a way that it entirely offsets the rise in the value of invested capital. This criticism, it shows, is based on a particular though widespread reading or ‘interpretation’ of Marx, corresponding to a particular view of value: the ‘physicalist’ concept which Western academic Marxism. Physicalism, it shows, is an automatic outcome of simultaneism, according to which Marx is best understood as a variant of economic general equilibrium. The paper explains the alternative Temporal Single System Interpretation (TSSI) of Marx’s value theory developed by a number of scholars since the early 1980s. It illustrates the errors that arise from physicalist and simultaneist reasoning with a detailed series of numerical examples and thereby illustrates how the rate of profit really governs a modern capitalist economy.

Suggested Citation

  • Freeman, Alan, 2000. "Making Sense of the Rate of Profit," MPRA Paper 48637, University Library of Munich, Germany, revised 26 Jul 2013.
  • Handle: RePEc:pra:mprapa:48637
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    File URL: https://mpra.ub.uni-muenchen.de/48637/7/MPRA_paper_48637.pdf
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    References listed on IDEAS

    as
    1. Roemer, John E, 1979. "Continuing Controversy on the Falling Rate of Profit: Fixed Capital and Other Issues," Cambridge Journal of Economics, Oxford University Press, vol. 3(4), pages 379-398, December.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    TSSI; Value Theory; Rate of Profit; Marx;

    JEL classification:

    • B12 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - Classical (includes Adam Smith)
    • B14 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - Socialist; Marxist
    • B31 - Schools of Economic Thought and Methodology - - History of Economic Thought: Individuals - - - Individuals
    • B4 - Schools of Economic Thought and Methodology - - Economic Methodology
    • B51 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Socialist; Marxian; Sraffian

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