The growth of capital stock itself would drive down the average rate of profit. In Adam Smith's TRPF theory, the falling tendency results from the growth of capital which is accompanied by increased competition. In the end, none of the conceivable counteracting factors could stem the tendency toward falling profits from production. Nevertheless, Marx thought the countervailing tendencies ultimately could not prevent the average rate of profit in industries from falling the tendency was intrinsic to the capitalist mode of production. The increase in the use of share capital by joint-stock companies, which devolves part of the costs of using capital in production on others.Foreign trade reducing the cost of industrial inputs and consumer goods.The growth of a relative surplus population (the reserve army of labor) which remained unemployed.Cheapening the elements of constant capital by various means.Reduction of wages below the value of labor power (the immiseration thesis).
More intense exploitation of labor (raising the rate of exploitation of workers).In his draft manuscript edited by Friedrich Engels, Marx cited six of them: The counteracting factors were factors that would normally raise the rate of profit. Marx maintained that it was only a tendency, and that there are also "counteracting factors" operating which had to be studied as well. Marx regarded the TRPF as a general tendency in the development of the capitalist mode of production. The central idea that Marx had, was that overall technological progress has a long-term "labor-saving bias", and that the overall long-term effect of saving labor time in producing commodities with the aid of more and more machinery had to be a falling rate of profit on production capital, quite regardless of market fluctuations or financial constructions. It declined in the long run, Marx argued, paradoxically not because productivity decreased, but instead because it increased, with the aid of a bigger investment in equipment and materials. Rosa Luxemburg, in her 1899 pamphlet Social Reform or Revolution? It is the threat of the constant fall of the rate of profit, resulting not from the contradiction between production and exchange, but from the growth of the productivity of labor itself. In the “unhindered” advance of capitalist production lurks a threat to capitalism that is much graver than crises. In response, the average rate of industrial profit would therefore tend to decline in the longer term. Now, assuming value is tied to the amount of labor necessary, the value of the physical output would decrease relative to the value of production capital invested. the organic composition of capital) would decrease. In the long run, if demand remains the same and the more productive methods are adopted across the entire economy, the amount of labour required (as a ratio to capital, i.e. In the short run, physical productivity would increase as a result, allowing the early adopting capitalists to produce greater use values (i.e., physical output). Marx argued that technological innovation enabled more efficient means of production. In Marx's critique of political economy, the value of a commodity is the amount of labour that is socially necessary to produce that commodity. Stephen Cullenberg stated that the TRPF "remains one of the most important and highly debated issues of all of economics" because it raises "the fundamental question of whether, as capitalism grows, this very process of growth will undermine its conditions of existence and thereby engender periodic or secular crises." Causal explanations Karl Marx According to this view, its refutation or removal would lead to reformism in theory and practice". Geoffrey Hodgson stated that the theory of the TRPF "has been regarded, by most Marxists, as the backbone of revolutionary Marxism.
This hypothesis gained additional prominence from its discussion by Karl Marx in Chapter 13 of Capital, Volume III, but economists as diverse as Adam Smith, John Stuart Mill, David Ricardo and Stanley Jevons referred explicitly to the TRPF as an empirical phenomenon that demanded further theoretical explanation, although they differed on the reasons why the TRPF should necessarily occur. The tendency of the rate of profit to fall ( TRPF) is a theory in the crisis theory of political economy, according to which the rate of profit-the ratio of the profit to the amount of invested capital-decreases over time.
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