Marx after Okishio: Falling Rate of Profit with Constant Rate of Exploitation

TL;DR

This paper demonstrates that cost-reducing technical change, maintaining constant exploitation, can cause a long-term decline in profit rates within a Marxian economic model, supporting Marx's original claim.

Contribution

It provides a formal, general circulating capital model showing conditions under which technical change reduces profit rates while keeping exploitation constant.

Findings

Cost-reducing technical change can lower profit rates if exploitation remains constant.

Sufficient conditions are derived for technical change to cause profit rate decline.

The model confirms Marx's hypothesis about the fall of profit rate under certain technical and wage conditions.

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 a general circulating capital model, we derive sufficient conditions for cost-reducing technical change to both keep the rate of exploitation constant and lead to a fall in the equilibrium rate of profit. Further, if the real wage bundle is such that the maximum price-value ratio is larger than 1 plus the rate of exploitation, then starting from any configuration of technology and real wage, we can always find a viable, CU-LS technical change that satisfies the sufficient conditions for the previous result. Taken together, these results vindicate Marx's claim in Volume III of Capital, that if the rate of exploitation remains unchanged then viable, CU-LS technical change in capitalist economies can lead to a fall in the long run rate of profit.