Introduction

Before beginning the technical discussion of the theory of the falling rate of profit, it is worthwhile recalling Marx's intellectual project in proposing his theory. Falling-rate-of-profit theories were a standard part of the armor of classical economics. The theories of Ricardo and Malthus were driven by diminishing returns in the natural productivity of the earth: As society was forced to adopt inferior land for agriculture, an increasing part of the economic surplus would be absorbed as rent, with a correspondingly smaller part available for profits. Hence, the rate of profit would fall as a natural, immutable consequence of a growing population, independent of what social and economic system prevailed.

Marx's aim was to show, on the contrary, that the rate of profit would fall as a consequence of the specific laws of motion of capitalist economy. As with so many other questions, he spurned general laws (that is, laws that purported to apply to all modes of production) and sought to locate developments such as a falling rate of profit in a historically specific context. Thus Marx proposed a falling-rate-of-profit theory that was driven by the specific form of technical change he conceived of as taking place under capitalism. There is no diminishing returns aspect to the argument. Although it will be shown in this chapter and the following one that Marx's theoretical conjecture was incorrect, his general methodological insight – that any crisis theory should be specific to the mode of production it seeks to describe – still stands.