In section 5.2, we had studied the issue of technical change, and we now revisit the issue to deal with it in greater detail. In particular, two questions related to technical change will be addressed in this chapter. We will first make precise the definition of technical change, relate it to capitalist decision-making and then ask the following question: Does technical change adopted by capitalist firms coincide with what is best from a social perspective? The second question we will investigate relates to the relationship between technical change and the rate of profit. When does technical change in capitalist economies lead to a fall in the rate of profit?

The second question derives its importance from a long and distinguished Marxist literature on tendencies of economic crisis in capitalist economies. From a Marxist perspective, an economic crisis in a capitalist economy is a deep and prolonged interruption of the economy-wide circuit of capital. The proximate cause of an economic crisis is a decline in the average rate of profit. The rate of profit can fall in two different, and mutually exclusive, ways, which suggest a typology of economic crises in capitalism. The first way in which the average rate of profit can fall is when the economy is marked by a chronic insufficiency of aggregate demand, so that commodities are sold at prices that are below their value (or price of production). Hence, in this case, the sale of the commodity does not realize the full surplus value (or the average rate of profit), and the realized rate of profit falls below the ‘normal’ rate of profit (which prevailed previously). We can refer to this as a ‘crisis of excess surplus value’ (because more surplus value was produced than could be realized through sale). The second way in which the average rate of profit can fall is when, despite the commodity selling at its full value (or price of production), the realized rate of profit declines. Thus, in this case, the problem is not one of realization of the surplus value embedded in commodities, but rather points to the production of insufficient surplus value itself. We can refer to this as a ‘crisis of deficient surplus value’ (because the system produces less surplus value than is necessary to ensure a ‘normal’ rate of profit).