Ooft, how can I put this succinctly…
Essentially it boils down to the ever increasing proportion of fixed capital versus variable capital. Capitalist competition forces producers to invest more and more capital in technology to produce things more quickly, more cheaply, etc. Basically think of an autoplant that originally had a bunch of guys on an assembly line but now has a bunch of robots doing it.
Since human labour power is the only method of creating new value, and value is (obviously) the source of surplus value, this causes (over the entire capitalist economy over the long term, individual capitalists and businesses can still increase profits, e.g. by increasing the rate of exploitation) the TRPF.
Let’s say capitalist A inputs $1000 of raw materials and pays his workers $1000, during which time they create products he can sell for $10,000. A nice 400% profit!
Now capitalist B has a tonne of robots and automation to make his products - let’s say $10,000 worth of robots. He still pays his workers $1000 and inputs $1000 of raw material. If his robots means his workers are four times as efficient as capitalist A’s workers, they can make 4 times as many products in the same time.
This is where the labour theory of value kicks in. Fixed capital transfers its value to the product but DOES NOT CREATE NEW VALUE. Over the life of those robots, they will slowly but surely drip feed their $10,000 of value into the products they make, the same way a lump of raw iron transfers its value into a finished product. But it is only the human labour power that creates new value in the finished product.
All this means that although capitalist B is making 4 times as many products in the same timeframe, each product has 4 times less socially necessary labour time (aka value) imbued into it. Since value is (rather obviously) the source of surplus value, the capitalists have a problem.
While he may be able to make out like a bandit initially, selling his product (which has a quarter of the value of capitalist A’s product) for the same price or slightly cheaper than capitalist A, even if he sells them for the same price - $40,000 worth of products - his input was $12,000 (labour plus robots plus raw materials). Here we can see his RATE OF PROFIT HAS FALLEN.
As the general scramble of capitalist production continues, competing capitalists will ALSO invest in technology to increase their efficiency of production, or be defeated in the constant anarchic war between competing capitalists. This means eventually the surviving capitalists will ALL be using $10,000 worth of robots, and everyone’s rate of profit will have fallen, due to the larger ratio of fixed capital to variable capital.
And then… capitalist C figures out there’s a new robot which can make things 8 times faster, so he starts using $20,000 worth of robots, while still paying for $1,000 of labour and $1,000 of raw materials…
Hopefully that sort of explains it. I’m sure there are some videos on YouTube or something that can do a better job than me though!
The rate of profits stops falling when competition has been driven out and you have oligopolies/monopolies and they make super-profits. This is shit and is one of the key times those assets should be appropriated and prices brought down to “the socially necessary amount of labour”, even in a liberal democracy.
Capitalism has a lot of rate of profit problems. I think you’re probably thinking of the tendency of the rate of profit to fall (TRPF), though, which is an idea Marx touched on and that Marxists later got very interested in because taken to its natural conclusion it means capitalism has a particular death spiral.
I’ll give a short description, but also it’s best to read Marx directly, because even though it takes a good amount of time, uses references and language specific to the 19th century, and is just plain dense, there is no substitute for understanding what the heck he was talking about and responding to and I have yet to find an explainer that doesn’t inject some factionalism, and usually a liberal Western academic one.
Anyways, the short version is that under relatively typical conditions of capitalism, the overall bulk rate of profit should tend to go down. The rate of profit is a percentage - if the company makes $520 and spends $500, then the rate of profit can be found by dividing and subtracting 1: 520/500-1=1.04-1=0.04=4%. So, aggregated over all companies and profits, TRPF says it tends to go down. “Tends” means it will sometimes go up as well, but if you plot a line through it over many years, it’ll be sloped down.
Under capitalism, the whole system is premised on maximizing profit: it’s how you compete, it’s how you get bigger, and therefore how you gain power and get what you want. Under this model of capitalism, profit-seeking is key to investment in the first place, as the only reason to invest is an expectation of return. If profit rates get too low, investmemt ceases ans there is a crisis.
The focus on TRPF is whether itb s an inherent property of capitalism, for which Marx set up an argument. There are more subtleties to it (read Marx!) but I will give the simplified version.
The basic math is that under conditions of capitalist competition, profit-seeking occurs through cost reductions: spending less than $500 above means more profit. Costs can be split into two categories: labor and everything else. There tendd to be an incentive to automate, which shifts costs from labor into the “everything else” category, so long as the total cost is lower. ATMs are cheaper for banks than employing a bunch of tellers.
When a given company takes the first step in automation, they cut their costs and therefore increase their own profits. However, other companies can also simply buy the automating thing, so they will also do this and then cut their prices in an attempt to compete. This means the equilibrium from automation doesn’t result in increased profits in aggregate over time, and could even be a zero-sum game.
The Marxist nail in the coffin is the explanation of how value is created via labor, which translates (simplified) into profit truly emerging from a graft of workers’ labor to the company (capitalist), so if the amount of labor required to make a thing goes down, so does thr room for profit. Capitalism incentivizes a decrease in its own rate of profit.
Please keep in mind that Marx’s argument is better than this and really getting it requires understanding his formulation of value in the production and exchange of commodities. It is also something that starts as a first principles argument but is best understood situationalky and through the analysis of real crises of capitalism. Michael Roberts has written pretty well about this.
I think a tangential but very relevant read of the TRPF is that it explains the continued expansion of the capital and extraction frontier, and current-day colonialism and imperialism. The rate of profit can only rise by cutting costs or selling more while keeping costs relatively the same, therefore there is a constant need to find new labor pools that can be used to further cut costs, and at the same time, inserting that previously untapped population into the profit-generating system. That is why capitalism increasingly sticks its nose in the Global South, to extract labor, resources, and profit at very little cost.
That’s very much true, though it also doesn’t require TRPF to be a behavior of capital. Capital needs to locally maximize profit even if it’s at some equilibrium or profits are already pretty high. It wants the overseas wage slave labor force in order to take profits of 30% instead of 25%. The system creates these monsters.
TRPF particularly derives, in real terms, as a greater acculation of debts that must be paid off. Those debts are the offset of not paying labor. One of Marx’s driving insights was that automation was self-accelerating, and so companies would more and more quickly deprecate perfectly functional machines in order to stay competitive. This shifts costs not only away from labor, but away from maintenance and to debts to fund new machinery.
The most hortible consequence is the increasing power of finance capital due to such a shift. Marx thought it would be kept in check (and that workers demanding power would be part of that), but he ended up only being righy about both in the regrettably small number of countries that had successful revolutions. In capitalist countries, finance ran wild, so we get neoliberalism, which creates profit from the dismantling of productive forces.
We also come full circle there, as neoliberalism is also imperialist. It wants those extra profits in dismantling a healthcare system 6000 miles from the company’s offices. In fact, it needs expansion even more than industrial capital, as it’s built entirely on a house of cards and cannot increase its own productive forces (it doesn’t produce!).
*1.04-1 lol i looked for a while despite knowing the calc because of this. Thought you did some "multiply all terms by 2"action or something
In the quest to make as much money as possible, capitalists actually create the conditions that produce less profit. They create conditions that pay workers less over time which means workers can’t afford to buy the goods they produce which means a smaller market for the piggies. They can get around this by expanding into new markets (international business) but that only works for so long. Eventually they can’t keep growing and in order for investors to keep making money they have to start cutting costs internally which ultimately hurts the business/economy as a whole.
That’s actually a separate issue, crises of overproduction are unique to capitalism because of “anarchistic” production.
Decreasing rate of profit is what happens with “innovation”. As you develop the means of production, you increase the productivity of a working hour at the expense of a larger capital outlay in means of production. This creates the conditions for monopoly as the only capitals able to front the money for a profitable enterprise are existing large ones.
Small firms are pushed out because the profitability of a working hour is set by the output of the large manufacturers, so as those small holders fail, their workforces go to work for the large capital for less pay even though their productive output is higher because they’re paying for the cost of the initial capital outlay with their surplus value.
Profit = ($$$ capitalist makes) - (starting investment) - (labor)
How bigger profit?
Pay less to labor.
How pay less to labor?
Make innovation. (Product. Robot. Shitty labor laws in your state / country.)
BUT others copy innovation. (Other capitalists make same product / robot / labor laws in their country.)
Competition --> profit-making innovation.
Competition --> innovation spreading.
EXAMPLE: iPhone. When iPhone new, everyone pay $$$$$$$ for iPhone. Cheap labor + expensive phone = profit.
BUT now Apple, Samsung, etc. all have basically same phone.
Innovations become stupid. 5 iPhone cameras --> 6 iPhone cameras! SOYFACE!
Same thing applies to all commodities.
(Also, fall of USSR and end of space / technology race led to less publicly funded technological innovation, which was often appropriated by capitalists, ESPECAILLY in Silicon Valley… Internet was originally a publicly funded government project.)
More capitalism --> harder to do capitalism --> falling rate of profit --> harder to get passive income
Result?
Reversion to Fedualism
Feudalism = rent seeking
In future, you pay more for things you already have
Rent = more expensive ; subscriptions = more expensive ; Intellectual Property = more expensive
What happens next?
France 1789, Russia 1917, Cuba 1959, etc.
Further reading: Marx, Engles, etc.
It falls over time, that’s bad for porkies
