The Falling Rate Of Profit Thesis Revisited
Prof Kumar David
Are we again staggering towards a global economic bust? The falling rate of profit thesis revisited
A secular decline in the rate of profit is again driving the global economy to crisis just as it did in the decades of the 1990s and 2000s culminating in the 2008 catastrophe. The falling rate of profit (FRP) thesis, one of Marx’s key hypotheses, is unfolding now 150 years after it was enunciated, but interwoven with globalisation. He could not possibly have foreseen the twist due to globalisation. The thesis, in Volume 3 of Kapital, was written before Volume 1 and figuratively speaking, the manuscript was hauled out from under the bed where it had been stuffed. Preparing publication eleven years after Marx died was a nightmare. Scholars accuse Engels of goofing up philosophical nuances but this criticism does not extend to FRP.
FPR goes like this. As capitalism booms, as it did after WW2, there is colossal accumulation of capital, and there comes a stage at which it is not possible to reinvest it all, and to market the output profitably. Profit falls, investment falters, employment declines, markets dry up and systemic collapse ensues. This is the story that culminated in 2008; it is also true of the Great Depression of the 1930s; but the period leading to the New Depression (ND) that commenced in 2008, is classic.
Marx had a closed economy, a single-country model, in mind. What makes the antecedents of the ND more complex and more fascinating is globalisation. Stellar success built a mountain of capital in the post-WW2 period. At the same, time wages were held high to minimise class conflict. As a result, manufacturing in America, UK and many European countries turned uncompetitive in comparison with China, South Korea, Taiwan and Mexico. The FPR thesis hit, and hit with an international flavour. Manufacturing declined in the West and shifted to these destinations; Western capital itself compounded the problem by uprooting and moving to the new locations, often as joint ventures. Markets however stayed in the West because wages and living standards remained high.
