Tendency for the Rate of Profit to Fall (TRPF)

I am not yet able to provide a succinct description or short summary.

Several different issues are often conflated.

1. Marx’s explanation of the very noticeable 19th Century long term trend for the average rate of return on capital advanced to fall. The rise and fall of the average profit rate in the regular business cycle was superimposed on this long term trend. There are counter-vailing tendencies but the explanation due to a increasingly capital intensive production technology (“increasing organic composition of capital”) is central to understanding the long term trajectory of capitalism.

2. A “Long Wave Theory” that in addition to the regular short business cycles there are “long waves” of periods exceeding half a century in which capitalist development alternately speeds up and slows down. Such long waves are generally described as generated by external changes rather than an internal cyclic dynamic.

3. A theory of “Collapse”. The long term trajectory is supposed to reach a dead end that either itself transforms capitalism into a different system or compels working class revolution to do so. There are many variants (eg underconsumptionist, ecological catastrophe etc) but somehow TRPF is seen as a theory of inevitable collapse as the rate of profit falls below some threshold.

These are three entirely separate issues. (I agree with 1, am not particularly interested in 2 since there seems to be nothing one could do with it other than observe it and I reject 3.

4. But there are also various combinations that I find incoherent and so cannot accurately describe. Something like this:

A mid to late 20th Century long wave upwards has now been replaced by a long wave downwards that will end in a major (perhaps final) crisis. Also mixed together with “finance” explanations. Sometimes treated as though the long waves are the regular cycles that Marx was talking about.

Basis for popularity appears to be the absence of actual crashes like the Great Depression since then, with instead a “Great Moderation” of a regular business cycle that only had recessions superimposed on steady growth, throughout the second half of the 20th Century but has become increasingly stagnant and has shown every sign of being headed for a major crisis since 2008 (a decade ago).

As far as I can make out this does not actually offer a theory about the regular business cycle at all, presumably because it is not seen as important in view of the “Great Moderation” and any expected actual crisis is not seen as part of a cycle to be followed by a recovery generated by the same cycle but an event that will either mark the end of the system or a turning point to another long wave upwards due to external causes rather than generated cyclically from the crash itself. The external causes may sometimes be seen as somehow related to the “counter-vailing tendencies” in Marx’s TRPF.

My current prejudice is that it really is as incoherent as my description above. However that also reflects that I have just not been able to understand what its advocates (variously) think.

My suspicion is that support for TRPF as a theory of crisis and/or collapse simply reflects the hopelessness of known alternative theories combined with the reality that the old descriptions of a regular cycle including a regular crash has not fitted current empirical data for a very long time. This also relates to the popularity of “financial” theories.

My view is that the long term upward swing was due to “Keynesian” financial measures that Hilferding argued could successfully moderate the cycle and Maksakovsky said would only postpone crises while intensifying the crash by prolonging the increasing disproportionalities that can only be resolved with a crash. Maksakovsky was proved right about that in the 1920s but wrong in expecting that the financial system would not continue such attempts at crisis management because they would not last long. That view also explains why “finance” now looms so large and central and is so difficult to understand.

Will develop that view elsewhere later.

Meanwhile this to try and get a better handle on what people supporting TRPF as a theory of crisis or collapse actually think.

Starting point must be Anwar Shaikh as he does know what he is talking about and is important to study his 2016 for much better reasons than merely to understand mistakes. Have been advised that chapters 2, 10 and 16 develop his (and Grossman’s) theories following from his 1978 paper:

The Falling Rate of profit as the Cause of Long Waves

Also advised that Chapters 1-2, 6-8, 11, 13-14, and 16 are essential.

So, I plan to read the whole book, starting with chapters 1, 2, 3, and 17 (for quick overview and conclusion) then 10 and 16 as necessary reading before getting much further in understanding how to deal with TRPF as a crisis theory.

Meanwhile I did read the 1978 paper. A better copy is a chapter within this book:


Below the half-baked notes of my immediate reaction (prior to above essential reading which I have not yet done).

I am putting them here for feedback from other adherents of TRPF as a crisis theory, not as any claim to have reached an understanding yet.



nless I misunderstood, the theoretical explanat1978 paper gave for falling rate of profit generating absolute over-accumulation long wave cyclical crises seemed to consist of simply proving that if the rate of profit falls at any given constant exponential rate then any fixed share of surplus going to accumulation will eventually result in negative accumulation. (p178 – pdf p3/15)
Such inevitable over-accumulation would indeed imply inevitable crisis. (With a long way to go before explaining recovery and a cycle).
But there was not even a hint as to why one should assume an exponential rate of decline in a rate rather than simply a tendency of the rate to decline. It could for example decline towards 0.1% or even to zero, without ever producing negative accumulation, if the rate declines more slowly than exponentially. On the other hand if you assumed a linear decline in the rate, you could get the result you wanted even quicker than a merely exponential decline! But just assuming the result you want doesn’t make a theory.
A constant rate is exponential and fixed share accumulated is then positive growth. A declining rate is less positive growth – that’s all. (So a tendency towards a less positive growth with counter vailing tendencies is not a theory of cyclical long waves…)
Simon Clarke had a reasonably good explanation of flaws in the “falling rate of profit” explanations for crisis:
If anyone does come up with a theory of cyclical long waves that would be a useful addition along with many other things that will be needed before we can be anywhere close to fitting empirical data to theories. Meanwhile Maksakovsky DOES have a meaningful theory for the (short) business cycle.
I did like the empirical part. Ingenious ways around lack of statistics on capacity utilitization reminded me of Lenin managing to document “Development of Capitalism in Russia” with only Tsarist statistics such as horse censuses.
Will be very interested to see any solution to lack of meaningful statitistics on capital stocks and virtual depreciation, as that is needed for fitting empirical data to any theories of business cycle. Hopefully will find some in the book. If not, author does seem more likely to find a way eventually than others.

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