Falling rate of profit
The tendency of the rate of profit to fall (TRPF) is a law of capitalist development identified by Marx in Volume III of Capital. As capitalists compete, they raise labor productivity by investing in machinery — raising the organic composition of capital (c/v). Since (per Marx's labor theory of value) only living labor produces surplus value, the rate of profit s/(c+v) tends to fall over time, even as the mass of profit grows.
Countervailing tendencies
Marx listed counteracting factors: increasing the intensity of exploitation, depressing wages below the value of labor-power, cheapening the elements of constant capital, relative overpopulation, foreign trade, and the stock system. The law therefore operates as a tendency, manifesting in crises, restructuring, and expansion into new markets.
Significance
- The TRPF grounds the Marxist explanation of capitalist crisis as internal to the system, not accidental.
- It explains capitalism's compulsive expansionism: imperialism, globalization, and the drive to commodify all of social life are responses to profitability pressure.
- Heterodox economists (e.g., the monthly-review school, Anwar Sha, Michael Roberts) have produced empirical studies supporting a falling rate of profit in the advanced economies since the postwar boom.