Tendency of The Rate of Profit To Fall - in Terms of Mainstream Economics

In Terms of Mainstream Economics

Typically, economic growth is described in the usual growth models (e.g., the Solow-Swan growth model) in terms of equilibrium ("steady state"), that is, input per worker and output per worker grow at the same rate. This means that capital intensity remains constant over time. At the same time, in equilibrium, the rate of growth of employment is constant over time. Translated into terms of labor theory of value, this means that the value composition of capital does not rise, and the constant rate of growth of employment also indicates, in terms of the labor theory of value, that there is no reason for the rate of profit to decline.

In this framework, followers of a tendency of the rate of profit to decline assume that input per worker is increased by capitalists at a larger rate than output per worker, because

1) either, overcapacities might be built to fend off competition;

2) or, this leads, as an incentive for capitalists, to a larger percentage increase of output per worker than input per worker has been increased beforehand. This results in an alternate movement in which capitalists increase input per worker at a larger percentage than output per worker has risen, which, in the next period, leads to a larger percentage increase of output per worker than that of input per worker before. The rate of growth of employment declines in such a scenario.