Rate of Profit - A Prisoner's Dilemma

A Prisoner's Dilemma

If, however, firms achieve higher sales per worker the more they invest per worker, they will try to increase investments per worker as long as this raises their rate of profit. If some capitalists do this, all capitalists must do it, because those who do not will fall behind in competition.

This, however, means that replacement cost of capital per worker invested, now calculated at the replacement cost necessary to keep up with the competition, tends to be increased by firms more so than sales per worker before. This squeeze, that investments per worker tend to be driven up by competition more so than before sales per worker have been increased, causes the tendency of the rate of profit to fall. Thus, capitalists are caught in a prisoner's dilemma or rationality trap.

This "new" rate of profit (r'), which tends to fall, would be measured as

r' = (surplus-value)/(capital to be invested for the next period of production in order to remain competitive).