Question
Hi can someone check if my understanding of Marx's crisis theory and Tendency of the rate of profit to fall is correct? Under the capitalist
Hi can someone check if my understanding of Marx's crisis theory and Tendency of the rate of profit to fall is correct?
Under the capitalist system, profit is the main driving force of production and the economy. This happens when the tendency of the rate of profit starts to decrease over a business cycle. According to Marxian economics, competition between firms will push them towards technological innovation to make the production process more efficient. This is done by replacing workers' labour with machinery so that firms are able to produce goods more efficiently for a cheaper price. The reduction in prices of goods encourages consumers to buy more which in turn, increases profit. As profit increases, even more firms follow suit to do the same.This causes the ratio of constant capital to variable capital to increase when worker's labour gets replaced by machinery. As prices of product decreases, demand for the goods decreases as there is an oversupply due to the firms ability to produce more efficiently. This will lead to a reduction in profit which will lead to a decrease in investment. If the rate of surplus value increases at a lower speed than invest, it will lead to a fall in the rate of profit. As the rate of profit falls, investors stop investing which leads to instability in the system. This in turn leads to repeated economic crisis of the capitalist economic system.
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