I may be misunderstanding but I'm asking this question in good faith: I've seen a bunch about how companies are recording record profit. If that's the case, how is the rate of profit falling?
"Profit" and "the rate of profit" are, confusingly enough, not the same thing. The rate of profit can be easier to wrap one's head around by thinking of it as "the point of breaking even on an investment," that magical moment for capitalists when they've finally paid off the money they invested on a venture and are now receiving pure raw profit from. The easiest analogy is finally paying off the loan to build a factory using the profits from that factory; now every dime of profit you make is going straight into your pocket or towards some future venture to make even more profit.
When capitalism was still fairly young the rate of profit was pretty small because all the quick, easy forms of industrialization were still on the table and competition was minimal, so you could invest $1 million into a canned foods factory and pay it off in five years before building an economic empire off canned tomato sauce or whatever. The problem is as time goes on all these easy investments get taken and the room for competition vanishes; it's hard to imagine anyone revolutionizing canned foods in 2022 because there's a few major players that have dominated it for so long there's just no room to squeeze in, and any revolutionary advances in the industry would have to come off of ludicrous research and development costs (you can start to see where this is going). Likewise newer industries like tech and electronics have room for new players, but the cost of entry is exponentially higher. A new semiconductor factory costs something like a billion dollars to build and is obsolete within 5 years, and the existing players there have the CPU markets pretty locked down so the likelihood of a new player ever managing to break even let alone return profit for potential investors is nonexistent, so any fledging company trying to do so won't receive investment and dies in the cradle.
You can see a lot of this in major tech companies like Uber and even in larger conglomerates like Amazon, who have been running massive budget deficits for practically their entire existences while keeping investors happy with the potential of future profits coming off of aggressive reinvestment strategies. In all likelihood Uber in particular will end up collapsing when their grift finally falls apart as they've never been able to materialize profits no matter how scummy their business practices get. Paradoxically, this also means someone who is recording record profits can still be decades away from paying off the investments they made to get those profits to begin with, which extends the rate of profit.
This also pushes investors towards dumb speculative shit that might pay off sooner if it somehow pans out, which is why venture capital is so gung-ho about startups and their increasingly stupid ideas to revolutionize housing by putting rental properties on the blockchain or whatever. If you invest in 20 startups and one of them is a unicorn that becomes a billion-dollar idea, then you've made more money off your investments in the immediate short-term than if you built an actual factory or piece of infrastructure somewhere which would pay out more but over a period of time where you, the investment banker as an individual, would not get to cash out on and therefore don't give a fuck about.
tl;dr: Modern capitalist ventures require significantly higher up front costs to produce profits, and as time goes on this continues to get worse and worse. Since capitalism is fundamentally built on "I give you investment money, you give me profit as soon as possible" this pushes investors to start doing stupider and stupider shit like cryptocurrencies, NFTs, and high finance that's completely divorced from any productive venture, effectively building a mountain of worthless currency they can roll around in like Smaug while billions starve.
Thank you for the in depth explanation! This makes sense; it's like how all the easily accessible coal deposits have already been mined, so now we have to go for the subbituminous coal, or more difficult coal to reach. As a result it requires more money to make money, so even if profits are high, the barrier to entry is also much higher.
I would also like to know. In fact I just requested in the megathread recommendations for a primer explaining some of the stuff being discussed in this thread.
I may be misunderstanding but I'm asking this question in good faith: I've seen a bunch about how companies are recording record profit. If that's the case, how is the rate of profit falling?
"Profit" and "the rate of profit" are, confusingly enough, not the same thing. The rate of profit can be easier to wrap one's head around by thinking of it as "the point of breaking even on an investment," that magical moment for capitalists when they've finally paid off the money they invested on a venture and are now receiving pure raw profit from. The easiest analogy is finally paying off the loan to build a factory using the profits from that factory; now every dime of profit you make is going straight into your pocket or towards some future venture to make even more profit.
When capitalism was still fairly young the rate of profit was pretty small because all the quick, easy forms of industrialization were still on the table and competition was minimal, so you could invest $1 million into a canned foods factory and pay it off in five years before building an economic empire off canned tomato sauce or whatever. The problem is as time goes on all these easy investments get taken and the room for competition vanishes; it's hard to imagine anyone revolutionizing canned foods in 2022 because there's a few major players that have dominated it for so long there's just no room to squeeze in, and any revolutionary advances in the industry would have to come off of ludicrous research and development costs (you can start to see where this is going). Likewise newer industries like tech and electronics have room for new players, but the cost of entry is exponentially higher. A new semiconductor factory costs something like a billion dollars to build and is obsolete within 5 years, and the existing players there have the CPU markets pretty locked down so the likelihood of a new player ever managing to break even let alone return profit for potential investors is nonexistent, so any fledging company trying to do so won't receive investment and dies in the cradle.
You can see a lot of this in major tech companies like Uber and even in larger conglomerates like Amazon, who have been running massive budget deficits for practically their entire existences while keeping investors happy with the potential of future profits coming off of aggressive reinvestment strategies. In all likelihood Uber in particular will end up collapsing when their grift finally falls apart as they've never been able to materialize profits no matter how scummy their business practices get. Paradoxically, this also means someone who is recording record profits can still be decades away from paying off the investments they made to get those profits to begin with, which extends the rate of profit.
This also pushes investors towards dumb speculative shit that might pay off sooner if it somehow pans out, which is why venture capital is so gung-ho about startups and their increasingly stupid ideas to revolutionize housing by putting rental properties on the blockchain or whatever. If you invest in 20 startups and one of them is a unicorn that becomes a billion-dollar idea, then you've made more money off your investments in the immediate short-term than if you built an actual factory or piece of infrastructure somewhere which would pay out more but over a period of time where you, the investment banker as an individual, would not get to cash out on and therefore don't give a fuck about.
tl;dr: Modern capitalist ventures require significantly higher up front costs to produce profits, and as time goes on this continues to get worse and worse. Since capitalism is fundamentally built on "I give you investment money, you give me profit as soon as possible" this pushes investors to start doing stupider and stupider shit like cryptocurrencies, NFTs, and high finance that's completely divorced from any productive venture, effectively building a mountain of worthless currency they can roll around in like Smaug while billions starve.
Thank you for the in depth explanation! This makes sense; it's like how all the easily accessible coal deposits have already been mined, so now we have to go for the subbituminous coal, or more difficult coal to reach. As a result it requires more money to make money, so even if profits are high, the barrier to entry is also much higher.
Just replying to save this. Thanks for the breakdown comrade :fidel-salute:
I would also like to know. In fact I just requested in the megathread recommendations for a primer explaining some of the stuff being discussed in this thread.
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