Capitalism has a lot of rate of profit problems. I think you're probably thinking of the tendency of the rate of profit to fall (TRPF), though, which is an idea Marx touched on and that Marxists later got very interested in because taken to its natural conclusion it means capitalism has a particular death spiral.
I'll give a short description, but also it's best to read Marx directly, because even though it takes a good amount of time, uses references and language specific to the 19th century, and is just plain dense, there is no substitute for understanding what the heck he was talking about and responding to and I have yet to find an explainer that doesn't inject some factionalism, and usually a liberal Western academic one.
Anyways, the short version is that under relatively typical conditions of capitalism, the overall bulk rate of profit should tend to go down. The rate of profit is a percentage - if the company makes $520 and spends $500, then the rate of profit can be found by dividing and subtracting 1: 520/500-1=1.04-1=0.04=4%. So, aggregated over all companies and profits, TRPF says it tends to go down. "Tends" means it will sometimes go up as well, but if you plot a line through it over many years, it'll be sloped down.
Under capitalism, the whole system is premised on maximizing profit: it's how you compete, it's how you get bigger, and therefore how you gain power and get what you want. Under this model of capitalism, profit-seeking is key to investment in the first place, as the only reason to invest is an expectation of return. If profit rates get too low, investmemt ceases ans there is a crisis.
The focus on TRPF is whether itb s an inherent property of capitalism, for which Marx set up an argument. There are more subtleties to it (read Marx!) but I will give the simplified version.
The basic math is that under conditions of capitalist competition, profit-seeking occurs through cost reductions: spending less than $500 above means more profit. Costs can be split into two categories: labor and everything else. There tendd to be an incentive to automate, which shifts costs from labor into the "everything else" category, so long as the total cost is lower. ATMs are cheaper for banks than employing a bunch of tellers.
When a given company takes the first step in automation, they cut their costs and therefore increase their own profits. However, other companies can also simply buy the automating thing, so they will also do this and then cut their prices in an attempt to compete. This means the equilibrium from automation doesn't result in increased profits in aggregate over time, and could even be a zero-sum game.
The Marxist nail in the coffin is the explanation of how value is created via labor, which translates (simplified) into profit truly emerging from a graft of workers' labor to the company (capitalist), so if the amount of labor required to make a thing goes down, so does thr room for profit. Capitalism incentivizes a decrease in its own rate of profit.
Please keep in mind that Marx's argument is better than this and really getting it requires understanding his formulation of value in the production and exchange of commodities. It is also something that starts as a first principles argument but is best understood situationalky and through the analysis of real crises of capitalism. Michael Roberts has written pretty well about this.
I think a tangential but very relevant read of the TRPF is that it explains the continued expansion of the capital and extraction frontier, and current-day colonialism and imperialism. The rate of profit can only rise by cutting costs or selling more while keeping costs relatively the same, therefore there is a constant need to find new labor pools that can be used to further cut costs, and at the same time, inserting that previously untapped population into the profit-generating system. That is why capitalism increasingly sticks its nose in the Global South, to extract labor, resources, and profit at very little cost.
That's very much true, though it also doesn't require TRPF to be a behavior of capital. Capital needs to locally maximize profit even if it's at some equilibrium or profits are already pretty high. It wants the overseas wage slave labor force in order to take profits of 30% instead of 25%. The system creates these monsters.
TRPF particularly derives, in real terms, as a greater acculation of debts that must be paid off. Those debts are the offset of not paying labor. One of Marx's driving insights was that automation was self-accelerating, and so companies would more and more quickly deprecate perfectly functional machines in order to stay competitive. This shifts costs not only away from labor, but away from maintenance and to debts to fund new machinery.
The most hortible consequence is the increasing power of finance capital due to such a shift. Marx thought it would be kept in check (and that workers demanding power would be part of that), but he ended up only being righy about both in the regrettably small number of countries that had successful revolutions. In capitalist countries, finance ran wild, so we get neoliberalism, which creates profit from the dismantling of productive forces.
We also come full circle there, as neoliberalism is also imperialist. It wants those extra profits in dismantling a healthcare system 6000 miles from the company's offices. In fact, it needs expansion even more than industrial capital, as it's built entirely on a house of cards and cannot increase its own productive forces (it doesn't produce!).
Capitalism has a lot of rate of profit problems. I think you're probably thinking of the tendency of the rate of profit to fall (TRPF), though, which is an idea Marx touched on and that Marxists later got very interested in because taken to its natural conclusion it means capitalism has a particular death spiral.
I'll give a short description, but also it's best to read Marx directly, because even though it takes a good amount of time, uses references and language specific to the 19th century, and is just plain dense, there is no substitute for understanding what the heck he was talking about and responding to and I have yet to find an explainer that doesn't inject some factionalism, and usually a liberal Western academic one.
Anyways, the short version is that under relatively typical conditions of capitalism, the overall bulk rate of profit should tend to go down. The rate of profit is a percentage - if the company makes $520 and spends $500, then the rate of profit can be found by dividing and subtracting 1: 520/500-1=1.04-1=0.04=4%. So, aggregated over all companies and profits, TRPF says it tends to go down. "Tends" means it will sometimes go up as well, but if you plot a line through it over many years, it'll be sloped down.
Under capitalism, the whole system is premised on maximizing profit: it's how you compete, it's how you get bigger, and therefore how you gain power and get what you want. Under this model of capitalism, profit-seeking is key to investment in the first place, as the only reason to invest is an expectation of return. If profit rates get too low, investmemt ceases ans there is a crisis.
The focus on TRPF is whether itb s an inherent property of capitalism, for which Marx set up an argument. There are more subtleties to it (read Marx!) but I will give the simplified version.
The basic math is that under conditions of capitalist competition, profit-seeking occurs through cost reductions: spending less than $500 above means more profit. Costs can be split into two categories: labor and everything else. There tendd to be an incentive to automate, which shifts costs from labor into the "everything else" category, so long as the total cost is lower. ATMs are cheaper for banks than employing a bunch of tellers.
When a given company takes the first step in automation, they cut their costs and therefore increase their own profits. However, other companies can also simply buy the automating thing, so they will also do this and then cut their prices in an attempt to compete. This means the equilibrium from automation doesn't result in increased profits in aggregate over time, and could even be a zero-sum game.
The Marxist nail in the coffin is the explanation of how value is created via labor, which translates (simplified) into profit truly emerging from a graft of workers' labor to the company (capitalist), so if the amount of labor required to make a thing goes down, so does thr room for profit. Capitalism incentivizes a decrease in its own rate of profit.
Please keep in mind that Marx's argument is better than this and really getting it requires understanding his formulation of value in the production and exchange of commodities. It is also something that starts as a first principles argument but is best understood situationalky and through the analysis of real crises of capitalism. Michael Roberts has written pretty well about this.
I think a tangential but very relevant read of the TRPF is that it explains the continued expansion of the capital and extraction frontier, and current-day colonialism and imperialism. The rate of profit can only rise by cutting costs or selling more while keeping costs relatively the same, therefore there is a constant need to find new labor pools that can be used to further cut costs, and at the same time, inserting that previously untapped population into the profit-generating system. That is why capitalism increasingly sticks its nose in the Global South, to extract labor, resources, and profit at very little cost.
That's very much true, though it also doesn't require TRPF to be a behavior of capital. Capital needs to locally maximize profit even if it's at some equilibrium or profits are already pretty high. It wants the overseas wage slave labor force in order to take profits of 30% instead of 25%. The system creates these monsters.
TRPF particularly derives, in real terms, as a greater acculation of debts that must be paid off. Those debts are the offset of not paying labor. One of Marx's driving insights was that automation was self-accelerating, and so companies would more and more quickly deprecate perfectly functional machines in order to stay competitive. This shifts costs not only away from labor, but away from maintenance and to debts to fund new machinery.
The most hortible consequence is the increasing power of finance capital due to such a shift. Marx thought it would be kept in check (and that workers demanding power would be part of that), but he ended up only being righy about both in the regrettably small number of countries that had successful revolutions. In capitalist countries, finance ran wild, so we get neoliberalism, which creates profit from the dismantling of productive forces.
We also come full circle there, as neoliberalism is also imperialist. It wants those extra profits in dismantling a healthcare system 6000 miles from the company's offices. In fact, it needs expansion even more than industrial capital, as it's built entirely on a house of cards and cannot increase its own productive forces (it doesn't produce!).
deleted by creator
*1.04-1 lol i looked for a while despite knowing the calc because of this. Thought you did some "multiply all terms by 2"action or something
Ruh roh typo!
I installed an open source keyboard on my phone and I'm pretty bad with it lol. Will fix the typo, thanks!