Can anyone explain this to me in terms a dumb dumb can understand?

https://en.wikipedia.org/wiki/Tendency_of_the_rate_of_profit_to_fall

In Marx's theory, the value of a commodity is the amount of labour that is necessary to produce that commodity. Marx argued that technological innovation enabled more efficient means of production. In the short run, physical productivity would increase as a result, allowing the early adopting capitalists to produce greater use values (i.e., physical output). However, in the long run, if demand remains the same and the more productive methods are adopted across the entire economy, the amount of labour required (as a ratio to capital, i.e. the organic composition of capital) would decrease. Now, assuming value is tied to the amount of labor necessary, the value of the physical output would decrease relative to the value of production capital invested. In response, the average rate of industrial profit would therefore tend to decline in the longer term.

So lets take McDonalds for example. McDonalds invents a machine to make burgers so they get rid of all cooks. This decreases the "value" of the burger because less labor is required to make each burger, but since the number of burgers created (use value) increased relative to demand the profit per burger is decreased? Is this basically another way of saying Capital reaches a point where production outpaces demand and that reduces profit per unit? Or to put it in none Marxist terms Capital buys more expensive machines to produce more goods but that increases supply and without a corresponding increase in demand the price will fall and thus so will profit?

Am I understanding this?

  • D61 [any]
    ·
    4 years ago

    In response, the average rate of industrial profit would therefore tend to decline in the longer term.

    I think this is the key sentence to focus on. Its the "rate of profit" that Marx was using as the basis for this theory and not the revenue generated from business operations.

    The "rate" of profits spikes (technical efficiency is realized, new demand is exploited, input costs are reduced, etc) at the start, then the "rate" of profits levels off as the initial benefit becomes the norm until the "rate" of profits goes flat.

    ... Or to put it in none Marxist terms Capital buys more expensive machines to produce more goods but that increases supply and without a corresponding increase in demand the price will fall and thus so will profit?

    Critique here is that the machine could just be turned off after making enough burgers to satisfy demand to keep from over producing so much that it eats away at the profits. It doesn't speak to the capitalist tendency to not just want to make a profit from one year to the next but to make higher profits from one year to the next.