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?
I think the one thing that you're missing is that McDonald's would have a very high rate of profit at first, since they are early adopters of the burger machine. However, as the more productive burger machine was adopted by every other burger joint in the economy, McDonald's would lose their burger machine advantage and the rate of profit would fall across the board.
Labor gives things value
Machines let us use less labor, so thing is less valuable
Less labor means we make more things, and if no one want to by those things price goes down
This is why markets must constantly expand to find new demand
This is a very good summary https://youtu.be/EKdQB58g89M.
number of burgers created (use value) increased relative to demand the profit per burger is decreased?
I would not think of it in terms of supply and demand but rather efficiency and labor hours required because if you think it is all about demand then you could simply argue that Marx was wrong because GDP is growing constantly which means more demand/consumption overall.
Remember there is a difference between the rate of profit and the mass of profits(or overall profits). It is perfectly possible for a more efficient production method to make more money(bigger bottom line) but have a lower rate of profit. In the example you mention then if you simply argue that you are selling more burgers and making more money then you're also making more profit. This is wrong from a Marxist perspective.
Anyway this is essentially the situation of modern capitalism where some outlier companies(FAANGs) make most of the money while the overall capitalist economy gets more efficient and with a lower rate of profit. I don't know how much you follow economic news from leftist sources but there are basically a huge amount of "zombie" companies that can barely survive and make just enough money to service their debts. Overall there is a consensus the economy is going to crash in the near/medium term future regardless of COVID.
Also it is important to understand counter tendencies. The rate of profit is measuring working value, therefore the neoliberal tendencies since the 80's like reducing benefits or extended working hours can temporarily counter the tendency and raise the rate of profit.
This theory can be empirically tested and proven and over the recent years there is wealth of research that proves Marx's theory was right based on historical rate of profit calculations so far. Here is a good summary of calculating the historical(falling) rate of profit worldwide and a good overall explanation of the concept if you prefer reading.
economic news from leftist sources
Would you mind sharing a few of these? I have been wondering what good sources are there ...
Richard Wolff for his economic updates and other Marxist economists like Michael Roberts(the blog posts I linked here) is my bread and butter.
Thank you for bringing up the mass! David Harvey's Anti-Capitalist Chronicles introduced me to mass vs profit and I think it needs to be discussed more (because Harvey told me so and it made sense lol)
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.
I always thought the "already satisfied demand" explanation like a bacterial culture approaching the plateau state; but that definition says that it happens because of supply reasons. Now I'm confused
