[OPE-L:1584] The Rate of Profit in Smith and Marx

glevy@acnet.pratt.edu (glevy@acnet.pratt.edu)
Wed, 27 Mar 1996 06:28:03 -0800

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The relation of changes in profit rates for individual capitalists to
changes in the general rate of profit is, I believe, crucial to Marx's
critique of political economy.

Let me explain.

Normally, the "law of the tendency for the general rate of profit to
decline" (LTGRPD) is thought of in terms of an answer to the Ricardian
perspective on the causes of a falling rate of profit.

I think, more fundamentally, it is a critique of Adam Smith (and perhaps
a implicit critique of methodological individualism as well).

As we all recall, a fundamental purpose of _The Wealth of Nations_ was to
show, in the "invisible hand" doctrine, that although individual
capitalists are motivated by self-interest, the individual pursuit of
profit, via increasing the division of labor and technological change, will
cause there to be an increase in the wealth of the nation and prosperity.

The LTGRPD is a powerful answer to the "invisible hand" doctrine in the
following sense: Marx is arguing that although individual capitalists
attempt to increase surplus value and profit, the overall and unintended
consequence is that the *general* rate of profit tendencially falls. So,
rather than simply increasing the wealth of nations, the accumulation
process also creates the conditions for crisis.

The question for Marx was not only what individual capitalists thought
would be the consequences of their actions. This would be looking merely
at the "realm of appearances", i.e. how capitalism and competition
appears to political economy and individual capitalists. I think that he
wanted to demonstrate that the "law of motion" of bourgeois society goes
on behind the backs of individual capitalists and that the overall
affect is very different, and indeed contradictory, from the way it
appears to capitalists.

So, although capitalists want to increase their individual rates of
profit and *can* increase their profitability as a result of increasing
production of relative surplus value via technological change, the
*general* rate of profit nonetheless falls precisely through the same
mechanism that leads capitalists to introduce technological change.
There is a beautiful and ironic symmetry here in relation to Smith's

This is also, I believe, an important point that Marx wanted to refute
for political reasons since if individual capitalists cause in an
unintended way the wealth of the nation to increase and prosperity for
all to increase, then what are the political conclusions for workers?

I will admit that Marx was often unclear in _Capital_ about what specific
concepts related to classical political economy he was refuting and why.
Consequently, I can not offer textual evidence at this time for the claim
above regarding Smith.

This, of course, does not either justify or falsify the LTGRPD.

In OPE-L Solidarity,