The Falling-Rate-of Profit Theory of Crisis: A Rational Reconstruction by Way of Obituary:

This paper traces the development of the falling-rate-of profit theory of crisis from its original and traditional version to its modern variant and finally to A. Shaikh's recent defense based on the distinction between circulating and fixed capital. At each stage the major arguments in favor of and against the falling-rate-of-profit thesis are reviewed and criticized. On balance, the conclu sions are almost universally negative: It cannot be shown in general that a rise in the organic composition of capital leads to a fall in the rate of profit; neither can it be shown that a fall in the general rate of profit necessarily induces a crisis of overproduction. Finally, Okishio's theorem is employed to show that profit- maximizing capitalists, under competitive conditions, would never adopt a tech mque which would lower the general rate of profit at a given level of wages. Thus, a fallmg-rate-of-profit crisis is not a theoretical necessity; indeed, it is not even a possibility under conditions of competitive...