This hypothesis gained additional prominence from its discussion by Karl Marx in Chapter 13 of Capital, Volume III,[1] but economists as diverse as Adam Smith,[2] John Stuart Mill,[3] David Ricardo[4] and William Stanley Jevons[5] referred explicitly to the TRPF as an empirical phenomenon that demanded further theoretical explanation, although they differed on the reasons why the TRPF should necessarily occur.
[8] Stephen Cullenberg stated that the TRPF "remains one of the most important and highly debated issues of all of economics" because it raises "the fundamental question of whether, as capitalism grows, this very process of growth will undermine its conditions of existence and thereby engender periodic or secular crises.
In response, the average rate of industrial profit would therefore tend to decline in the longer term.In the “unhindered” advance of capitalist production lurks a threat to capitalism that is much graver than crises.
It declined in the long run, Marx argued, paradoxically not because productivity decreased, but instead because it increased, with the aid of a bigger investment in equipment and materials.
In Adam Smith's TRPF theory, the falling tendency results from the growth of capital which is accompanied by increased competition.
[15] There could also be several other factors involved in profitability which Marx and others did not discuss in detail,[16] including: The scholarly controversy about the TRPF among Marxists and non-Marxists has continued for a hundred years.
(...) However, a generally accepted theory of profit has not emerged at any stage in the history of economics... theoretical controversies remain intense.
[31] Assuming constant real wages, technical change would lower the production cost per unit, thereby raising the innovator's rate of profit.
[33] Heinrich argues against giving a central place to the tendency of the rate of profit to fall, stating that Marx did not include the argument in his published theoretical work.
[41] Michael Heinrich has also argued that Marx did not adequately demonstrate that the rate of profit would fall when increases in productivity are taken into account.
[43] Eugen Böhm von Bawerk[44] and his critic Ladislaus Bortkiewicz[45] (himself influenced by Vladimir Karpovich Dmitriev[46]) claimed that Marx's argument about the distribution of profits from newly produced surplus value is mathematically faulty.
In the 1870s, Marx certainly wanted to test his theory of economic crises and profit-making econometrically,[61] but adequate macroeconomic statistical data and mathematical tools did not exist to do so.
[73] Mage's work provided the first sophisticated disaggregate analysis of official national accounts data performed by a Marxist scholar.
Studies supporting it include those by Michael Roberts,[76][77] Themistoklis Kalogerakos,[78] Minqi Li,[79] John Bradford,[80] and Deepankar Basu (2012).
[84] Other studies, such as those by Basu (2013),[85] Elveren,[86] Thomas Weiß[87] and Ivan Trofimov,[88] report mixed results or argue that the answer is not yet certain due to conflicting findings and issues with appropriately measuring the TRPF.
[90] In the UK, Ernst & Young (EY) nowadays provide a Profit Warning Stress Index for quoted companies.