Part Three — The Law of the Tendential Fall in the Rate of Profit Chapters 13–15. The law itself, the factors that counteract it, and the unfolding of its internal contradictions.

Marx called this the most important law of political economy, and it is the most contested law in Volume III after the transformation. It follows directly from everything established so far. As the productivity of labour rises — the whole tendency of capitalist accumulation traced in Volume I — each worker sets in motion an ever greater mass of means of production, so the organic composition of capital rises: constant capital grows relative to variable. But surplus-value is produced only by variable capital. Therefore, even if the rate of exploitation stays constant or rises, the surplus-value produced falls as a proportion of the total capital advanced, and the general rate of profit tends to fall. Chapter 13 states the law and shows it to be nothing but the profit-rate expression of rising productivity; Chapter 14 marshals the factors that counteract it, so that it operates only as a tendency; Chapter 15 unfolds the internal contradictions the law contains — the collision between the drive to develop the productive forces without limit and the narrow purpose, the valorization of existing capital, that this development undermines. The Part is the theoretical centre of Marx's account of capitalist crisis, and the phrase in which Chapter 15 names capital's self-limitation is one of the most cited lines he wrote. The brief lays out the law, its counter-tendencies, and its contradictions in Marx's own terms, and keeps in view the long controversy — from the Okishio theorem onward — over whether the law holds, without settling it here.

Marx states the law as a direct consequence of the rising organic composition of capital. If the same rate of surplus-value is spread over a total capital in which the constant part grows relative to the variable, the surplus-value falls as a fraction of the whole, and the rate of profit declines.

rising organic composition of the total capital, and the direct result of this is that the rate of surplus-value, with the level of exploitation of labour remaining the same or even rising, is expressed in a steadily falling general rate of profit. (We shall show later on why this fall does not present itself in such an absolute form, but rather more in the tendency to a progressive fall.)

Marx, Capital III, page 318.

The crucial interpretive move Marx makes is that this fall is not a symptom of weakness but the profit-rate form of capitalism's own success. The very rise in productivity that expresses capital's growing command over nature and labour is what depresses the rate of profit, because it continually replaces living labour — the sole source of surplus-value — with dead labour.

The progressive tendency for the general rate of profit to fall is thus simply the expression, peculiar to the capitalist mode of production, of the progressive development of the social productivity of labour.

Marx, Capital III, pages 318–319.

Marx also stresses that a falling rate of profit is compatible with a rising mass of profit: as total capital grows, a smaller rate applied to a larger base can yield more absolute profit than before. The two movements — falling rate, rising mass — proceed together, and the tension between them (capital straining to expand the mass while the rate erodes) is what drives the accumulation forward and, in Chapter 15, into crisis.

The law is a tendency because the same accumulation that raises the composition of capital also sets in motion forces that push the profit rate the other way. Marx enumerates the chief counteracting factors, all of which act by raising the mass or rate of surplus-value, or by cheapening the constant capital, against which the profit rate is reckoned. First, a more intense exploitation of labour — longer or more intense working days, so that the same variable capital yields more surplus. Second, the depression of wages below the value of labour-power. Third, and most important, the cheapening of the elements of constant capital: the very productivity that raises the technical composition also lowers the value of machinery and materials, so that the value composition rises more slowly than the technical composition, blunting the fall. Fourth, the relative surplus population — the reserve army — which, by supplying cheap labour, sustains labour-intensive branches and new lines of low composition. Fifth, foreign trade, which cheapens both the elements of constant capital and the means of subsistence, and lets capital invested abroad draw a higher rate of profit. Sixth, the increase in share capital, where enterprises yielding low returns are content with interest-like rates. These factors do not annul the law; they explain why it manifests "more in the tendency to a progressive fall" than as an uninterrupted decline, and why the fall proceeds slowly and unevenly, punctuated rather than smooth. The counter-tendencies are also the reason the law could only ever be established as a tendency — a point that the later critics who claimed to refute it by exhibiting counter-cases often missed, since Marx had already built the counter-cases into the statement of the law.

The richest chapter of the Part draws out the contradictions the law contains. The falling rate of profit and the accumulation that drives it come into conflict: accumulation requires the development of the productive forces, but that development erodes the profit rate that is accumulation's whole motive. Beyond a point this produces an overproduction of capital — a mass of capital too large to be valorized at the accustomed rate, so that capital lies idle or is devalued, and this periodic devaluation, the destruction of capital in crisis, is the violent means by which the system restores a profit rate high enough to resume accumulation. Marx frames the whole tension in the formula that names capital's self-limitation.

The true barrier to capitalist production is capital itself. It is that capital and its self-valorization appear as the starting and finishing point, as the motive and purpose of production; production is production only for capital, and not the reverse, i.e. the means of production are not simply means for a steadily expanding pattern of life for the society of the producers.

Marx, Capital III, page 358.

From this Marx derives the periodic character of capitalist crisis: the drive to develop the productive forces absolutely collides with the requirement that they be developed only so far as they valorize existing capital, and the collision is resolved, again and again, by crises that destroy enough capital-value to lift the profit rate and start the cycle over. The barrier is not an external limit — scarcity, population, nature — but capital's own social form, its subordination of production to valorization. This is the point at which Marx's economics passes into his theory of the historical limits of the capitalist mode of production: the same law that expresses capital's development of the productive forces also expresses the growing contradiction between those forces and the value-relation that fetters them, the contradiction that the "expropriation of the expropriators" at the end of Volume I named from the other side. The interpretive fights over this chapter — whether the law is theoretically sound (the Okishio critique), whether crisis follows from the profit-rate fall or from disproportion or underconsumption — are held in view for the read-through; what the brief fixes is Marx's own construction of the law as the unfolding of capital's self-contradiction.