The Dynamics of Historical Tendencies in Volume III of Capital: An Application to the US Economy since the Civil War

As is well known, Marx did not ‘discover’ the tendency of the rate of profit to fall, but found this famous law in the work of Smith and Ricardo. It is quite puzzling for us, as economists writing in the late twentieth century, why both Smith and Ricardo adhered to the existence of a declining historical trend of the profit rate. In particular it is hard to determine the empirical foundations of their conviction. For Marx, the existence of a tendency for the rate of profit to fall within capitalism was a prominent manifestation of the historical character of this mode of production. In the manuscript of volume III of Capital, Marx wrote the following: Thus economists like Ricardo, who take the capitalist mode of production for an absolute, feel here that this mode of production creates a barrier for itself.… The important thing in their horror at the falling rate of profit is the feeling that the capitalist mode of production comes up against a barrier to the development of productive forces which has nothing to do with the production of wealth as such; but this characteristic barrier in fact testifies to the restrictiveness and the solely historical and transitory character of the capitalist mode of production (Marx, 1894, ch. 15, p. 350).