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 at once fixes the modality of the law — a necessity that nonetheless shows itself only as tendency.

This does not mean that the rate of profit may not fall temporarily for other reasons as well, but it does prove that it is a self-evident necessity, deriving from the nature of the capitalist mode of production itself, that as it advances the general average rate of surplus-value must be expressed in a falling general rate of profit. Since the mass of living labour applied continuously declines in relation to the mass of objectified labour that it sets in motion, i.e. the productively consumed means of production, the part of this living labour that is unpaid and objectified in surplus-value must also stand in an ever-decreasing ratio to the value of the total capital applied. But this ratio between the mass of surplus-value and the total capital applied in fact constitutes the rate of profit, which must therefore steadily fall.

Marx, Capital III, page 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 compatibility of falling rate and rising mass is stated as a necessity of the system, not a curiosity.

The number of workers employed by capital, i.e. the absolute mass of labour it sets in motion, and hence the absolute mass of surplus labour it absorbs, the mass of surplus-value it produces, and the absolute mass of profit it produces, can therefore grow, and progressively so, despite the progressive fall in the rate of profit. This not only can but must be the case – discounting transient fluctuations – on the basis of capitalist production.

Marx, Capital III, page 324.

The double movement is then derived from the same laws in a single formulation.

As the process of production and accumulation advances, therefore, the mass of surplus labour that can be and is appropriated must grow, and with it too the absolute mass of profit appropriated by the social capital. But the same laws of production and accumulation mean that the value of the constant capital increases along with its mass, and progressively more quickly than that of the variable portion of capital which is converted into living labour. The same laws, therefore, produce both a growing absolute mass of profit for the social capital, and a falling rate of profit.

Marx, Capital III, page 325.

And later in the Part, Marx compresses the whole causal claim into two sentences, against any reading that would make the fall an index of slackening exploitation.

The rate of profit does not fall because the worker is less exploited, but rather because less labour is generally applied in relation to the capital invested. If a falling rate of profit coincides with a rise in the mass of profit, as we have shown, then a greater part of the annual product of labour is appropriated by the capitalist under the heading of capital (as replacement for the capital used up) and a relatively smaller part is appropriated under the heading of profit.

Marx, Capital III, page 354.