Date of Award

Fall 1986

Project Type

Dissertation

Program or Major

Economics

Degree Name

Doctor of Philosophy

Abstract

This dissertation provides a theoretical inquiry into the effects of technical change on profitability. In the center of the discussion lies the Marxian 'Law of the Falling Tendency of the Rate of Profit' (LFTRP). The LFTRP maintains that mechanization, i.e. the introduction of cost-reducing techniques of the capital-using-labor-saving type, results in a lower average rate of profit. This proposition is denied by the Okishio theorem, which says that the introduction of such techniques is incompatible with a falling rate of profit.

In order to evaluate Okishio's claim, a model of the economy which incorporates fixed capital is constructed, and on its basis the following THEOREM is proven: In the presence of fixed capital, if (i) capitalists choose innovations which lower the unit cost of production, and (ii) the introduction of more mechanized techniques raises the investment cost per unit of output, then the effects of mechanization upon the average rate of profit are theoretically indeterminate. Therefore, Okishio's claim is not generally valid.

A COROLLARY of this theorem provides the necessary condition under which the LFTRP will actually hold. The condition is the following: For mechanization to lower the average rate of profit, it must also lower some or all of the transitional rates of profit. (The transitional rate of profit is that which an innovative capitalist would obtain at ruling prices.).

This corollary raises an important question: is there any possibility that the 'necessary condition' will be attained in the real world? Traditional teachings suggest that there is none, as those teachings assume that it would be "irrational" for any capitalist to introduce a more mechanized technique so long as it reduces his transitional rate of profit. Against this tradition, it is shown that competition might force the introduction of more mechanized techniques even if this implies a lower transitional rate of profit. This formulation of the problem is then compared with other treatments of the same subject in which the Okishio theorem is shown to be valid. It is argued that those treatments are inappropriate. The dissertation ends with a summary of the economic and political implications of the study.

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