ABSTRACT – In Capital in 21st century, Thomas Piketty criticizes Marxian theory and the law of the tendency of the rate of profit to fall in the long term. His main argument, asserted by other authors since decades, is related to the capacity of increases in productivity to counterweight the tendency. The French author establishes a stable “rate of return” too, but this rate and his critics on Marx are founded on a neoclassical perspective. Thus Piketty denies the validity of the law but changing its determinations as a result of the labor theory of value and the valorization process. When a proper definition of the matter in Marxian terms is done, Piketty’s data itself confirms the law of the tendency of the rate of profit to fall.

Introduction

The work of Karl Marx has had a widespread influence in different academic disciplines. However, the interpretation of his work has been influenced by specific historical contexts. The current global crisis has renewed interest in his theory and its implications for the analysis of economics and modern history. The latter has involved a growing debate, not only between the Marxist school and neoclassical and Keynesian schools, but also within Marxism.

The crucial work of Marx, Capital, has seldom been considered in its real dimension. Throughout Capital, continuing the work of the classical economists of the theory of labor value as Smith and Ricardo, Marx unravels the determinations of the capitalist economy.

Recently, Thomas Piketty’s book, Capital in 21st century, attempted to deny the conclusions reached by Marx in his work, despite the fact that Piketty outlines some vindication of partial aspects of Marx. But as often happens, this partial claim hides a strong condemnation of the general results implied in Marx’s analysis of capitalism. This article does not intend to be a review of Capital in 21st century, but can be read too as a demonstration of Piketty ́s mislead of Marxian economics and its results which, as we ́ll demonstrate later, are well supported by empirical data. Actually, by Piketty’s own data for the British and German cases.

1. The law of the tendency of the rate of profit to fall

Classical economists recognized in their own way the existence of this law of the tendency of the rate of profit to fall. Marx, however, has the merit to create a coherent and complete explanation. Ricardo’s explanation was related to the increase in labor costs. As Ricardo believed that agricultural production could expand only on worst lands, productivity in food manufacturing would fall, and being the main item consumed by the labor force, the cost of reproduction of the latter would be increased by reducing the share of profits in the product. However, the Ricardian assumption of a diminishing marginal productivity in agriculture (that neoclassical extrapolated to all productive activity) has proved unreal. The rate of profit shows a downward trend, not because productivity decreases, but precisely because it increases in historical terms.

The necessity each capital has to sell at a lower price than competitors, and cover a larger market share, implies a constantly increasing expenditure mainly on fixed capital -equipment and infrastructure- which allows to increase productivity and to reduce the individual value of commodities, including the labor force. The relative growth of constant capital is given at the expense of variable capital for the reproduction of the labor force, the latter being the only source of profit. Capital thus finds its own internal limit. As such, its sole purpose is to increase the surplus value extracted from labor force, but its only mean is by the relative increasing of constant capital to variable capital.

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