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11.2: Marx's Tendency of The Rate of Profit To Fall

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  • Karl Marx spent his working life trying to understand the nature of production. One of the things he noticed was that products have lifespans. When they are invented, they are new on the market and the producer has a monopoly. As soon as a product is released, competitors will quickly begin to provide alternative products at a lower price. The race begins to produce the product at an ever cheaper price, but also with an acceptable level of profit. This process occurs across both time and space as any mechanism possible to reduce the cost to manufacture the product is discovered and used.

    Advancements in materials will often occur. Instead of using a metal case, plastic may be good enough. Capital infusion may allow automation of the production. Eventually, after every other possibility to reduce costs is exhausted, the only way to maintain production is to cut labor costs. Few workers will accept a dramatic reduction in pay. It’s time to move the factory to a place with lower labor costs. Marx called this footloose capitalism. We call it offshoring. It’s the same thing and it has always been part of capitalism. One aspect of this is that we who have grown up in a capitalistic world just naturally expect the price of goods to fall over time. In the United States we experienced a shift in manufacturing from the Northeast to the Midwest, then to the South and West. People in the United States have long moved to follow employment, and only stopped doing so when it left the confines of the country.

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