Tendency of the rate of profit to fall

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https://en.wikipedia.org/wiki/Tendency_of_the_rate_of_profit_to_fall

The tendency of the rate of profit to fall (TRPF) is a hypothesis in economics and political economy, most famously expounded by Karl Marx in chapter 13 of Capital, Volume III.[1] Economists as diverse as Adam Smith,[2] John Stuart Mill,[3] David Ricardo[4] and Stanley Jevons[5] referred explicitly to the TRPF as an empirical phenomenon that demanded further theoretical explanation, yet they each differed as to the reasons why the TRPF should necessarily occur.[6]

Now, I have some years trained as an economist; but, find the whole fuss around the TRPF somewhat strange. Marx lived in a time of a non-fiat economy. The inherent value of one kopiejek or what have you was based on how much bread it could exchange. Nowadays money is defined to be a unit of account maintained by trust in the FED. Hence, inflation targeting.

So, did Marx really miss the memo about credit? Can someone help me better understand where am I getting this concept wrong as so many think this is the cornerstone of Marxian economics.

heh · Answer

I'm not sure what the "fuss" is.  Is TRPF really so heavily disputed?  In a sense, profits are just a kind of arbitrage, and so the reasoning behind TRPF is similar to the reasoning around zero-arbitrage assumptions (profit-maxing agents under perfect competition with free entry/exit and full information will drive supply up and prices down until the profit gap closes).

Obviously, these assumptions make for boring problems; the real world is far from boring, so profits happen and can be sustained for a really long time in some cases.  I think the diversity of viewpoints you're seeing are more explanations for the varying degrees of failure of TRPF in real markets, than they are explanations of empirical evidence of TRPF.

Tendency of the rate of profit to fall

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