The Falling Rate Of Profit Profits

Falling Rate of Profit, Falling Rate Of Profits

The Ricardian model also predicted that the rate of profits would tend to fall over an extended period of time. The theoretical basis of this prediction was, again, historically diminishing returns. When the costs of agricultural products increase, profits on the marginal land fall as rents rise on the intramarginal land. This tendency will persist, according to Ricardo, until the rate of profit ap­proaches zero and the stationary state results from a redistribution of income toward the landlord and away from the capitalist. But the validity of this assertion, too, can be determined only by empirical evidence and not by theory. The statistical problems of measuring changes in the rate of profit for an economy over time are exceedingly difficult, and the statistical tools required for this measurement were certainly not available during the nineteenth century. Indeed, some economists question whether they are available today. In spite of their lack of empirical verification of historically diminishing returns in agriculture, and of a falling rate of profits and the eventual coming of a stationary state, the Ricardians—particularly J. S. Mill—persisted in these predictions.