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Tendency of the rate of profit to fall


Bond777
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Posted (edited)

Here is no "economics" section on this forum and therefore I've decided to post it in "politics".

There are some speculative claims that robots and machines cannot create profit to their owner by themselves. Only human labor can. An owner cannot exploit his robots and machines and make them create more values than they cost themselves + their maintenance. Could someone explain it in details and for dummies why is it so if it is true?

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Now, assuming value is tied to the amount of labor necessary, the value of the physical output would decrease relative to the value of production capital invested. In response, the average rate of industrial profit would therefore tend to decline in the longer term.

Tendency of the rate of profit to fall - Wikipedia

Does it mean, for example, that if I would an owner of a fully automated factory with zero workers it would be able to bring zero profit to me unless I would do some labor myself related to this factory and then my earnings will be no more than my own labor output and my personal labor value?

Edited by Bond777
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You need only drop to the productivity section of your link

“By raising productivity, labor-saving technologies can increase the average industrial rate of profit rather than lowering it, insofar as fewer workers can produce vastly more output at a lower cost, enabling more sales in less time”

 

“assuming value is tied to the amount of labor necessary”

What if this assumption is not true?

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Posted (edited)
1 hour ago, swansont said:

enabling more sales in less time”

But this theory, in my understanding, claims that more sales is NOT = more profits. Even contrary, if sales are increased due to automation rather than human labor intensification. There are claims that the average US companies profit rate steadily fell during the second half of 20-th century. Mostly due to competition which forced companies to lower prices and increase automation. However in 2000-s the profits started to grow again as US companies increased manufacturing outsourcing to the countries with less automation and cheaper labor force.

The US rate of profit 1948-2015 – Michael Roberts Blog (wordpress.com)

However there also could be some attempts to hide profits for tax evasion. 

Thus according to this theory the most profitable enterprise is the most labor intensive and least automated.

Edited by Bond777
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14 minutes ago, Bond777 said:

But this theory, in my understanding, claims that more sales is NOT = more profits. Even contrary, if sales are increased due to automation rather than human labor intensification. There are claims that the average US companies profit rate steadily fell during the second half of 20-th century. Mostly due to competition which forced companies to lower prices and increase automation. However in 2000-s the profits started to grow again as US companies increased manufacturing outsourcing to the countries with less automation and cheaper labor force.

The US rate of profit 1948-2015 – Michael Roberts Blog (wordpress.com)

However there also could be some attempts to hide profits for tax evasion. 

But if the idea were true, automation would have lowered profits even more

”Mostly due to competition which forced companies to lower prices and increase automation.” directly tells you that the profit drop was due to competition. And if they were forced to automate, that indicates that this reduced costs, and thus the effort increased profits (even if there was an overall drop)

If automation didn’t save money, why do it?

“ the profits started to grow again as US companies increased manufacturing outsourcing to the countries with less automation and cheaper labor force.”

Then you have to compare the cost of labor in the two cases, and there’s your profit increase.

You can’t outsource jobs in a system that is automated, because there are no jobs to outsource in that situation. IOW, labor complains about outsourcing, and labor complains about automation because of job loss, but they don’t complain about robots being deactivated because the work went overseas.

 

You’ve pointed to two situations where the cause of the profit drop is identified (competition, rising cost of labor) and somehow assigned it to automation.

 

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18 minutes ago, swansont said:

If automation didn’t save money, why do it?

Competition forces business owners to increase automation in order to increase productivity and lower prices. But lower prices doesn't necessarily mean higher profits.

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But I thought it might be worthwhile to share my response. The short answer is no, robots, like all machines,  cannot create surplus value (remembering that surplus value is expressed through the processes of circulation and sale as profit.)

En Passant » Can robots create profit?

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1 hour ago, Bond777 said:

Competition forces business owners to increase automation in order to increase productivity and lower prices.

But the cause of the profit loss is competition. 

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But lower prices doesn't necessarily mean higher profits.

Yes, it does, if all other things are the same. 

 

If you change multiple variables at once you lose the ability to ascribe cause and effect. Maybe that’s not how economists do it, but maybe that’s also how they predicted eleven of the last four recessions.

 

An internally consistent position seems to be all business persons are idiots because they employ labor-saving devices, which reduce profits.

 

One thing to note is that these economic models are based on assumptions, and the empirical data is that labor-saving devices increase profits, which is why people employ them, and the conclusion is that one or more of the assumptions is wrong. Why do farmers not till the earth by hand?

The underlying economic idea comes from Marx, so it’s not really based on any modern practice.

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2 hours ago, Bond777 said:

according to this theory the most profitable enterprise is the most labor intensive and least automated.

You’re either misrepresenting the theory or the theory is wrong. I’d bet it’s the former. 

1 hour ago, Bond777 said:

Competition forces business owners to increase automation in order to increase productivity and lower prices.

No, it doesn’t. Automation is not the only response to competition. For example, companies could instead build better products that are more desirable to buyers, or which better fit the demand niche. Your views on this are being presented so simplistically that they’re not even wrong. 

1 hour ago, Bond777 said:

lower prices doesn't necessarily mean higher profits.

Here’s a spot, however, where you should be more simple. Profits happen when revenues exceed costs. End program. This isn’t exactly rocket science. 

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1 hour ago, Bond777 said:

En Passant » Can robots create profit?

All this is doing is restating the idea. That’s not support for it.

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5 hours ago, Bond777 said:

Could someone explain it in details and for dummies why is it so if it is true?

I cannot explain why it is true, because unfortunately it isn't true.  I have seen the profits rise in my old factory as workers were replaced by robots.

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2 minutes ago, Bufofrog said:

I cannot explain why it is true, because unfortunately it isn't true.  I have seen the profits rise in my old factory as workers were replaced by robots.

At the beginning yes. Someone who increases the automation to a certain level faster than the competitors gains a temporary advantage by lowering the good's prices before the competitors do it and has a chance to gain the larger market share. However once all the competitors are forced to increase automation to the same level, they got a chance to win their lost market share back again and the total profits of all the manufacturers combined may fall below the level which preceded the start of the  automation race. 

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Seems like robots only replace cost of living/raising with those of maintenance/manufacture.

Is a difference in that you can deliberately increase the size of your robotic labor force. Feed output of automation into increasing automation. That might well drive down profits. Depending on opportunity costs people would eventually start leaving the Market though, increasing profits again.

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