On the Law of the Falling Rate of Profit: A Reinterpretation

This paper demonstrates that Marx's law of the falling rate of profit holds only if investment falls short of saving. A rising organic composition of capital is not found to be the direct cause of the falling rate of profit but rather a condition that makes it more difficult for investment to keep pace with saving. The paper also brings out the connection of the law of falling profit with the business cycle phenomenon. A rising organic composition of capital is found to exacerbate cycles. The paper concludes with the suggestion that a synthesis between the theories of Marx and Keynes will better explain real world crises.