A Critical Deconstruction of the Okishio Theorem

Abstract

As part of the literature denying Marx’s Law of Tendency of Rate of Profit to Fall, the Okishio theorem exerts extensive influence. This theorem uses rigorous mathematical methods in an attempt to prove that the introduction of advanced technology in the basic goods sector of capitalism leads inevitably to an increase in the general rate of profit. In the literature criticizing the Okishio theorem, there are two main flaws identified. One is that the literature fails to investigate the validity of the production price, which forms the basis of the theorem. The other is that it does not examine the authenticity of the economic theory underlying the theorem. The analysis set forward here shows that the Okishio theorem’s “production price” amounts to a complete departure from Marx’s definition and is simply a product of the commodity circulation markup. The theorem follows the vulgar components of Smith’s theory of value and Ricardo’s theory of transformation. Okishio does not understand that the decline of the general rate of profit is precisely the compound result of individual capital pursuing excess profit, which represents the “prisoner’s dilemma” of capitalists.