The Empirical Relevance of the Okishio Theorem

Abstract

In this work we examine the empirical evidence of Okishio’s theorem in three developed countries: the USA, UK and Japan. This theorem has been seen as one of the most important elements of debates on the Marxian law of the tendency of the rate of profit to fall. Following a process that is difficult to criticize from the logical-mathematical point of view, Okishio’s theorem argues that, given some assumptions, the introduction of technical change in a capitalist economy must cause the rate of profit to increase, and this implies a contradiction of the Marxian law. In this study we will observe how the three economies analyzed have surprisingly similar behavior pattern when we model with econometric software the effects of technical change on the path followed by the profit rate. We can verify that this introduction of advances within production is related to a fall in the rate of profit when we take into account in the model other important variables such as real wages, showing that the results of Okishio’s theorem do not resemble reality. In the process, the Marxist position on questions of praxis, truth, universals, human essence, and more, is set forth.