Explain (in detail) why according to Marx capitalism as a system is inherently f

Question

Explain (in detail) why according to Marx capitalism as a system is inherently flawed? [Explain the periodic economic crises in capitalism (all 3 kinds), how capitalists resort to solve them in turn paving the way for a bigger crisis. Equation needed. Make sure you stick to economic arguments pertaining to profit rates, surplus values, technology, etc.]

Hint from professor: For this question you need the profit rate equation and using that profit rate equation explain the 3 crises-profit squeeze, underconsumption and rising OCC, that capitalism faces according to Marx.

Explanation / Answer

Gross profit rate = (Total sales - cost of goods sold) / Total Sales

Capitalism is inherently flawed

Crises

Rate of profit is the amount of surplus value relative to the amount of capital invested in labour and machines.

Profit squeeze in a capitalist economy is a result of an increase in the use of capital rather than labour to save on costs and bringing in higher profitability for the organization. As competitors invest over a period of time, the difference in cost of production declines and profits shrink. Capitalists then may get the labour to work for greater number of hours. The workers are not paid more; this is where the difference in costs will again see a change. If competitors choose to do the same, profits again decline but the labour gets lower wages and is not able to gain from the capitalist economy.

Investment in a machine may increase productivity in a year but over the next decade or five years, if the investment of machinery for a similar plant sees a decline, the competitor will be able to further reduce the cost or production and make profits. In a capitalist economy, as competitors increase productivity, profit-squeeze is commonly observed.

Marx and Engel did not accept the under-consumptionist argument; Underconsumption of the masses is a pre-condition for the crises. It exists in all forms of society based on exploitation.

The Organic consumption of capital:

It is the ratio between the value of constant capital and the variable capital. Constant capital is the investment in equipment, machinery, and, physical structures. Labour comes under the variable capital. OCC increases owing to labour-saving technical progress. OCC is offset by a rise in productivity of labour; cheap labour from immigration; rapid turnover of capital, and, a rise in the rate of exploitation. Rising of the capital-output or capital-labour ratio is known as capital deepening.

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