Studies prove Okishio’s theorem is true. Even Marx would agree.

In this paper we have found strong empirical evidence supporting the Okishio Theorem using data for the US non-financial economy, though its empirical robustness at more general level is left for future research. To conclude this paper, let us return to a fundamental question: What is Okishio’s Theorem really about? Or put differently: How could a profitable technical change not raise the equilibrium rate of profit given the real wage rate is fixed? To us, the Okishio Theorem is nothing more than a formal confirmation of the economic intuition that if the cost of production is reduced, the economic efficiency of the system will be raised. This rise in economic efficiency, in the new equilibrium, is either expressed in rising profitability (if the real wage rate is fixed), or in rising real wage rate (if the rate of profit is fixed), or in both. The actual distribution of the fruits from the technical change fundamentally depends on class struggle, rather than any ex ante principles.

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Perhaps a more important question to most Marxists is: Does the Okishio Theorem invalidate Marx’s law? It depends on what one sees as the assumption of Marx’s law, given its ambiguity in (Marx, 1962, Chapter 13) which is only in a raw state and published posthumously thanks to Engels’s editing efforts. Most of the time Marx assumes a constant rate of exploitation, but sometimes states the law also holds even if the rate of exploitation is rising. Roemer (1981, 102–3) proves that in the context of capital-using and labor-saving (CU-LS, a special type of rising organic composition of capital), a fixed real wage rate entails a rising rate of exploitation. If a constant rate of exploitation is instead assumed, the rate of profit could rise or fall due to a profitable CU-LS technical change (Laibman, 1982; Bidard, 2004; Foley, 2009); in the case of rising rate of exploitation, a falling rate of profit might still be compatible with a profitable CU-LS technical change as long as the real wage rate rise to some degree; in the case of fixed real wage rate, there is no room for the rate of profit to fall. Only when one interprets Marx’s law as that the rate of profit must fall due to a profitable CU-LS technical change no matter how high the rate of exploitation becomes, is Marx’s law nullified by the Okishio Theorem that serves as a counterexample. This might be too extreme an interpretation that Marx himself might not endorse.

If Marx were alive, he would not be surprised by the Okishio Theorem at all. When he is writing about the effect of increasing labor productivity in the sector that produces means of production on the profitability of other sectors, he comments:

The characteristic feature of this kind of saving of constant capital arising from the progressive development of industry is that the rise in the rate of profit in one line of industry depends on the development of the productive power of labour in another. Whatever falls to the capitalist’s advantage in this case is once more a gain produced by social labour, if not a product of the labourers he himself exploits. Such a development of productive power is again traceable in the final analysis to the social nature of the labour engaged in production; to the division of labour in society; and to the development of intellectual labour, especially in the natural sciences. What the capitalist thus utilises are the advantages of the entire system of the social division of labour. It is the development of the productive power of labour in its exterior department, in that department which supplies it with means of production, whereby the value of the constant capital employed by the capitalist is relatively lowered and consequently the rate of profit is raised. (Marx and Engels, 1981, pp. 85).

As Marx has rightly predicted, if we assume the rise in labor productivity was a result of a cost-reducing technical change, the relative price of the products in that “exterior department” is proved to decline necessarily (Dietzenbacher, 1989). The consequent rise in the rate of profit in any other department that use the cheapened means of production can be interpreted as a rise of the general rate of profit, either because of the ubiquitous use of the cheapened means of production, or because of the interlocking input-output relationships. Therefore, not only has Shibata (1934, 1939) predicted the Okishio Theorem, as is acknowledged by Okishio (1961), but also has Marx.