The Okishio Theorem: What it Purports to Prove, What it Actually Demonstrates

This article reviews the Okishio theorem, which purports to demonstrate that Marx's theory of the falling rate of profit is inconsistent with technological change that raises the capital intensity or organic composition of capital. Over the course of the last 50 years since this paper was written, it has introduced an approach that has, arguably, done more to question and undermine the consistency of Marx's theory than any other single approach. As the Bortkiewicz approach has undermined the theory of value, the Okishio approach has devastated Marx's theory of accumulation, which is inseparable from the falling rate of profit. This paper shows that there is a discrepancy between the type of technological change that Okishio believes to be discussing and that which he actually raises. It is argued here that Okishio theorem actually introduces economies of scale, not new innovations, and these economies of scale do, when considered in isolation, raise the rate of profit. It is argued that Marx, like Okishio, recognizes this and explains this process more consistently, including with applications to non-basic industries—but within the overall context of a falling rate of profit. Finally, we show that it is very much to the benefit of capitalists to introduce innovations that raise the organic composition even if that process, in the end, knowingly leads to a falling rage of profit.