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The Dynamics of Capital Accumulation in Marx and Solow

Article  in  Structural Change and Economic Dynamics · March 2021

DOI: 10.1016/j.strueco.2021.03.003

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 The Dynamics of Capital Accumulation in Marx and Solow
by
CHATZARAKIS Nikolaos1 and Persefoni TSALIKI2
Department of Economics
Aristotle University of Thessaloniki, Greece

Abstract
This paper deals with issues arising in Solow’s growth model when contrasted with Marx’s schemes
of expanded reproduction. More specifically, we argue that Solow’s growth model lacks the crucial
dynamic features of capital accumulation derived from the long-term movement of the rate of
profit, which are well integrated in classical political economy. Classical economists discussed the
attainment of the stationary state of the economy as a result of a falling rate of profit eliminating net
investment. In Solow’s growth model, however, the seemingly stationary state is proved to be a
‘saddle’ point, an aspect that has not received appropriate attention in the extant economic growth
literature. By contrast, in Marx’s analysis of absolute overaccumulation resulting from the falling
profit rate the system is driven to a turning point and the conditions for major institutional
changes that may lead to a new period of economic expansion are set.

Keywords:
Capital Accumulation, Solow’s Growth Model, Schemes of Reproduction, Law of Falling Rate of
Profit

JEL Nr:
C6, E11, O40

-----------------------------------------------------------------------------------------------------
1chatzarn@econ.auth.gr (corresponding author)
2 ptsaliki@econ.auth.gr

* Acknowledgements
We thank without implication professors Lefteris Tsoulfidis and Efi Meletlidou, and an anonymous referee of
this journal for their helpful comments and suggestions.
* Declarations of interest: The research work was supported by the Hellenic Foundation for Research and
Innovation (HFRI) under the HFRI PhD Fellowship grant (Fellowship Number: 1522).

1
 1. Introduction
Solow’s growth model (1956) is based on a well-behaved aggregate production function
accompanied by full employment of labour, a given marginal propensity to save and Say’s Law.
Solow’s model is regarded as the stepping stone in the formation of stable neoclassical theory of
economic growth, while the previous attempts by Harrod (1939) and Domar (1946) gave negative
results with respect to the stability of the capitalist system. Over the years, the neoclassical theory
of economic growth has been the target of many and hard to deal criticisms regarding its
fundamental premises with respect to capital as a factor of production which along with labour is
introduced in a production function (Shaikh 1974 and 2016, ch. 4), as well as of many amendments
in a ‘frantic’ attempt to inject realism in the analysis (Cass 1965; Koopmans 1965; Samuelson and
Modigliani 1968) or to avoid the famous ‘Solow’s residual’ (McCompie 2000) and the lack of
‘convergence’ (Lee et al. 1997). Despite the impression that growth theory emerged after the
postwar decades, issues on this matter can be traced in Physiocrat’s analysis of surplus and
certainly in the writings of the old classical political economists, Smith and Ricardo. Nonetheless, in
the schemes of expanded reproduction (SER), Marx offered the foundations for the construction of
a classical theory of economic growth.

Marx’s SER and Solow’s growth model have in common the given saving rate and income
distribution as well as the evolution of capital accumulation and the attainment of long-run
equilibrium. This equilibrium or steady state in Solow’s model is determined by a set of exogenous
variables namely, investment and population growth, whereas in Marx’s SER the endogenously
determined variables of profitability and reserve army of unemployed are the crucial ones and the
propensity to save, after a short period of adjustment, is fixed according to the differences in the
two departments’ organic compositions of capital (Tsoulfidis and Tsaliki 2019, ch. 2). It is
important to stress that the similarities are only nominal since their analytical contexts differ and
the two models portray an entirely different conceptualization of the accumulation process. In what
follows, we argue that the explicit integration of the dynamics of the rate of profit in Solow’s model
in combination with the given distribution of income converts a stable equilibrium into a ‘saddle’
point. In particular, a falling rate of profit brings the economy to an equilibrium, which is either
stationary or a warranted path of steady state growth or one of contraction, while a rising rate of
profit ‘indefinitely’ repels the economy away from equilibrium. By contrast, in Marx, the explicit
dynamics of the falling rate of profit are fully integrated in the attainment of equilibrium; a falling
rate of profit attracts the economy to stagnation generating the conditions for a rising rate of profit,
which becomes the new phase of capital accumulation and economic cycle. Hence, both models
contain the condition for a disruption of capital accumulation; however, unlike Solow’s, Marx’s
2
theory of overaccumulation provides the mechanism (devaluation of capital and labour power)
according to which the system may return to its normal path, whereas Solow’s analysis lacks such a
crucial mechanism.

The remainder of the paper is organized as follows: Section 2 presents the basics of Solow’s growth
model pointing to its theoretical and empirical limitations. Section 3 summarizes the stylized facts
of Marx’s theory of capital accumulation while Section 4 formulates it in mathematical terms in an
effort to compare its conclusions with those of Solow’s model. Finally, Section 5 summarizes and
concludes by showing the trails of future research on economic growth issues.

2. Solow’s Growth Model

Solow (1956) proposed a model of economic growth claiming that Harrod’s first problem
(instability of the warranted growth rate) is eliminated while Harrod’s second problem (the fixation
of the variables involved to specific values so as the actual, warranted and natural rate of growth
are all to be equalized) was totally ignored. In fact, Solow by modifying Harrod’s assumption of a
given capital intensity claimed that his model provides a long-run approach to economic growth
that escapes the ‘knife-edge’ problem caused by the short-run assumptions implicit in Harrod’s
investment function and fixed proportions technology; these modifications allowed Solow to ‘deal’
with the ‘two Harrodian problems’ and to formulate a theory of economic growth expressed in
neoclassical terms described by the following well known relation

𝑘̇ 𝑓(𝑘)
𝑔𝑘 = =𝑠 − (𝑛 + 𝜏 + 𝛿) (1)
𝑘 𝑘

where 𝑔𝑘 the growth rate of capital-labour ratio, 𝑘 the capital-labour ratio, 𝑓(𝑘) the intensive form
of an aggregate production function, 𝑠 the marginal propensity to save, 𝑛 the growth rate of
population, 𝜏 the rate of technological progress and 𝛿 the rate of capital depreciation; the dot above
a variable denotes its time derivative. Furthermore, it is assumed that savings cause investment and
hence they are equal (𝑆 = 𝐼), there is perfect substitutability between capital and labour, the labour
market is at a state of full employment and the production function satisfies the Inada conditions
(Inada 1963) making the Cobb-Douglas the preferred variant of the CES production functions
alternatives; finally, the parameters 𝑠, 𝑛, 𝜏 and 𝛿 are considered constant, and positive.

3
After simple mathematical manipulations of Eq. (1), the growth rate of real output can be expressed
as

𝑌̇ 𝑠
𝑔= = 𝛼 ( − 𝛿) − (1 − 𝛼)(𝑛 + 𝜏) (2)
𝑌 𝜎

where 𝑌 the real output, 𝜎 the capital-output ratio and 𝛼 = 𝑌 −1 ∂𝑌⁄∂𝐾 the profit share (with the
wage share being 𝛽 = 1 − 𝛼).

At the equilibrium point (that is 𝑔𝑘 = 0 and by extend 𝑘̇ = 0), the capital-labour ratio remains
constant. Hence, at equilibrium, Eq. (1) yields the following stability condition

𝑓(𝑘 ∗ ) 𝑠
𝑠 ∗
= ∗ = (𝑛 + 𝜏 + 𝛿) (3)
𝑘 𝜎

where 𝜎 ∗ and 𝑘 ∗ are the equilibrium capital-output and capital-labour ratios, respectively. The
equilibrium point defined by Eq. (3) is stable as long as the Inada conditions are fulfilled and the
values of 𝑠, 𝑛, 𝜏 and 𝛿 are all positive. It is interesting to note that Solow’s equilibrium point is at the
same time the Harrodian balanced growth path with one significant difference: while Harrod’s
analysis deems this growth-path unstable, Solow’s analysis secures the stability of the equilibrium
via a full employment equilibrium in the labour market and a well-behaved aggregate production
function that predetermines the growth rate of 𝑘. Hence, in this manner, the Harrodian ‘knife-edge’
(first) problem is set aside and the economy is seemingly stabilized at a long-run equilibrium point,
which matches the natural growth rate. In addition, the celebrated assumption of substitutability of
inputs no longer holds once the equilibrium is attained, simply because capital and labour grow at
their natural rates. Moreover, Solow et al. (1966) by utilizing a Leontief production function
showed the attainment of a stable equilibrium under the stringent assumption of fixed proportions
of factor inputs. Consequently, his characteristic difference with the Harrodian model is not the
assumption of fixed proportions, but rather Harrod’s idea of ‘animal spirits’ as the principal cause of
failure to stabilize at equilibrium.

Harrod’s second problem, that is, the ‘fixation’ of all exogenous parameters so that the three growth
rates (actual, warranted and natural) are equalized, was side-stepped by Solow (Darity 2009;
Hagemann 2009). Nevertheless, the ‘fixation’ problem is taken care by the ‘latent’ hypothesis of
perfect information, where investors have full knowledge to choose the appropriate propensity to

4
save and maintain it until the whole process is completed; this is a ‘sophisticated’ application of the
‘golden savings rule’ mentioned in several expositions of the model without, however, a single
reference to the strict assumption of perfect information (Phelps 1966).

An examination of the above common stated equations (Eqs. 1, 2 and 3) may shed light to several
issues that are not usually addressed in the various expositions of the original argument and may
reveal the following theoretical and practical limitations of the model:

Limitation 1: By combining Eq. (2) with Eq. (3) we conclude that when the long-run equilibrium is
attained, the growth rate becomes 𝑔∗ = (2𝛼 − 1)(𝑛 + 𝜏); provided that all parameters are positive
(the only case for an economically meaningful equilibrium) the growth rate becomes
i. positive (𝑔∗ > 0), iff 𝛼 > 0.5; hence, the economy grows at a warranted path if the profit
share is greater than the wage one.
ii. zero (𝑔∗ = 0), iff 𝛼 = 0.5; hence, the economy ceases to grow when profit and wage shares
are equal to each other; hence, the old classical economists ‘stationary state’ is retrieved.
iii. negative (𝑔∗ < 0), iff 𝛼 < 0.5; hence, the economy shrinks when the profit share falls short
to the wage share.
It is worth noting that looking at actual data of profit and wage income shares in developed
countries the profit shares range between 30%-45% (Karabarbounis and Neiman 2014) rendering
the third case as the most representative of actual economies.

Limitation 2: It is rather intriguing that population growth in both Eq. (1) and Eq. (2) exerts an
overall negative effect on growth. Hence, in a comparative statics framework, a positive shock on
population growth brings the system to a new equilibrium accompanied by lower real output, a
case with a strong Malthusian flavour. Developing further the implications of the negative impact of
population on economic growth (Eq. 2), the ideal ‘maximum’ warranted path requires a zero (or
even negative) population growth. In that case, the introduction of labour saving (Harrod neutral)
technology in the model becomes a prerequisite since no other form of technological change (e.g.
Solow neutral) can increase the productivity of a constant (or even a decreasing) labour force. In
fact, it is the Inada conditions that guarantee that any kind of technological change will lead to Eq.
(1) and its specific and strict mathematical formulation is necessary even under the ‘rare’ case of
zero (or negative) population growth and constant labour productivity.

Limitation 3: Darity (2009) argues that the introduction of a Keynesian-investment function in

Solow’s model taking into account the ‘animal spirits’ give rise to Harrod’s first problem. More
5
importantly, Solow’s model escapes from it by assuming a constant and exogenously given
propensity to save that is optimized via the ‘golden savings rule’ according to which investors have
perfect knowledge of the market. If this is not the case, the propensity to save must be a priori
selected by a central planer –which was Solow’s idea all along.

Limitation 4: Zero growth and degrowth are not addressed in Solow’s model where by setting 𝑠 = 0
we get unfavourable degrowth, whereas the conditions of zero growth can be obtained by setting
all exogenous parameters equal to zero (𝑛 = 𝜏 = 𝛿 = 0), at the cost of representing a pre-capitalist
and therefore stagnant economy. In contrast, even as a working hypothesis, in Quesnay’s Tableau
Economique and Marx’s Schemes of Simple Reproduction (Capital II) the case of zero growth is
demonstrated with positive profits (Tsoulfidis and Tsaliki 2019, ch. 2).

Limitation 5: The ‘knife edge’ problem may appear in Solow’s model whenever one of the initial
assumptions is violated (Darity 2009). It is important to stress that the ‘knife edge’ problem arises
due to the lack of the implicit dynamics of profitability reflecting the changes in capital
accumulation. In a well-behaved aggregate production function, the evolution of the rate of profit is
described by

𝑟̇ 𝑘̇
= −(1 − 𝛼) (4)
𝑟 𝑘

A simple economy described by Eqs. (1) and (4) has a unique equilibrium point; with respect to
capital-labour ratio, the equilibrium point is given by Eq. (3) while with respect to the rate of profit
by setting 𝑟̇ = 0 Eq. (4) yields 𝑟 ∗ = 0. This ‘equilibrium’, however, is in effect a saddle point, that is,
stable with respect to capital-labour ratio but unstable when the dynamics of the rate of profit are
taken into account. This can be shown by perturbing the system of Eqs. (1) and (4) in the
neighbourhood of equilibrium point (𝑘 ∗ , 𝑟 ∗ ); subsequently, we linearize the system near this
particular point by means of the Taylor expansion and we get

̇ −(1 − 𝛼)(𝑛 + 𝛿 + 𝜏) 0 Δ𝑘
[Δ𝑘 ] = [ 2 2 ][ ]
Δ𝑟̇ (1 − 𝛼) (𝑛 + 𝛿 + 𝜏) (1 − 𝛼) (𝑛 + 𝛿 + 𝜏) Δ𝑟 (5)

The eigenvalues of the system are 𝜆1 = −(1 − 𝛼)(𝑛 + 𝛿 + 𝜏) and 𝜆2 = (1 − 𝛼)2 (𝑛 + 𝛿 + 𝜏), which
are real and of opposite sign regardless of the values of parameters, since they are all positive and

6
𝛼 < 1.1 Consequently, the perturbations in 𝑘 will decrease exponentially, attracting the capital-
labour ratio towards the equilibrium point while the perturbations in 𝑟 will increase exponentially,
repelling the rate of profit away from equilibrium; such a behaviour in the neighborhood of the
equilibrium point is what makes it a saddle one.2

Fig. 1 illustrates the above discussion; the horizontal axis depicts on the right-hand side (rhs) the
capital-labour ratio, 𝑘, and on the left-hand side (lhs) the rate of profit ,𝑟 , while the vertical axis
denotes the per capita output, 𝑦 = 𝑓(𝑘). The rhs of Fig. 1 displays the usual graph of Solow’s model
with the solid line standing for net per capita investment, 𝐼 = 𝑠𝑓(𝑘), and the dashed line presenting
the warranted growth path, defined as 𝑦/𝑘 = 𝑛 + 𝛿 + 𝜏; our difference is displayed on the lhs
where the actual evolution of the rate of profit is presented by means of solid lines, while the
dashed line stands for its theoretical presumed values in a static environment.3

Figure 1: Comparative static analysis of Solow’s growth model.

𝛼
1
The corresponding eigenvectors are 𝑣⃗1 = ( , 1) and 𝑣⃗2 = (0,1). These vectors denote the direction of the
1−𝛼
perturbations of Eq. (1) and (4) and by extent 𝑣1 denotes the direction of attraction and 𝑣2 that of repellence.
2 The Hartman-Grobman theorem (Verhulst 2000, ch. 7) ensures that the behaviour of a linearized system

near the equilibrium point is precisely mapped onto the actual non-linear system (Eqs. (1) and (4), in our
case).
3 Assuming decreasing returns to scale, the output per capita must be a continuous decreasing function of the

rate of profit (marginal product of capital); thus 𝑘 is given as a function of 𝑟 which when substituted in 𝑦 = 𝑘 𝛼
𝛼
yields 𝑦 = (𝛼⁄𝑟 )1−𝛼 , a hyperboloid (dashed curve in the lhs of the graph).
7
On the lhs of Fig. 1, we observe that the evolution of the rate of profit is not continuous depicting
the ‘saddle’ characterization of the equilibrium point according to Eq. 5. The dynamics of the above
equilibrium can be shown by considering an economy with capital-labour ratio lower than the
equilibrium (𝑘(0) < 𝑘 ∗, indicated in area A in Fig. 1); as this ratio increases approaching the
equilibrium point, E, 𝑘̇ is positive while the rate of profit decreases (𝑟̇ < 0 area C) reaching
asymptotically zero.4 On the other hand, an economy with 𝑘(0) > 𝑘 ∗ (indicated in area B in Fig. 1)
approaches the equilibrium point by reducing its capital stock; hence 𝑘̇ is negative while 𝑟̇ is
positive (indicated in area D) suggesting a rising profitability.

In short, following Solow’s analysis the capital-labour ratio eventually reaches the desired
equilibrium point, E; but by accounting the implicit dynamics in the rate of profit, serious
considerations emerge regarding the stability properties of the attained equilibrium. By bearing in
mind the trajectories of the rate of profit (the other shadow but major dynamic variable of the
system) in Fig.1, we realize that the warranted path is not feasible since profitability tends to zero
when the capital-labour ratio rises towards equilibrium, and to infinity when the capital-labour
shrinks towards equilibrium. Hence, Solow’s perception of economic growth contradicts the well-
established idea that an increased rate of profit leads to more investment and to a rising capital-
labour ratio while a falling rate of profit gives rise to the opposite.

Fig.2 is a portrait of the phase space of Solow’s model, as summarized by the system of Eqs. (1) and
(4). We assign ‘realistic’ values to the parameters of the system (𝑛 = 0.015, 𝛿 = 0.05, 𝜏 = 0.02, 𝛼 =
0.4 and 𝑠 = 0.3).5 Fig. 2 depicts eleven numerical solutions on the phase space of the dynamical
system with each corresponding to different initial conditions; the six of them denote 𝑘(0) < 𝑘 ∗ and
the remaining five ones 𝑘(0) > 𝑘 ∗, while all initial rates of profit are estimated as derivatives of a
Cobb-Douglas production function. The vertical dashed line stands for the equilibrium state
estimated 𝑘 ∗ ≅ 8.18.

4 It is worth noting that a falling rate of profit does not mean a decline in the profit-share, which is assumed
constant in the context of the Inada conditions; in fact, a declining rate of profit for a certain period of time
might be accompanied by a rising mass of profits and profit-share (Tsoulfidis 2006; Tsoulfidis and Tsaliki
2019).
5 The numerical values of the parameters were chosen so that our exposition to acquire a ‘realistic touch’.

Usually, 𝑛 + 𝛿 + 𝜏 ≈ 0.05, a figure supported by hitherto research (see the examples in Sasaki 2013). The
capital elasticity of output, 0.30 < 𝛼 < 0.45 is in accordance to the empirical findings reported in
Karabarbounis and Neiman (2014). Finally, the propensity to save was set to be a fraction of profits.
8
 (A) k∗ (B)

Figure 2: A phase portrait of Solow's growth model.6

In Fig. 2, we observe that in all eleven cases taken the capital-labour ratio approaches 𝑘 ∗, but the
rate of profit does not always approach its equilibrium value; for 𝑘(0) < 𝑘 ∗ (solid lines in area A)
we end up with zero profit rate (equilibrium value) while for 𝑘(0) > 𝑘 ∗ (solid lines in area B) we
end up with exponentially rising rate of profit. Hence, we arrive at two discrete conditions; in the
first (area A) the equilibrium is attained but profitability is zero while in the second (area B) the
equilibrium is not exactly attained since the rate of profit ‘explodes’. It is worth noting that changes
in the numerical values of the parameters merely shift the equilibrium to different levels of capital-
labour ratio without changing the properties of the system; the use of other forms of CES
production function does not give qualitatively different results.

From the above analysis, it follows that Solow by introducing a one-dimensional model in which
only the evolution of the capital-labour ratio is considered disregards the inherent dynamics of its

6 The phase portrait of a dynamical system depicts the flow produced by the vector field of the system,
defined as the functions of the dynamical variables on the lhs of the equations. These functions are presented
as vectors in the phase space (plotted as arrows). A solution of the dynamical system is a trajectory in the
phase space guided by the vector field. In short, these vectors denote the direction of the solutions.
9
‘twin' variable that is the rate of profit. Nevertheless, the evolution of the capital-labour ratio
cannot be isolated from the evolution of the rate of profit, since both variables depict and describe
the same process and are intrinsically connected; they are the two aspects of the same growth
process. In fact, the ‘knife edge’ problem raised in the Harrodian analysis reflects the repercussions
of the dynamics of the rate of profit ‘veiled’, however, under the premises of an investment function
and the idea of ‘animal spirits’.7

3. Marx’s Theory of Accumulation

The capitalist mode of production is an ever-expanding process characterized by a relentless
technological change that revolutionizes productive forces in the pursuit of profits as a purpose in
itself. Marx’s analysis not only explains the dynamics of capital accumulation but also explains the
process of absolute overaccumulation leading to economic crisis; in so doing, growth and crisis
constitute the two faces of the same process that is of capital accumulation. Although from Marx’s
writings one cannot derive a growth model in a way similar to neoclassicals, nevertheless, a growth
model can be formulated by integrating his ideas of the general law of capital accumulation (Capital
I), the SER (Capital II) and the general law of the falling rate of profit (Capital III).

In what follows, we present the salient features of Marx’s analysis in our effort to formulate a
growth model consistent with the pragmatic evolution of key economic variables:

1. Capital accumulation is intrinsically connected to technical change that leads to mechanization

of the production process which is reflected in a higher organic composition of capital (OCC) as
well as a rising labour productivity and rate of surplus value (Shaikh 2016, chs. 13 and 16;
Tsoulfidis and Paitaridis 2018; Tsoulfidis and Tsaliki 2019, ch. 8).

2. The reserve army of labour constitutes an essential and structural feature of capitalism
reflecting its need for relatively ‘cheap’ labour power and intensification of the labour process.
The ever-present unemployment leads to persistent imbalances in the labour market and in
effect it is an absolutely necessary constituent for the normal operation of the system (Tsaliki
2009; Vardalachakis and Tsaliki 2015; Shaikh 2016, ch. 13).

7 Post-Keynesian economists consider the rate of profit the determining factor of economic growth and
regulator of savings and in so doing introduce an equilibrating mechanism in Harrod’s instability (Kaldor
1957; Robinson 1963). On the other hand, neoclassical and endogenous growth models neglect this variable
from the scope of their analysis.
10
3. In Marx’s theory of capital accumulation, capitalists invest a portion of their surplus value to
expand their productive capacity thereby increase their productivity and reduce their unit cost
and by undercutting prices they may secure for themselves a higher market share. This ‘inner
nature’ of capitalism for expansion is driven by profitability which when is low investment
slows down independently of savings rendering Marx’s argument very similar to Keynes’s and
Schumpeter’s. Time intervenes in transforming savings into investment and economic
expansion continues for a certain period in time until it is interrupted by periodic crises making
the breakdown of the accumulation process possible. It is important to bear in mind that in
Marx savings do not automatically equalize with investment as Say’s Law dictates. In SER, Marx
assumes that all business savings is invested because the very purpose of business savings is
investment; however, the equalization is not instantaneous but through an adjustment
mechanism, such as that of effective demand (Kalecki 1968; Shaikh 1989; Trigg 2006, chs. 2 and
3).

4. The counterpart of Marx’s general law of capital accumulation is the law of the falling tendency
in the rate of profit. The increase in OCC, despite the rise in labour productivity and rate of
surplus value, leads to lower profitability (Shaikh 1992; Tsoulfidis 2006; Tsoulfidis and Tsaliki
2019, ch. 8, and the literature cited there).

5. The falling tendency in profitability caused by the overaccumulation of capital slows down
investment and leads to the downturn phase of economic activity at the point of ‘absolute
overaccumulation’. The latter functions as ‘catharsis’ for the system and an ‘escape’ from
classicals’ ‘stationary’ or neoclassicals’ ‘warranted growth path’ counterpart. In fact, the
downturn phase of economic activity is characterized by devaluation of capital stock through
innovative activity which at the same time deskills and therefore devaluates labour activity
which together with the rising unemployment reduce wages. All these separately and in
combination pave the way for a new phase of accumulation (Shaikh 1991; Tsoulfidis and Tsaliki
2014; Tsoulfidis and Tsaliki 2019, chs. 8 and 10).

4. Marx’s Growth Theory vs Solow’s

11
Following Marx’s argument, constant capital, 𝐶, grows over time according to a portion, 𝑠𝐶 , of
surplus-value, 𝑆, invested in circulating and fixed capital minus the depreciation rate, 𝛿,8 that is, 𝐶̇ =
𝑠𝐶 𝑆 − 𝛿𝐶; in similar manner, variable capital, 𝑉, grows accordingly, 𝑉̇ = 𝑠𝑉 𝑆 + 𝜏𝑉, where 𝑠𝑉 is the
portion of surplus-value invested in additional variable capital and 𝜏 𝑖𝑠 the technological change or
what amounts to the same thing the rise in productivity of labour; hence, investment is 𝐼 = 𝐶̇ + 𝑉̇ =
𝑠𝑆 𝑆, and 𝑠𝑆 = 𝑠𝐶 + 𝑠𝑉 is capitalists’ propensity to save. Therefore, the growth rate of constant
capital, 𝑔𝐶 , will be

𝐶̇ 𝑒 𝜋
𝑔𝐶 = = 𝑠𝐶 − 𝛿 = 𝑠𝐶 − 𝛿 (6)
𝐶 𝜃 𝛾

and that of variable capital, 𝑔𝑉 , will be

𝑉̇ 𝜋
𝑔𝑉 = = 𝑠𝑉 𝑒 + 𝜏 = 𝑠𝑉 +𝜏 (7)
𝑉 1−𝛾

where 𝜋 = 𝑆⁄(𝐶 + 𝑉) the rate of profit, 𝑒 = 𝑆⁄𝑉 the rate of surplus value or exploitation, 𝜃 = 𝐶⁄𝑉

the value composition of capital (VCC) and 𝛾 = 𝐶⁄(𝐶 + 𝑉) the OCC –standing for capital outlays

while 1 − 𝛾 for labour outlays.9 The equilibrium growth path, 𝑔∗ , derived from Marx’s SER under
the original assumption of given OCC (or fixed proportions) equals the two growth rates of constant
(𝑔𝐶 ) and variable capital (𝑔𝑉 )

𝑔∗ = 𝑔𝐶 = 𝑔𝑉
or

8 In Marx’s analysis of SER there is only circulating capital for reasons of simplicity and clarity of presentation.
There are also hints about the inclusion of fixed capital (Capital II, chs. 7-12). For the discussion of the role of
fixed capital and SER see Morishima (1973, ch. 13).
9 In Marx’s Schemes of Simple Reproduction, (SSR), there is investment neither in constant nor in variable

capital and the technique in use remains the same. To recover this picture in our terminology –and all
subsequent Eqs.– one only has to set 𝑠𝐶 𝜋 𝛾 −1 = 𝛿 (so investment on constant capital merely substitutes
depreciated capital stock and used-up raw material) and 𝑠𝑉 𝜋(1 − 𝛾)−1 = −𝜏 (so shifts in employment only
reflect changes in technology). Obviously if 𝛿 = 𝜏 = 0, then 𝑠𝐶 = 𝑠𝑉 = 0. In that sense, we acquire a
generalized version of Marx’s Simple Reproduction; similarly, setting 𝑠𝐶 = 𝑠𝑉 = 0 for 𝛿, 𝜏 > 0, we obtain
Contracted Reproduction. From the above it follows that such cases can theoretically occur either via a zero
propensity to save out of profit at any positive profit rate, or by an endogenous savings rate coupled with an
investment function in which some particular rate of profit does not trigger growth because of its low value.
Between the two options the first fits the purpose of Marx’s Simple Reproduction which is to show the
possibility of equilibrium, while the second indicates the condition for a breakdown. We thank the
anonymous referee of the journal for pointing out the two possibilities.
12
 𝜋 𝜋
𝑔∗ = 𝑠𝐶 − 𝛿 = 𝑠𝑉 +𝜏 (8)
𝛾 1−𝛾

Eq. (8) is closely related to Harrod’s equilibrium condition

𝑠
=𝑛+𝜏+𝛿
𝜎∗
𝛾 −1
since savings is 𝑠𝑌 = 𝑠𝐶 𝑆,10 the warranted capital-output ratio is 𝜎 ∗ = 𝐶⁄𝑌 = ( ⁄𝜋)(𝑆⁄𝑌) and
𝑠𝑉 𝜋(1 − 𝛾)−1 = 𝑛 at equilibrium is equal to the rate of change in population (which in Harrod’s
model is constant and exogenously given). Hence, Harrod’s and Domar’s growth models are simple
reformulations of Marx’s SER cast in modern (Keynesian) terminology (Lianos 1979).11
Nevertheless, between the two there is one major difference; in Marx’ s analysis there is no self-
clearing labour market (𝑛 ≠ 𝑠𝑉 𝜋(1 − 𝛾)−1 ) and unemployment is always present through the
reserve army of labour which maintains wages within the confines of productivity. The idea is that
the growth in investment is regulated by profitability and in so doing determines the level of
employment; therefore, any idea of natural and so exogenous growth rate in population is not in the
spirit of the SER (Tsaliki 2009).

In the extant literature, the theoretical and analytical strength of the schemes of reproduction have
been thoroughly questioned (Trigg 2006, ch.6 and 7; Tsoulfidis and Tsaliki 2019, ch. 2). In what
follows, however, we deal only with the long-run trajectory of capital accumulation and the way in
which it is linked to the economic cycle and reserve army of labour.12 In so doing, we employ a
simplified one-sector growth model arising from Marx’s analysis of capital accumulation by
surpassing the assumption of fixed OCC (proportions) and mapping Solow’s analysis onto it.13

10 Savings in the neoclassical context, 𝑠𝑌, equal to the portion of savings directed to new capital formation,
𝑠𝐶 𝑆, in Marxian context; so that
𝑠𝐶 𝑆
=
𝑠 𝑌
In other words, the ratio of the two propensities (neoclassical propensity to save and Marx’s capitalist’s
propensity to invest in new constant capital) equal the profit-share of the economy and they are assumed
constant. However, no such condition exists for 𝑠𝑉 and, by extent, it may change over time (see Goodwin
1967).
11 Eq. (8) is also an analogous to the von-Neumann ‘turnpike’ growth rate or to Robinson’s savings rule

equilibrium (Morishima 1973, chs. 12 and 13).

12 It is interesting to note that with respect to the schemes of reproduction, the interest initially was on the

trajectory of the OCC; in modern growth terms, a fixed OCC leads to direct comparisons with Harrod’s model
whereas a varying OCC bring Marx’s analysis into terms with Solow’s model.
13This one-to-one comparison of Marx’s schemes of reproduction and Solow’s model has been made, to the

extent that we know the literature, initially by Wolff (1987, ch. 4) where a Cobb-Douglas production function
is placed in a Marxian context which, however, in our view is quite distant from Marx’s analysis.
13
Let us now assume that investment comes from surplus-value and it is divided between constant
and variable capital,

𝐼 = 𝐶̇ + 𝑉̇ = (𝑠𝐶 + 𝑠𝑉 )𝑆 (9)

Substituting Eqs. (6) and (7) in Eq. (9), we have

𝜃̇ 𝑠𝐶
= ( − 𝑠𝑉 ) 𝑒 − (𝛿 + 𝜏) (10)
𝜃 𝜃

which resembles Solow’s Eq. (1) and depicts the evolution of capital-labour ratio in terms of
investment, technological change and depreciation:14

1. The term 𝑠𝐶 𝑒⁄𝜃 = 𝑠𝐶 𝜋⁄𝛾 stands for net investment in means of production in the same manner
𝑓(𝑘)⁄ 𝑠
the term 𝑠 𝑘 = ⁄𝜎 in Solow’s model stands for net investment in capital stock.
2. The terms 𝛿 and 𝜏 stand for the rates of capital depreciation and technological change,
respectively.
3. The parameter 𝑛, denoting the rate of growth in population in Solow’s analysis and implicitly
stands for the rate of growth in labour force and employment has no place in Marx’s model; its
nearest counterpart might be the net investment in labour power denoted by 𝑠𝑉 𝑒 = 𝑠𝑉 𝜋⁄1 − 𝛾.

The analysis so far has not resorted to any aggregate production function. Furthermore, in Eq. (10)
there is no reference to exogenous population growth and to implicit assumption of a perfectly
competitive labour market. More importantly, the decisions for new investment depend on surplus-
value produced and is driven by profitability. Due to system’s ‘inner nature for expansion’, we can
assure (assume) that profits are deliberately directed to new investment when profitability is
promising.15

14 Solow’s growth index, that is, the capital-labour ratio, 𝑘, is reflected in Marx’s VCC whose rate of change is
𝜃̇ 𝐶̇ 𝑉̇
= −
𝜃 𝐶 𝑉

Moreover, the credit system is always ready to provide the necessary credit lines if the need for investment
15

arises and thus an ‘effective demand’ mechanism may be detected (Shaikh 1989; Trigg 2006, ch. 3).
14
We advance the analysis by exploring the stability properties of the growth model depicted in Eq
(10). Initially, we assume a constant rate of surplus value16 and setting 𝜃̇ = 0, a unique equilibrium
point is obtained
𝑠𝐶 𝑒
𝜃∗ =
𝑠𝑉 𝑒 + 𝛿 + 𝜏 (11.a)

which is stable since 𝜃̈ < 0; this equilibrium point attracts all solutions of Eq. (10) as demonstrated
by its following general solution

𝜃(𝑡) = 𝜃 ∗ (1 + 𝜃(0)𝑒 −(𝑠𝑉 𝑒+𝛿+𝜏)𝑡 )

If we assume now a flexible rate of surplus value, Eq. (10) does not display any equilibrium point
(see footnote 16). By setting 𝜃̇ = 0, the resulting relation
𝑠𝐶 𝑒(𝑡)
𝜃(𝑡) = (11.b)
𝑠𝑉 𝑒(𝑡) + 𝛿 + 𝜏
𝑠𝐶 𝑠
approaches the ratio ⁄𝑠𝑉 as time goes to infinity. In other words, the ratio 𝜃̅ = 𝐶⁄𝑠𝑉 is an
‘attractor’ for the solutions of Eq. (10) and defines the ‘balanced path of accumulation’ which may
be viewed as a growth target for investment by setting specific values to 𝑠𝐶 and 𝑠𝑉 . Hence, we
encounter the argument set by many Marxists, who argue that if appropriate proportions are set to
these variables by a central planner, capitalism may become a crisis-free system (see Sweezy 1942,
ch.11, for the relevant literature).

However, as we have already mentioned above, Marx’s discussion of economic growth combines
two processes; one is capital accumulation and the other is the evolution of profitability. In fact,
Marx’s growth theory focuses on the cross-dual relationship between OCC and rate of profit which
together define the dynamics of capitalism. In other words, the long-run trajectory of capital
accumulation mirrors the turbulent cyclical growth path of a capitalist economy which is
inextricably linked to the dynamics of the rate of profit. Defining the rate of profit as follows

𝑒
𝜋 = 𝑒(1 − 𝛾) = (12)
1+𝜃
its rate of change is

16
The necessity of this assumption lies with the existence of equilibrium points. Generally, a non-autonomous
differential equation (that depends explicitly on time or has time-varying coefficients) has no equilibrium
points. Assuming –momentarily– that the rate of surplus value is constant, Eq. (10) becomes autonomous,
much alike Solow’s Eq. (1), and by extent it has an equilibrium point. Nevertheless, this assumption is
dropped later.
15
 𝜋̇ 𝑒̇ 𝛾̇ 𝑒̇ 𝜃̇
= − = − (13)
𝜋 𝑒 1−𝛾 𝑒 1+𝜃

Thus, profitability may rise iff the growth in the rate of surplus-value is greater than that of the OCC
(or VCC). In the relevant theoretical and empirical literature (Shaikh 1992 and 2016, chs. 13 and 16;
Tsoulfidis and Tsaliki 2019, chs. 8 and 10, inter alia), it has been shown that the increase in OCC
surpasses the increase in the rate of surplus-value17 and the long-run falling tendency of the rate of
profit is the direct result of the general law of capital accumulation.

In what follows, we take into consideration the evolution of profitability. We replace VCC with OCC
in Eq. (10) to further elaborate mathematically our model. The evolution of OCC is

𝛾̇ 𝐶̇ 𝑉̇
= (1 − 𝛾) ( − )
𝛾 𝐶 𝑉

and employing Eqs. (6) and (7), the following is obtained

𝛾̇ 𝑠𝐶 𝑠𝑉
= (1 − 𝛾) ( − ) 𝜋 − (1 − 𝛾)(𝛿 + 𝜏) (14)
𝛾 𝛾 1−𝛾

After simple mathematical manipulation of Eqs. (13) and (14), profitability evolves as follows

𝜋̇ 𝑒̇ 𝑠𝐶 𝑠𝑉
= −𝛾( − ) 𝜋 + 𝛾(𝛿 + 𝜏) (15)
𝜋 𝑒 𝛾 1−𝛾

Eqs. (14) and (15) form a dynamical system of capital accumulation in which OCC and profitability
interact to each other and the stability analysis of the above system is examined below.

Let us assume that the rate of surplus value changes exponentially18. By setting 𝛾̇ = 𝜋̇ = 0, our
system displays the following two equilibrium points, A (𝛾𝐴⋆ = 1, 𝜋𝐴⋆ = 0) and B (𝛾𝐵⋆ = 0, 𝜋𝐵⋆ = 0)

17 This historical fact has been repeatedly verified for several countries (Shaikh 1992 and 2016; Tsaliki and
Tsoulfidis 1994; Tsoulfidis 2006; Edvinsson 2010; Maniatis 2012; Tsoulfidis and Tsaliki 2019 and the
literature sited there).
18 We assume that 𝑒 is an increasing or a decreasing exponential function of time; in both cases, a constant

rate of change in the rate of surplus value, 𝑒̇⁄𝑒 is ensured which, however, takes on very low values (|𝑒̇⁄𝑒| ≪
1) as has been repeatedly confirmed by actual data. For instance, in Greece is found ~0.003 for the period
1958-1994 (Maniatis 2005), in UK is found ~0.025 during 1920-1938 and ~0.014 during 1948-1969
(Cockshott et al. 1995) and in USA is found ~0.0067 for the years 1949-1989 (Shaikh and Tonak 1994, ch. 5)
16
depicted in Fig. 3. Equilibrium point A represents a steady-state condition which when it is reached,
the rate of profit is zero, surplus and investment cease to exist, OCC turns to unity, whereas variable
capital vanishes, and full automation is implied;19 however, with no profits there is no investment
and thus economic growth will slow down reaching eventually stagnation. This result resembles
the ‘stationary state’ implied by the old classical political economists (Smith and Ricardo) and it is
in sharp contrast with the ‘warranted growth path’ of contemporary theories of economic growth.
At equilibrium point B, since 𝛾𝐵⋆ = 0 constant capital disappears, the rate of profit vanishes while
the economy shares the characteristics of a primitive society with no capital.

On further consideration of equilibrium point A, it appears as a singular point of Eq. (15) turning
the rhs of the equation to infinity; however, as 𝛾 → 1 and 𝜋 → 0 simultaneously, they are mutually
cancelled out from the rhs of Eq. (15) and the singularity is avoided. Thus, the equilibrium point
indeed exists and we can apply singular perturbation theory on the system of Eqs. (14) and (15)
around the equilibrium point 𝛾𝐴⋆ = 1 and 𝜋𝐴⋆ = 0 to obtain the linearized system

Δ𝛾̇ 𝛿+𝜏 −𝑠𝑉 Δ𝛾

[ 𝐴] [ ] = [ 𝐴] (16)
̇
Δ𝜋𝐴 0 0 Δ𝜋𝐴

The eigenvalues of the system (16) are 𝜆1 = 𝛿 + 𝜏 and 𝜆2 = 0;20 considering 𝛿 and 𝜏 to be positive,
the first eigenvalue is always positive while the second is zero, deeming the equilibrium point a
degenerate unstable point.21 Such an equilibrium point is characterized by two opposite patterns; it
is an unstable source repelling all solutions to one direction (that of the OCC in our case), while it is
an attracting locus of points towards the other dimension (that of the rate of profit).

As for the equilibrium point B, its stability is again obtained via the analysis of small linear
perturbations around 𝛾𝐵⋆ = 0 and 𝜋𝐵⋆ = 0, yielding the linearized system

and more recently is found ~0.013 for the years 1964-2016. (Tsoulfidis and Paitaridis 2018). In the
numerical solutions of Eqs. (14) and (15) presented later, we use similar values. As stated in footnote 16, this
assumption guarantees the autonomy of the dynamical system.
19 In equilibrium point A, capital stock can change to either direction while the OCC remains constant (unity),

since it merely measures the ratio of constant capital to itself.

20The
𝑠
corresponding eigenvectors are 𝑣⃗1 = (𝑒̇ 𝐶 , 1)and 𝑣⃗2 = (1,0), tangent to the directions of repellence
⁄𝑒+𝛿+𝜏
and attraction respectively (see footnote 1).
21 In this case, where an eigenvalue is identically zero, the Hartman-Grobman theorem does not apply.

However, the existence of a neutral manifold, tangent to 𝑣⃗2 , allows the characterization of equilibrium A as
degenerate, while the existence of an unstable manifold tangent to 𝑣⃗1 allows its characterization as unstable.
It will be shown that this point is reached only through one specified path.
17
 Δ𝛾̇ −𝛿 − 𝜏 𝑠𝐶 Δ𝛾𝐵
[ 𝐵][ 𝑒̇⁄ ] = [Δ𝜋𝐵 ] (17)
Δ𝜋̇𝐵 0 𝑒

The eigenvalues of the system (17) are 𝜆1 = −(𝛿 + 𝜏) and 𝜆2 = 𝑒̇⁄𝑒.22 Considering that 𝛿 and
𝜏 arealways positive, the first eigenvalue is always negative while the sign of the second eigenvalue
depends on the sign of 𝑒̇⁄𝑒; it is negative when 𝑒̇⁄𝑒 < 0, zero when 𝑒̇⁄𝑒 = 0 and positive when 𝑒̇⁄𝑒 >
0. Hence, the equilibrium point B is a stable ‘node’ when 𝑒̇⁄𝑒 < 0 attracting all solutions, turns to a
‘saddle-node’ when 𝑒̇⁄𝑒 = 0 and ends up to a ‘saddle’ point when 𝑒̇⁄𝑒 > 0. Hence, the equilibrium
point B is subject to a bifurcation, meaning that its stability can change according to the sign of 𝑒̇⁄𝑒.

Apart from the two equilibrium points, the system of Eqs. (14) and (15) also possesses a ‘global
attractor’, that is a locus of points that attracts all solutions. Due to the non-linearity of the system,
it cannot be calculated analytically23 but can be well approximated by the following equation

(1 − 𝛾)𝛾(𝑒̇⁄𝑒 + 𝛿 + 𝜏)
𝜋= (18)
𝑠𝐶 (1 − 𝛾) + 𝑠𝑉 𝛾

The shape of the above curve strongly depends on the values of 𝑠𝐶 and 𝑠𝑉 .Following Marx’s analysis
of capital accumulation, we assume that 𝑠𝐶 is always positive, reflecting the need for investment in
capital, while 𝑠𝑉 varies, capturing the fluctuations in the reserve army of unemployed and reflecting
the level of economic activity. Hence, the curve of Eq. (18) takes on the following three forms

𝑠
22 The corresponding eigenvectors are 𝑣⃗1 = (1,0)and 𝑣⃗2 = ( 𝑉 , 1), regulating the directions of attraction or
𝛿+𝜏
repellence respectively.
23
Such an invariant curve, known as an attractor, is generally obtained by the solution of the differential
equation
𝑠 𝑠
𝑑𝜋 (𝑒̇⁄𝑒 + 𝛾(𝛿 + 𝜏)) 𝜋 − 𝛾 ( 𝐶 − 𝑉 ) 𝜋 2
𝛾 1−𝛾
=
𝑑𝛾 ((1 − 𝛾)𝑠𝐶 − 𝛾𝑠𝑉 )𝜋 − 𝛾(1 − 𝛾)(𝛿 + 𝜏)
that is derived from the division of Eq. (15) by Eq. (14); furthermore, it must fulfill the following condition
𝜕𝛾̇ 𝜕𝜋̇ 𝜕 𝜕 𝑠𝐶 𝑠𝑉
+ = (((1 − 𝛾)𝑠𝐶 − 𝛾𝑠𝑉 )𝜋 − 𝛾(1 − 𝛾)(𝛿 + 𝜏)) + ((𝑒̇⁄𝑒 + 𝛾(𝛿 + 𝜏)) 𝜋 − 𝛾 ( − ) 𝜋 2) = 0
𝜕𝛾 𝜕𝜋 𝜕𝛾 𝜕𝜋 𝛾 1−𝛾
known as the Poincarè-Bendixson theorem (Verhulst 2000, ch. 4). Eq. (18) does not fulfill this condition
except when 𝑒̇⁄𝑒 = 0; however, after some experimentations, we find that it approximates quite well the
numerical solutions such as those presented in Figs 4 and 5.
18
 Rate of Profit

Rate of Profit

Rate of Profit
C

C’

B OCC A B OCC A B OCC A

(a) (b) (c)

Figure 3: The portraits of the attractor.

While 𝑠𝐶 is always positive, the different values of 𝑠𝑉 give the following

i. Case (a): When 𝑠𝑉 > 0, the attractor is a paraboloid intersecting equilibrium point B (𝛾 = 0,
𝜋 = 0)and tends to infinity as OCC reaches the value
𝑠𝐶
𝛾̅ =
𝑠𝐶 + 𝑠𝑉 (19)

that corresponds to the long-run attracting point of Eq. (11.b). This curve acts as an attracting
trajectory towards or away from equilibrium point B, but never reaches the equilibrium point
A (Fig. 3.a). Case (a) corresponds to initial stages of a new phase of accumulation where both
constant and variable capital grow.

ii. Case (b): When 𝑠𝑉 = 0, the attractor becomes a positively sloped straight line starting from
point B, where 𝛾 = 0 and 𝜋 = 0, and reaching point C when 𝛾̅ = 1 with maximum rate of
profit defined from
𝛿 + 𝜏 + 𝑒̇⁄𝑒
𝜋max = (20)
𝑠𝐶
This straight line attracts solutions towards the degenerate locus of points of the vertical line
𝛾 = 1 associated with equilibrium A (Fig.3.b). Case (b) indicates that technological progress
increases labour productivity rendering the hiring of additional variable capital redundant.

iii. Case (c): When 𝑠𝑉 < 0, the attractor turns to an inverse paraboloid that connects the two
equilibrium points; this inverse paraboloid locates a maximum at
𝑠𝐶 + √−𝑠𝐶 𝑠𝑉 𝛿 + 𝜏 + 𝑒̇⁄𝑒
𝛾̅ = and 𝜋𝑚𝑎𝑥 =
2 (20)
𝑠𝐶 + 𝑠𝑉 (√𝑠𝐶 − √−𝑠𝑉 )
The above maximum point (C’) shows the moment of overaccumulation and signals the
turning point of the evolution in profitability (Fig.3.c). In fact, the third case captures Marx’s
19
 dynamics of a capitalist economy; that is the increase in mechanization and labour
productivity, leads to lower rate of profit, deters investment and leads the system towards
recession and unemployment.24

Based on the above analysis, we may argue that the path of economic growth depends on the
evolution of 𝑠𝑉 and 𝑒̇⁄𝑒 since changes in the shape of the above presented attractors in Fig.3 solely
depend on the values of 𝑠𝑉 while the attraction or repellence towards equilibrium point B depends
on 𝑒̇⁄𝑒 whose evolution determines the sign of the second eigenvalue of the system (17).
Nevertheless, the above configuration of the different attractors presented in Fig.3 under various
assumptions should not be analyzed in isolation from each other but rather can be viewed as a
transition from one to another dictated by the dynamics of capital accumulation.

In what follows, we present the phase space of the system of Eqs. (14) and (15). In so doing, we
utilize the following numerical values for the parameters; 𝛿 = 0.05, 𝜏 = 0.02 (as in Solow’s model)
and 𝑠𝐶 = 0.45 (denoting capital accumulation) together with the extreme case of 𝑠𝐶 = 0. Both 𝑠𝑉
and 𝑒̇⁄𝑒 vary; 𝑠𝑉 is either 0.1 , 0 or −0.1, depending on whether the labour force increases, remains
the same or decreases and we assign different values to 𝑒̇⁄𝑒 which is either 0.01, 0 −0.01 referring
to increasing, constant and decreasing exploitation rate, respectively.25

In Fig. 4, we present four cases where 𝑒̇⁄𝑒 = 0 while 𝑠𝐶 and 𝑠𝑉 change. The horizontal axis stands
for the OCC and the vertical one for the rate of profit; the arrows depict the vector field of the
system of Eqs. (14) and (15). The solid lines denote the trajectories of OCC and rate of profit, the
dashed line presents the attractor defined by Eq. (18), while the dotted vertical line stands for 𝛾̅ .
Fig. 4.a stands for the phase space when 𝑠𝐶 = 0.45 and 𝑠𝐶 = 0.1, Fig. 4.b for 𝑠𝐶 = 0.45 and 𝑠𝑉 = 0,
Fig. 4.c for 𝑠𝐶 = 0.45 and 𝑠𝑉 = −0.1 and finally Fig. 4.d for 𝑠𝐶 = 0 and 𝑠𝑉 = −0.1. We observe that
the solutions of the first three cases evolve with respect to both OCC and rate of profit, until they
reach the attractor of Eq. (18); on the attractor, any evolution ceases since OCC, the rate of profit
and the rate of surplus-value remain fixed while the respective growth paths are defined by Marx’s

24 In all of the above cases, we assumed that 𝑠𝐶 > 0. However, when we consider 𝑠𝐶 = 0 and 𝑠𝑉 < 0, the curve
of Eq. (18) becomes a negatively sloped straight line that begins from 𝜋 = 0 for 𝛾 = 1 (equilibrium A) and
reaches
𝛿 + 𝜏 + 𝑒̇⁄𝑒
𝜋max = −
𝑠𝑉
for 𝛾 = 0; furthermore, this straight line is no longer an attractor, but a repeller. In this case, investment
ceases, and workers are laid off, describing an economy in deep depression.
25 We used deliberately extreme values for 𝑠 and 𝑠 to better demonstrate the qualitative features of the
𝐶 𝑉
system. The numerical values of the remaining parameters are taken from Sasaki (2013).
20
original schemes. These growth paths are the ‘warranted growth rate’ of Harrod and Domar, or the
von Neumann ‘turnpike’ initially proposed by Marx in his SER. The only case that a warranted path
is not attained is for 𝑠𝐶 = 0 (Fig. 4.d), a case described in Domar’s ‘disinvestment problem’ and
reveals an economy in a deep depression phase; in this case, the trajectories are repelled from the
curve.

(a) (b)

(c) (d)
𝑒̇
Figure 4: The phase space of the Marxian model for 𝛿 = 0.05, 𝜏 = 0.02 and = 0 and different
𝑒
investment profiles.

21
Subsequently, we assume that 𝑒̇⁄𝑒 = 0.01, since many empirical studies have shown that capital
accumulation is accompanied by an increasing rate of surplus value (see footnote 18). In the four
graphs presented in Fig. 5, we depict the different types of accumulation that might be derived from
the system of Eqs. (14) and (15) allowing the rate of surplus-value to vary.

(a) (b)

(c) (d)
𝑒̇
Figure 5: The phase space of the Marxian model for 𝛿 = 0.05, 𝜏 = 0.02 and = 0.01 and different
𝑒
investment profiles.

In Fig. 5.a (𝑠𝐶 = 0.45 and 𝑠𝑉 = 0.1) where both constant and variable capital grow, the rate of profit
increases and OCC moves towards the target, 𝛾̅ , of Eq. (19) (vertical dotted line). As investment in

22
variable capital vanishes in Fig. 5.b (𝑠𝐶 = 0.45 and 𝑠𝑉 = 0), OCC rises asymptotically towards unity
while at this point the rate of profit reaches a maximum, given by Eq. (21). In the third case
presented in Fig. 5.c (𝑠𝐶 = 0.45 and 𝑠𝑉 = −0.1), all solutions are drawn towards the equilibrium
point A characterized by 𝛾𝐴⋆ = 1, 𝜋𝐴⋆ = 0 (see Fig. 3). The solutions with small initial rates of profit,
anywhere below the curve of Eq. (18), follow an almost cyclical trajectory; first by decreasing OCC
so as to increase the rate of profit and afterwards following the attractor of Eq. (18) back to an
increase of OCC and a decrease in the rate of profit. Finally, given the case of disinvestment and
economic depression where 𝑠𝐶 = 0 and 𝑠𝑉 = −0.1 (Fig. 5.d), the trajectories are rapidly repelled
towards lower values of OCC and higher rates of profit, retaining a certain quasi-cyclical behavior.

The four graphs in Fig. 5 depict Marx’s general law of capital accumulation in which both OCC and
rate of surplus-value increase over time. However, we should notice that from all four cases, the last
two capture the periodicity of Marx’s capital accumulation theory. The first two cases seem to
contradict the law of the falling tendency in the rate of profit and they are merely a demonstration
of the counteracting tendencies explicitly mentioned in Capital III, namely, the increase in
productivity due to mechanization of the production process which increase the rate of surplus-
value and pushes wages down; thus, the increase in surplus-value is expected to surpass the
increase in OCC, resulting to a temporary rise in the rate of profit.26

Marx’s analysis of capital accumulation as depicted in Figs. 4 and 5 should be viewed as transition
process between different phase-spaces by means of bifurcations in parameters 𝑠𝐶 , 𝑠𝑉 and 𝑒̇⁄𝑒. In so
doing, the trajectory of an economy is not monotonic towards a stationary or steady state condition
but presents a turbulent cyclical behavior. The presence of an attractor becomes a fundamental
component of this transition, since its placement on the phase space is conditioned by the evolution
in 𝑠𝐶 and 𝑠𝑉 and its shape alters as these parameters change; similarly, as the rate of surplus-value
changes the behaviour of solutions on the attractor also alters. In conclusion, the attractor alters by
the changes in the afore-mentioned parameters, signaling radical changes in the behaviour of the
entire system.

Let us further examine the case which is closer to reality and Marx’s analysis, where 𝑒̇⁄𝑒 > 0,
depicted in Fig. 5; the transition from the first to the fourth phase space (Fig. 5.a to 5.d) takes place

26
The third case, that of a falling rate of surplus value (where we set 𝑒̇⁄𝑒 = −1) is partly close to Grossman’s
idea of capitalists’ underconsumption (Trigg 2006, chs. 6 and 7), and to Ricardian and neo-Ricardian views of
‘profit squeeze’, where the increase in wages may lead to a decrease in profits (Glyn and Sutcliffe 1972; Boddy
and Crotty 1976). In this case, the solutions of the system of eq. (14) and (15) are generally attracted to
equilibrium point B, which as we already mentioned characterizes a primitive economy.
23
by means of bifurcations in 𝑠𝐶 and 𝑠𝑉 , which are driven by the formed expectations in the system
(‘animal spirits’). These expectations resulting to changes of the attractor and clearly demonstrate
Marx’s ‘cathartic-like’ mechanism of over accumulation crisis; the return from the fourth to the first
phase space resembles to a phase-change in capital accumulation. In order to show these effect let
us hypothesize an endogenous investment function that link s𝑠𝐶 to rate of profit (e.g. 𝑠𝐶 = −𝑠0 +
𝑠1 𝜋, for 𝑠1 , 𝑠2 > 0) and a cyclical mechanism á la Goodwin (1967) to link 𝑠𝑉 to OCC. The latter
would periodically change sign depending on whether the OCC target of eq. (19) is approached,
while the former will approach zero as the rate of profit would approach to an exogenously fixed
𝑠
value (in our case 0⁄𝑠1 ). In so doing, the transition phase in capital accumulation from Fig. 5.a to
5.d and vise versa is realized with the completion of the cyclical trajectories of the OCC and the rate
of profit.27 In similar fashion, we may observe the effect of class struggle, income distribution and
labour intensity by merely varying the values of 𝑒̇⁄𝑒 and observe the shifts of the attractor, from
overaccumulation (𝑒̇⁄𝑒 > 0), to stabilization á la Harrod (𝑒̇⁄𝑒 = 0) and finally to a phase of
degrowth (𝑒̇⁄𝑒 < 0).

5. Conclusions
Solow’s model in dealing one way or another with the problems of instability in Harrod-Domar’s
model established itself as the corner stone of neoclassical theories of economic growth. In this
paper, we argued that Solow’s model did not actually resolve the instability issues of its
predecessors’ but rather surpassed them, by replacing the Keynesian assumptions by neoclassical
ones. In fact, Solow managed to formulate a model of economic growth based on neoclassical
premises and the properties of his model are undoubtedly the foreshadowed outcomes of the
utilized assumptions that ensure pseudo-stability in the long-run without accounting for the
underlying on profitability-based dynamics of a capitalist economy. In this article, we showed that
the alleged Solow’s steady-state equilibrium is questionable, since it does not lead to a ‘golden age’,
but rather to a ‘capitalist’s end of the world’ in which the rate of profit is doomed to vanish and in so
doing casts doubts on the validity of the model.

Nevertheless, Solow’s and Harrod’s works were neither the first nor the most original contributions
to the theory of economic growth. In fact, what was highlighted by them was already outlined and
extensively discussed by Smith and Ricardo and certainly by Marx. In fact, Marx by understanding
the ‘inner nature’ of a capitalist economy dealt with several features of economic growth, such as

27 We are indebted to the anonymous referee whose comments helped us to clarify this mechanism.
24
income distribution, reserve army of labour, mechanization, labour productivity and discussed
their short- and long-run implications on economic growth.

In this paper, we compared Marx’s schemes of reproduction with Solow’s model. We extended
Marx’s elaboration of expanded reproduction beyond that of reproduction in fixed proportions and
we formulated a model in which the OCC rises. Our analysis, in one-to-one comparison reveals that
Marx’s schemes of reproduction contain enough information that can become the solid foundation
for the development of a growth model; more importantly, the Marxian growth model by
endogenizing the technological progress based on the evolution of profitability addresses all the
questions posed in the neoclassical growth models (Harrod, Domar, Solow in the main) and raises
additional questions that these models fail to address.

In our effort to model these dynamics, we combined the evolution of both, OCC and rate of profit in
an effort to capture the internally generated mechanism of capitalist evolution. The turning point of
overaccumulation is easily located, cyclical and semi-cyclical trajectories are traced, and economic
crises work as a ‘cathartic-like’ mechanisms of the capitalist system. In contrast, the introduction of
the evolution of the rate of profit in Solow’s growth model shows that the attained 'steady-state
equilibrium' is in fact asymptotically unstable and leads through another path to the unresolved
Domar’s disinvestment problem.

The proposed model contains the main elements of a Marxian theory of economic growth inspired
by the SER but remains a simplified presentation of the dynamics of a capitalist system. A more
elaborated version of the analysis should include reserve army effects, technological progress,
among others, in order to reveal Marx’s theory of accumulation making possible, at the same time,
its fruitful integration with other heterodox approaches (Shumpeterian, Kaleckian, etc.). Hence, the
further elaboration of the model to these directions might be the subject of future research efforts.

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