Where does profits come into this model? The Neoclassicals have yet to explain how economic growth is possible without positive profits. Marx on the other hand explains that the values of labor varies with prices of commodities because capitalists pay less of the time for the workers' labor. The doubling of output is attributable to technological change and is largely determined by human skills making new discoveries and appling them in practice. As I have earlier emphasized productivity of capital including land increases only except via human agent. As Roger Sandilands asks: “Does the sun shine twice as long? Is there manna from heaven? Does the top soil above mineral deposits easily disappear so that it takes only half the effort to extract copper or gold? Do the cows say "Hey, have twice as much milk this year?”
Clearly, if none of these things, there must be some kind of labor responsible for economic growth. In such case the constant share of higher GNP that goes to capital represents a declining share that goes to labor. Furthermore, as the output doubles the market size expands, according to Adam Smith. Thus, the tendency for an increasing return toscale rather than constant return to scale. This explains large economies like the United States, Japan and other European countries who go beyond national borders to capture market elsewhere.
Increasing return to scale necessitates a sum of the coefficients of factor inputs more than unity. This means doubling the productivity of factor inputs more than doubling the GNP so that all the more the share of the world"s GNP that goes to capital represents the declining share that goes to labor. This entices more capital formation such that in the long run profits decline as more capital is used in place of labor. Consequently, this puts downward pressure on wages and a deficiency on aggregate demand that eventually create “a vast reserve army of unemployed.” One thing possible however is that as population increases in the long run the fixed warehouse called earth works harder and harder and payments to the landowners become infinite and irreversible. Thus Marx predicts a shift from profits to property income (rents), creating separate and distinct classes of people with conflicting interests. When productivity of land reaches optimum, the final stage of development sets in when labor values equalize with prices and profits fall and the capitalist system collapses.
Consistent with Henry George's Progress and Poverty and David Ricardo' Class Conflict, I do not see how prices in the economy ensures that what is produced (factor payments) is what is demanded so long as rents and profits are purely governed by private interests rather than their social functions. After all, Marx's LTV is not absurd. It has in fact spurred drastic changes in the social systems of the world where much of the population lives. It has an element of the purity of the Christian code - the supremacy of labor.
