Technical Change and the Rate of Profit: An Obituary for Okishio's Theorem

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Abstract
The effects of technical change on the aggregate rate of profit are unclear. On the one hand, it is argued that laboursaving innovations cause the profit rate to fall. On the other hand, Okishio proved that in an economy where wages are constant and realization problems are assumed away, cost-reducing technical changes must raise the rate of profit. Okishio's theorem presents an important challenge to explanations of industrial and regional restructuring that are premised on the theory of the falling rate of profit. In this paper, Okishio's claims are examined under more general conditions, in particular when wages vary to ensure market clearing. The effects of capital-saving and laboursaving technical changes on the rate of profit are examined. It is shown that Okishio's theorem is not as robust as some have claimed.