Answer:
Karl Marx referred to the propensity of capitalists to maximize profits by reducing wages as the falling rate of profit, which he believed to be one of the inherent contradictions of capitalism that would produce its eventual downfall.
Step-by-step explanation:
The theory on the falling rate of profit is a Marxist economic hypothesis and one of the two central tendencies in Karl Marx "Das Kapital". It argues that the capitalist's profit in relation to investment decreases the more the capital accumulates. It should not be confused with the decrease in total profit. The term profit ratio refers to the relationship between value added - defined in Marxist terminology as the surplus that arises when the value of the workers' product exceeds the value of their pay - and the total invested capital. According to Marx, over time, the organic composition of capital increases, that is, the constant capital (raw materials, machinery buildings and so on) in relation to the variable capital (labor). However, since Marx says that only human work can produce new value, the profit ratio decreases. In order to prevent the profit ratio from falling, the value-added ratio must grow in line with the organic composition of capital, which in effect means that the extraction of workers is increasing.