The renewed interest in Marxist economic theory during past few years brought with it a renewed interest in what Marx himself called the most important law of modern political economy, Law 'of Tendency of Rate of Profit to Fall. K. Marx's own analysis of laws of motion of capitalist development led him to following formulation of this law. course of capitalist development there exists a tendency for live labor to be continuously replaced by dead labor. Capitalists replace workers by using more machinery. At same time increased productivity of labor process lead to an increased amount of raw material and auxiliary material processed in any given hour of labor. Thus amount of dead labor incorporated in means of production (machinery, raw material, and auxiliary material) increases over time relative to amount of live labor directly employed in production process. Marx expresses this development in what he calls rising organic composition of capital, i.e., an increasing ratio of dead labor to live labor. This development, Marx argued, would lead to a tendency of rate of profit to fall over time. Thus, for him, this law is not a prediction at level of appearances. Rather he claims that despite existence of a number oi counteracting forces, tendency of rate of profit to fall would assert itself as a continuous structural threat to capitalist mode of production. On one hand Marx clearly saw this tendency as a longrun development of capitalist mode of production. It is, in this sense, directly related to inherent dynamics of process of capital accumulation. On other hand he put great emphasis on linking up this tendency with short-run crisis phenomena. Marx saw crises as temporary breakdowns in capitalist accumulation process. Yet at same time he considered them to be a mechanism that recreates preconditions for profitable capital accumulation. Crises are an inherent part of continued reproduction of capitalism. In totality of this disorderly movement is to be found its order (Marx 1933). One effect of crises is to reduce rate at which real wages rise or even to cause a decline in real wages. Furthermore crises result in devaluation of capital as well as its concentration and centralization. It is precisely these effects which allow accumulation process to continue by reestablishing profitable investment opportunities. Marx's own formulation of law * Stanford University. This paper is a byproduct of ongoing research with Bill Lunt which originated in Political Economy Seminar at Stanford. Furthermore, I greatly benefited from comments on an earlier draft by Sue Bessmer, Michael Carter, Duncan Foley, Don Harris, Bridget O'Laughlin, Anwar Shaikh, Sandy Thompson, and Robert Williams. Unfortunately, because of limitations in time and space, I was unable to incorporate all useful comments and suggestions.