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The decline in the rate of return on nonfinancial corporate capital from 1948-1986 can be usefully divided into two distinct periods. From 1948-1972, a decline in the profit share accounts for most of the decline in the profit rate. From 1972-86, the profit share rose, and a decline in capital productivity accounts for the continued decline in the profit rate. Regression analysis of the trend structure and a decomposition of the factors accounting for the profit rate are used to support this thesis.

This paper offers a classical model of biased technical change in the MarxRicardo tradition as a framework for theoretical and applied studies of growth. The observable data it generates would appear to an unsuspecting economist to be well-described by a neoclassical model with a static Cobb-Douglas production function, when in fact this production function describes only the technological history of the economy. The CobbDouglas form results from the capital-using, labour-saving bias of technical change. The model's trajectory in wage-profit space will lie along the displaced image of the neoclassical factor price frontier, in contradiction to marginal productivity theory. The Solow residual can be reinterpreted by the classical theory as a measure of the size of this displacement.

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