Is There a Tendency for the Rate of Profit to Fall? Econometric Evidence for the U.S. Economy, 1948-2007

Abstract

The law of the tendential fall in the rate of profit has been at the center of theoretical and empirical debates within Marxian political economy ever since the publication of Volume III of Capital. An important limitation of this literature is the absence of a comprehensive econometric analysis of the behaviour of the rate of profit. In this paper, we attempt to fill this lacuna in two ways. First, we investigate the time series properties of the profit rate series. The evidence suggests that the rate of profit behaves like a random walk and exhibits "long waves" interestingly correlated with major epochs of U.S. economic history. In the second part, we test Marx's law of the tendential fall in the rate of profit with a novel econometric model that explicitly accounts for the counter-tendencies. We find evidence of a long-run downward trend in the general profit rate for the US economy for the period 1948-2007. JEL Classification: B51, C22, E11.

Military Expenditures and Profit Rates: Evidence from OECD Countries

“…Although some scholars have argued in favor of the validity of the tendency of the profit rate to fall (Glyn and Sutcliffe, ; Rosdolsky, ; Shaikh, ; Glyn, ; Kliman, ), others have rejected the existence of such a tendency (Roemer, ; Bowles, ). Other scholars argue that there is no secular upwards or downwards trend in the profit rate resulting from capitalist development (Foley, ; Michl, ; Moseley, ; Duménil and Lévy, ; Foley and Michl, ; cited in Basu and Manolakos, ). Competition within the capitalist system forces firms to reduce their costs of production by increasing the degree of mechanization in production, leading to enhanced productivity of labor.…”

Quantitative Empirical Research in Marxist Political Economy: A Selective Review

“…Basu and Manolakos () pointed out that there were two important shortcomings of this empirical literature. First, it did not take account of the time series properties of the rate of profit.…”

“…Many researchers merely used exploratory data analysis, like visual inspection of time series plots or fitting trend lines to the profit rate series, to test the validity of the LTFRP. Basu and Manolakos (2013) pointed out that there were two important shortcomings of this empirical literature. First, it did not take account of the time series properties of the rate of profit.…”

“…Second, Marx's account of the LTFRP accorded an important role to counteracting factors but none of the existing studies took this into account . Basu and Manolakos () argued that failure to account for the effect of the counteracting factors on the observed time series of the rate of profit would invalidate any tests of the LTFRP.…”

The Long Roots of the Present Crisis: Keynesians, Austerians, and Marx's Law

“…See Roberts (2009Roberts ( , 2011 for references to other research. Basu and Manolakos (2010) applied econometric analysis to the US economy between 1948 and 2007 and found that there was a secular tendency for the rate of profit to fall with a measurable decline of about 0.3 percent a year "after controlling for countertendencies." Roberts finds an average decline of 0.4 percent a year through 2009 using the latest data.…”