Technology, distribution and the rate of profit in the US economy: understanding the current crisis

Abstract

This paper offers a synoptic account of the state of the debate within Marxist scholars regarding the current structural crisis of capitalism, identifies two broad streams within the literature dealing, in turn, with aggregate demand and profitability problems, and proceeds to concentrate on an analysis of issues surrounding the profitability problem in two steps. First, evidence on profitability trends for the Nonfarm Nonfinancial Corporate Business, the Nonfinancial Corporate Business and the Corporate Business sectors in post-War U.S. are summarized. A broad range of profit rate measures are covered and data from both the U.S. Bureau of Economic Analysis (NIPA and Fixed Asset Tables) and the Federal Reserve (Flow of Funds Account) are used. Second, the underlying drivers of profitability, in terms of technology and distribution, are investigated. The profitability analysis is used to offer some hypotheses about the current structural crisis.JEL Codes: B51, E11.

The University and the Secular Crisis

“…By creating an HE market, competition between providers for surplus value compels intensification of the social forces of production. In effect the amount of fixed capital or technology set to work by each academic labourer rises and there is a reduction in labour costs because more work is done by machines (Basu and Vasudevan 2011;Clarke 1994). This is a rising organic composition of capital.…”

“…As Bellamy Foster and Yates (2014) have argued, this crisis has underwritten a concomitant increase in inequality and social dislocation and 'these two realities of deepening stagnation and growing inequality have created a severe crisis for orthodox (or neoclassical) economics.' Indeed, for critics of mainstream economics the point of analysis has focused on the idea of systemic, structural and persistent crisis, rooted in issues of overproduction, underconsumption or the tendency of the rate of profit to fall (Basu and Vasudevan 2011;Carchedi and Roberts 2013;Harvey 2013). …”

The Labor Share Question in China

“…Distributive shares measured by the conventional approach are often used to proxy the power of classes (Goodwin, 1967;Boddy and Crotty, 1975;Wolff 1979;Taylor 1979;Weisskopf, 1979;Islam 1988;Sherman, 1990;Raffalovich et al, 1992;Basu and Vasudevan, 2011;Sasaki et al, 2013), while some studies choose to more rigorously follow the Marxian approach (Moseley 1985(Moseley , 1987. Distributive shares can also reflect institutional shifts under capitalism, which has been discussed by both the Regulation theory (Aglietta, 2000) and the Social Structure of Accumulation theory (Bowles et al, 1984;Kotz et al, 1994).…”

“…The Marxian approach suggests that capitalists tend to use the technology that enhances the productivity of labor but reduces the productivity of capital-the so--called Marx--biased technical progress (Foley, 1986;Basu and Vasudevan, 2011 In Equation (C.10)--(C.13), is the real wage. is the labor productivity.…”

Elements of Novelty, Known Mechanisms, and the Fundamental Causes of the Recent Crisis

“…Following Foley (2012), that crisis was due to "the tendency for the rate of profit to fall", 4 while the recent one (as well as the Great Depression) is rather the consequence of a rising rate of exploitation (counteracting the long-run tendency of the profit rate to fall) and then of the increasing difficulty faced by societies in managing a large and growing surplus value, with great demands on the financial system to recycle it. According to Basu and Vasudevan (2011) which proposed a decomposition analysis of the US profit rate, the recent crisis has not been preceded by a prolonged period of declining profitability, but rather by a period of rising profitability due to a favourable trend in both profit share and technology. 5 As a matter of fact, after a period during which the profit rate recovers, the countervailing tendencies eventually lead to instability.…”