The Two-Stage Decline in U.S. Nonfinancial Corporate Profitability, 1948-1986

Abstract

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.

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

“…Here, the rate of profit is decomposed as the product of the profit share, capacity utilization and the capacity-capital ratio. Following Michl (1988) and Foley and Michl (1999), we will use the former decomposition, instead of the latter. The advantage of using this decomposition -rate of profit = profit share * capital productivity -is that we can avoid estimating an unobservable quantity like "capacity output", without which the capacity utilization rate cannot be defined.…”

“…The other way to approach this question is, following Michl (1988), to decompose capital productivity into the ratio of (a) real capital productivity (ratio of real net value added and real capital stock) and (b) the relative price of capital (ratio of implicit price deflator for capital stock and the GDP deflator). Note that a rising trend in real capital productivity, and a falling trend in the relative price of capital can increase the rate of profit, and therefore corresponds to what Marx termed the countervailing tendencies to the tendency for the rate of profit to decline with capitalist development.…”

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

“…Marx's claim in Volume III of Capital that there is a tendency for the general rate of profit to fall with the development of capitalism has spawned an enormous and growing literature often marked by bitter controversy and fruitful debate (Dobb, 1939;Sweezy, 1942, Gilman, 1957Okishio, 1961;Shaikh, 1978;Wolff, 1979;Mandel, 1980;Roemer, 1981;Bowles, 1985;Foley, 1986;Michl, 1988;Shaikh, 1992;Lévy 1993, 1995;Foley and Michl, 1999;Wolff, 2001; Lévy, 2002a, 2002b;Wolff, 2003;Kliman, 2009). …”

“…The third strand conditionally accepts the validity of the so-called Okishio Theorem, arguing that the key assumption that drives its result -fixed real wages -does not characterise the actual evolution of capitalism. Thus, neither a secular tendency for the profit rate to fall nor a secular tendency to increase can be a priori associated with capitalist development; prominent scholars in this strand are Foley (1986), Michl (1988), Moseley (1991), Duménil and Lévy (1993,1995), Foley and Michl (1999), Duménil and Lévy (2003). 5 Instead of engaging with this rich theoretical debate in any detail, in this paper our focus will be towards addressing a different but related question: what does the evidence show regarding the tendency of the general rate of profit to fall in the U.S.?…”

“…We would like to thank Iren Levina for pointing this out. 6 To the best of our knowledge, Michl (1988) is the only exception.…”