The US rate of the profit – the latest

In this blog on economics and economic issues from a Marxist viewpoint, I seem to have become obsessed by two things in particular: measuring the rate of profit and criticising Keynesian economics.  I don’t think these are bad obsessions because I maintain that the level and trajectory of the rate of profit on advanced capital in a capitalist economy is the best underlying guide to the health of that economy.  And also, it is essential for us to understand the theories and arguments of John Maynard Keynes and his followers in order to see that even the most radical approach to the ‘economic problem’ (as Keynes called it) won’t work to resolve the contradictions in the capitalist mode of production.

But anyway, let me return to the first obsession of mine once again. We now have the latest data for the US up to 2011 in order to measure the rate of profit a la Marx (to use the term of Gerard Dumenil and Dominique Levy, the French Marxist economists).  The US Bureau of Economic Analysis recently released updated figures on net fixed assets.  This provides the missing part in measuring the profitability of capital in the US for 2011 from a Marxist viewpoint.

How do we measure the rate of profit?  Well, there are a host of ways, most of which I have discussed in lots of previous posts (and more at length in one of my papers, (The profit cycle and economic recession).  But I still like to use Marx’s basic formula for the rate of profit i.e. total surplus value divided by the stock of advanced capital (constant (means of production) and variable (labour).    My favourite measure is to take the annual net domestic product of any economy (that’s gross domestic product less depreciation) less employee compensation (wages and benefits paid by the employers) to get surplus value.  Then I divide that by a measure of the cost of employing the labour force (employee compensation again) plus constant capital (which can be measured by the stock of fixed assets owned by the capitalist sector after allowing for depreciation).  There are lots of other ways: just looking at the corporate sector, for example, before and after tax and so on.  But my ‘whole economy’ measure is the simplest, takes into account all sectors in the economy, and is the easiest for comparisons between countries or in measuring a ‘world rate of profit’ (see my paper on this roberts_michael-a_world_rate_of_profit.).

One vexing issue is whether to measure net fixed assets in historic or current cost terms.  Marx measured profitability more or less like capitalists, namely you start with a stack of money (M) to invest in employing labour and machinery (C) and, thanks to the power of labour in production (P), the value of those commodities rises above the original investment (C’) and is realised in sales for more money (M’).  So the initial advance of capital is given in money and is not altered by the production process, even if the value of the commodities may alter during and by the end of the process (see my post,

That means you should measure the stock of fixed assets in historic terms and not in current cost terms, which revises (nonsensically) the value of the original advance in current costs.  This conclusion comes from what is called the Temporal Single System Interpretation (TSSI) of Marx’s accumulation and profitability law.   The TSSI is not supported by the bulk of Marxist economists who reckon that measuring fixed assets in current costs is either correct or better (there is an endless amount of papers and debate on this question including on this blog – see   So most of the measures of profitability are on a current cost basis.

But does it make a lot of difference?  Well, I reckon that it does not make that much difference in the outcomes.  And so does a recent paper by Deepankur Basu (Basu on RC versus HC) in which he looks at the two different measures of the net stock of capital for the US economy and finds that both generate pretty similar trends over the long term “making the choice irrelevant for the empirical analysis of profitability trends”.  I know this is disputed, but Basu’s conclusion is really a concession to the historic cost measure in admitting that it is just as good as the current cost one used by most Marxist economists in measuring the rate of profit.

In my measures I use the historic cost measure because I think it is closest to Marx’s view and so theoretically more correct.  And as the figure below shows, it removes much of the exaggeration and volatility in the rate of profit exhibited by the current cost measure, which is prone to the distorting effect of inflation or deflation in the price of capital goods.   But, as you can see, whichever of the two cost measures you use, the trends in the rate of profit in the US are the same.

There is another issue of measurement.  Many Marxist economists exclude variable capital from the denominator for the rate of profit because employee compensation is turned over much quicker than in one year, so the size of variable capital in the equation is much more difficult to calculate.  Well, I did some variations on this: making a plausible estimate of the turnover of variable capital, excluding altogether, or keeping it all in.  The results for profitability are much the same.   For more on the issue of the turnover of variable and circulating capital in measuring the rate of profit, see Peter Jones’ recent excellent paper (Jones_Peter-Depreciation,_Devaluation_and_the_Rate_of_Profit_final).

Phew!  That’s got some of the most important measurement issues sorted.  So what do the results tell us?  First and foremost, the US rate of profit shows a secular downtrend from 1947 right up to 2011.  And second, the latest data continue to confirm my own view of the movements of the US rate of profit that I first expressed in my book, The Great Recession, namely that we can discern a profit cycle in the US, at least since the war.  From 1947-65, there was high profitability, which although falling in the 1950s, stabilised through the mid-1960s.

Then we entered a downphase in profitability, a period of crisis, eventually to hit a low in the deep recession of the early 1980s.  After that, profitability rose, not back to the level of the 1960s, but still up significantly.  This was the so-called neo-liberal era.  However profitability peaked in 1997 and I reckon that it is now in another downphase that is not yet over.  In that sense, the neo-liberal era came to an end in the late 1990s, although there was another burst in profitability in the early 2000s, driven by the credit boom.

We can sum up the movement in the US rate of profit by measuring the change in the rate in the different phases in the graph below.  Between 1947 and 2011, the US rate of profit fell over 30%.  Most of that fall was between 1965-82 when it fell over 20%.  Then there was a recovery in the rate of nearly 20% from 1982 to 1997.  Since then, the rate has fallen about 9% (so far), only half the rate of the previous downphase.

Now one of the interesting things that I have tried to dig out of the data is how much growth there has been in what Marx defined as the ‘unproductive’ parts of the capitalist economy, i.e. the sectors that do not contribute to creating new value but merely usurp or appropriate value created by the productive sectors.  This is important, because only the productive sectors can drive the capitalist economy forward, even if the unproductive sectors may be necessary to maintain the capitalist mode of production and its social relations.  Very crudely (and it is crude – there is yet another long debate among Marxists on how to define unproductive  and productive labour), the unproductive sectors can be be identified as government, along with finance, insurance and real estate (FIRE).    The productive sectors can thus be encompassed (crudely) by the non-financial corporate sector of the economy.

The graph below shows that the share of surplus value in total surplus value held by this sector has declined, especially in the neo-liberal period.  So, over the long term, the available profits for investment in the productive sector of the economy are being restricted.

Indeed, profitability in this productive sector did not rise even in the neo-liberal period, unlike profitability in the whole economy, while the rate of profit in the financial sector took off, after a long period of decline.  The financial sector rate of profit coincided with the rise in so-called financialisation.  But it was at the expense of stagnation in the rate of profit in the productive sector.

In a period when the share of financial sector profits rose at the expense of profit in the non-financial sector, you might expect that to affect growth in new investment.  And the data show just that.  As the share of financial profit rose from under 15% of all profits in the early 1980s to  nearly double that by the end of the century, the rate of growth in net investment (after depreciation) plummeted.

So what is happening in the latest downphase in US profitability?  Well, so far the fall in the rate of profit from the peak in 1997 has not been as great as in the last downphase between 1965-82.  Over those 17 years, US profitability dropped by 23%.  So far from 1997, after 14 years, the  drop has been just 3% (see graph below).  Now if I am right about my argument that there are discernible phases and cycles in profitability, then the US rate of profit must have further to fall before this downphase is over and it’s got to happen over the next three years or so.

The rate of profit has not fallen as much as in the previous downphase because this time we have had a very sharp rise in the rate of surplus value.  Under Marx’s law of profitability, a rising rate of surplus value is the most important counteracting factor to Marx’s law ‘ as such’, which is that there will be a tendency for the rate of profit to fall because there is an inherent rise in the organic composition of capital.  This measures the value of constant capital (means of production) to variable capital (labour power).

Marx expected this ratio to rise over time as capitalists ploughed more capital into technology to raise the productivity of labour.  However, as only labour power can create new value (not machinery and raw materials), and the value of labour power begins to lag the value of constant capital, the rate of profit will tend to fall.

As the graph below shows, when the organic composition of capital fell, as in the neo-liberal period, due to the slump in the early 1980s and then from the cheapening effects of new technology in the 1990s, the rate of profit rose.  But in the 2000s, those cheapening effects have worn off and organic ratio has risen back to levels not seen since the crisis period of the 1970s.  But this time, the rate of profit has not fallen as much because the rate of exploitation (surplus value) has also risen, unlike in the 1970s.

The rise in exploitation and growing inequality (well recorded by many and in this blog) may lead to social upheavals down the road, but it does help to keep the rate of profit up.  But there are limits on increasing the rate of exploitation and the US economy has probably reached them, especially with productivity growth slowing and real GDP growth so weak.  So the current rate of profit can only be sustained by a sharp fall in the organic composition of capital.  That can only happen if there is large depreciation of the value of the means of production (and in fictitious capital, as I have discussed in previous posts).  And that means another slump or recession, perhaps equivalent to 1980-2.

Indeed, after making some reasonable assumptions about the data for 2012, I reckon the Marxist rate of profit fell in 2012 back to levels of the early 2000s – but we’ll see.  A crucial indicator that another slump is in offing is the mass (not the rate) of profit.  Every time the mass of profit has fallen absolutely in the productive sector of the economy, it has been followed within a year or two by a slump in investment and production (the red boxes in the graph below).

We were not yet in negative territory in 2011.  But if you look at corporate net cash flow, fairly close to a Marxist measure of the mass of profit, there has been a downturn in the first two quarters of 2012.   So maybe the next recession is not too far away.

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22 Responses to “The US rate of the profit – the latest”

  1. Daniel de França Says:

    Dear Michael,

    I was thinking if it is correct to think that measuring profits in historical prices gives a more accurate picture from the finance sector, since otherwise manipulating interest rates upwards is for their benefit; and that viewing at current prices gives a more accurate view of the productive sector since it actually reflects their business capabilities.

    So, wouldn’t an interpolation of these cases would be better?

    • michael roberts Says:

      Not sure. Mixing up the measures might be even more confusing.

      • Daniel de França Says:

        But then, you will miss interesting things. For example, divide the 2 profit rates, say,.CC/HC, you will get 2 interesting periods as very well defined maximized curves, the golden age and the neoliberal age.

        It seems that this ratio shows the tendency of the rate of profit to raise, with a minimum of interference. Why? Or is it just a waste of time to see that?

      • michael roberts Says:

        I’ll look at it – not sure what it means, if anything.

      • Daniel de França MTd2 Says:

        Could you, please, send me the data by email so that I can also look at it by myself? I notice some patterns. If I find interesting things, I will email those back

      • michael roberts Says:


        Sure, I’ll see what I can do.

  2. frank Says:

    Aren’t raw maerials also v?

    • michael roberts Says:

      Marx’s definition of variable capital is the cost (in money) to the capitalist of employing the labour force. It’s called variable because only labour power can create new value unlike constant capital which cannot as it is not living labour but just means of production (machines, plant, raw materials etc). Now of course, living labour must eat and live, so it will consume food etc and this will go into the value of labour power. But this is not what we mean by raw materials in the process of capitalist production, like iron ore, plastic, etc. This is the circulating capital within constant capital i.e, it is not fixed assets like machines etc but commodities consumed in the cycle of production and thus incorporated into the value of constant capital (c) not v.

  3. bob montgomery Says:

    >>But there are limits on increasing the rate of exploitation and the US economy has probably reached them… So the current rate of profit can only be sustained by a sharp fall in the organic composition of capital. That can only happen if there is large depreciation of the value of the means of production (and in fictitious capital, as I have discussed in previous posts). And that means another slump or recession, perhaps equivalent to 1980-2.<<

    As I read him, this is essentially Andrew Kliman's argument– that only a massive devaluation (destruction) of overhanging constant capital can restore profit rates and allow "normal" production based accumulation to resume. I don't see a problem here based on the logic of the matter. However, I do think that the fly in the ointment I is your assumption that the US economy is nearing the limit of increasing exploitation. Where do you come up with this? Despite the relentless retreat of the trade unions in the largest industrial sectors (i.e. telecom), a look at recent concessionary contracts like the CWA-IBEW with Verizon, shows plenty of room remaining to increase the rate of exploitation– in other words the unions "lost" but not nearly as badly as they might have. So there's still plenty left to lose. And the workers know it! The empirical belief among US workers in these sectors is that the real deluge is yet to come. It will hit when the senior workers are pensioned off and the 2nd tier workers are left standing alone to take the hit. Meanwhile they'll rejigger their personal balance sheets, paying down family debt, increasing savings and cutting purchases. US workers on the whole are no where near the "subsistence wage" levels that the broad left likes to believe. Yes, part-timers, immigrants, unskilled, minorities etc have reached the exploitation limit. But when tomorrow's full- time, skilled and semi-skilled workers find themselves in the shoes of today's 2nd tier labor force that the limit will be reached. It's great you're doing the work that you are– we need the data. But we also need hard data work on this question lest we be mislead by ungrounded assumptions used to save the argument. Having said that, well grubbed old mole.

    • michael roberts Says:

      You might be right and the rate of exploitation could keep on rising. But as you know, Marxist economics tells us that there are limits hiking the rate of exploitation indefinitely. There may be room for more, but the high level of the organic composition of capital will exert considerable downward pressure on the rate of profit. But as I said in the piece – we’ll see.

  4. bob montgomery Says:

    I must add that I don’t think the trend to ever increasing exploitation is inevitable. Just as telecom workers held off Verizon for 15 months, the workers may well successfully resist these attacks.

  5. Martin MacKerel Says:

    Forgive me for what may be a stupid question.

    Why is this fall in profitability sufficient to trigger a recession?

    For instance, in your sixth graph, ROP-NFC has fallen from ~19% to ~16% from 1947 to now. A drop, yes, but this most conservative measure of profitability is still at 16%, well above inflation! Why wouldn’t the rate of profit need to fall much closer to zero (or to or below the rate of inflation) to cause a crisis?

    • michael roberts Says:

      It is not Marx’s view that a falling rate of profit ‘triggers’an economic recession or slump. The idea is that a falling or low rate of profit eventually makes it very difficult to sustain an increase in the mass of profit. And as I argue in this post, it seesm that every time the mass of profit falls in the productive sector, a slump ensues some time afterwards. A financial or credit crisis can trigger the slump when losses there eventually feed through to the ‘real’ economy. And the level of the rate of profit should be seen not against inflation but against the need to encourage further accumulation of capital. The post-war evidence for the US shows that a falling rate of profit (and a low one) leads to slowing new investment and thus to a grinding down of economic growth (interspersed a cycle of recessions and booms).

  6. henry Says:


    Well done. Your chart shows a steep rise in OCC from 2004 until 2010. I think this is due to a collapse of the capacity utilization ratios, I have seen a decline from 82 % in 2000 to 66 % in 2009! And the industrial production went done from 5 % in 2000 to minus -15 % in 2009! There is a way of writing of OCC or the capital-output ratio as a function of the capacity utilization ratio (u). An example where this collapse has happened is the US automobile industry were the Big Three went more or less bankrupt. The workers accepted a huge lay-off of workers and a downgrading of their wages. These would explain the mutual occurence of a rising OCC and a rising rate of exploitation or S/V.

  7. Paul Says:

    Hi Michael,

    I enjoy your posts. I have a MBA and my background is in neo-classical economics. But over the years I’ve switched away from this into more radical alternatives. Finally at 40 I’ve read all 3 volumes of Das Kapital including the Theories of Surplus Value, Vol 4). I tend to agree with Andrew Kliman but wondering about a few specifics that seem contradictotry.

    1. How can surplus value increase based on the fact that people can barely find work for 40 hours a week or with inequality occuring, austerity cuts occuring which contract the demand in the economy? Doesn’t the surplus value (different from profits) increase based on the extension of work hours or time of exploitation and the greater quantity of labor employed into the productive process? I understand that the more technology is used, the higher the intensification of worker productivity in less time worked, but aren’t we past this threshold given the current crisis? Moreover, outside of capitalists making purchases which equalize over time how is the system continuing when workers are barely making subsistence wages and pensioners are all about saving?

    2. How can you increase surplus value from “getting read of dead capital”? How does destroying old factories, unsold commodities, machinery, raw materials and land do this? And what happens when the state buys this for cheap and puts it into a newer use with the help of private industry.

    3. Would you agree that what the US might need at this point is another major innovation that will create another boondoggle of profits and nascent industries of the future? But, wouldn’t something like reneweable energy, nanotechnology, bio-tech take less labor inputs to produce and create this in long run lower surplus value (when the initial profits are exausted from attracting new competitors in the market which lower profits). Or, do you think people saving money on energy and healthcare costs would equate into more purchases in the economy of commodities?

    4. It appears from reading your posts and Kliman’s book that we are inevitably entering into a period of stagnation of growth. Which means that the cycle or turnover of profit for its own sake will continue to cannabilize the middle clas and the post-Fordist infrastructure, dessimate the poor or push humanity to the brink of environmental catastrophe. Isn’t a thesis of stagnation the best means to move us into a planned sustainable economy? Do you see this as the future?



    • michael roberts Says:


      You’ve set a mind boggling set of questions here! I’ll do my best but it will be short and inadequate.

      1. cut the workforce make the remaining workers work harder and for no extra money and the rate of exploitation rises. But as you say, it won’t last forever to keep the rate up and profitability with it. Nobody’s spending much, so real GDP growth is low (2% in the US and lower elsewhere).
      2. You cant increase surplus value by liquidating the value (not necessarily physically destroying) of assets. But you can lower the costs of production by having a smaller workforce and less assets (both tangible and debt). Then profitability rises. It’s the way of capitalism: recession or slump is necessary to get the whole crap going again (to use Marx’s phrase) – at our expense.
      3. Yes, a whole raft of new technologies can be developed but only once profitability is restored for a sustained period. Capitalism aint there yet.
      4. Yes, it’s stagnation or what I call a Long Depression. But a planned sustainable economy requires political action to change things.

  8. Barry Finger Says:

    Hi Michael

    I raised this issue in a previous post, but I think it is still relevant. Deloitte’s Center for the Edge has examined the balance sheet performances of 20, 000 US firms since 1965. This study — the Shift Index– has been updated yearly since it was first introduced and it is freely available online. The authors summarized their findings:

    “What do the findings show? The 2009 Shift Index reveals a disquieting performance paradox in the US corporate sector. On the one hand, labor productivity has nearly doubled since 1965. During those same years, however, US companies’ Return on Assets (ROA) progressively dropped 75 percent from their 1965 level.

    How can firms be getting lower returns even as they’re becoming more efficient? The answer resides in the heightened competition among firms. Competitive intensity nearly doubled between 1965 and 2008, forcing firms to compete away the benefits of productivity gains, which were instead captured by creative talent in the form of higher compensation and numbers of consumers through increasing performance/price ratios and wider choice.

    It’s little surprise to find also that the highest-performing companies are struggling to maintain their ROA rates and are increasingly losing market leadership positions. Taken as a whole, the findings portray a U.S. corporate sector in which long-term forces of change are undercutting normal sources of economic value. “Normal” may in fact be a thing of the past: even after the economy resumes growing, companies’ returns will remain under pressure.”

    Equally, the Shift Index examined the economy by sectoral breakdown, including the financial and insurance sectors, and found that economy wide results were broadly replicated throughout.

    • michael roberts Says:


      Yes, Deloitte’s Shift Index is very interesting. Its measure of ROA seems to be based S&P corporate data and measures it as net income after extraordinary items divided by net assets. Net income is after taxes, interest payments and depreciation (Shift Index 2011 p163). So as far as I can see, it is a narrow measure of the profitability of the listed firms in the economy – not quite as wide ranging as my’whole economy’ measure. I cannot seem to get a clear picture of how Deloittes compile the ROA data from their report, however, to see what is covered and how it corresponds to the results of others including my own figures. Perhaps I’ll ask them.

  9. Cameron Says:

    Warning to new readers: this blog is highly addictive because it’s informative and educational. For me it’s also the fact that Michael is a real Marxist economist. His “obsessions” with FROP and critique of Keynesianism is well justified since Keynesian economics theories continue to dominate the thinking of the majority of Marxists today. To my frustration I still hear Marxists quoting Keynesians such as Krugman to express their assessment of the current economic situation. This blog has and is doing a great service. Michael, I hope you don’t give up your “obsessions”. I certainly read them eagerly and haven’t got a bit tired of them. Please do keep it up. There is a good reason why the readership is growing so fast. Marxists can tell real scientific political economy from the rest if it is painstakingly sorted out and articulated. I think I speak for a lot of us if I say you are doing a great service.

    On another note, there seems to be a new trend. Big corporations are going after the nonproductive labor. For example, Boeing is laying off managerial positions: “Boeing also planned to increase the ratio of non-managers to managers to a more affordable 12.5 to 1 from 9.7 to 1 now”
    Nonproductive wages are paid from surplus value created by productive labor. By cutting management positions more surpluses is left for capitalists.
    The other trend that seems to be intensifying in the US is hiring part time only to avoid paying benefits such as health care, etc.
    Combination of lower compensation and higher and higher inflation is devastating. There are limits.

  10. gfmurphy101 Says:

    Reblogged this on gfmurphy101 and commented:
    This is so good, and on a particular favourite subject of mine too! However for Irish readers this may be a first. Have any ever even heard of “the rate of profit” being discussed in the media, in the public discourse or on any of the dedicated economic blogs! If the answer is NO, then the obvious question to ask is WHY!!!!!!

  11. Henry Smart Says:

    Great blog. I’m trying to get to grips with Marx’s theory of value so maybe you can help me.

    How does a rising OCC of capital ACTUALLY stimulate a falling profit rate? Is it because it lowers the socially necessary labour time (SLLT), which cheapens production, which cheapens commodities, which then lowers profits? Then if this industry tries to keep prices at the same level despite the fall in SNLT, this will incentivise overproductions, which will saturate the market and lead to a fall in prices anyway?

    Thanks a lot.

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