The debate on the rate of profit (yet again)

Did the US rate of profit trend upwards from 1982 and when did it peak?  The debate/argument continues among Marxist economists.  And behind this debate about the facts is the analysis.  If the rate of profit did rise from 1982 onwards, how can Marx’s law of the tendency of the rate of profit to fall play any role in explaining the financial crisis and the Great Recession of 2007-9?

First, did the rate of profit in the US rise from 1982?  The evidence is pretty conclusive: it did.  In a paper on this presented last summer to the Association of Heterodox Economists (The profit cycle and economic recession), I summarised all the recent studies on this question along with presenting empirical evidence of my own.  Let me quickly run through what I found.

Measuring the rate of profit (ROP) by closely as possible to the Marxist categories of surplus value and constant and variable capital (what Dumenil and Levy call “a la Marx” – see G. Duménil, D. Lévy, “The Crisis of the Early 21st Century: General Interpretation, Recent Developments, and Perspectives“, 2011), Simon Mohun found that [i]that US capitalism is characterised by long secular periods of falling profitability and long secular periods of rising profitability and crises are associated with major turning points”.  Mohun’s turning points seem to be a 1946 trough in profitability, a 1965 peak, a 1982 trough and a 1997 peak – similar to mine.   Li Minqi, Fenq Xiao and Andong Zu[ii] looked at the movement of the profit rate and related variables in the UK, the US, Japan, and the Euro-zone.  According to them, since the mid-19th century there have been  four  long  waves  in  the  movement  of  the  average  profit  rate  and  rate  of accumulation.   They find a peak at 1997 in the ROP for the US.  David M Kotz[iii] uses an after-tax rate of profit measure of the nonfinancial corporate business sector as a percentage of net worth.  Kotz finds that the US ROP rose rapidly to 1997. Then it peaked and fell sharply thereafter.  Anwar Shaikh[iv], using another measure of ROP as profits of enterprise, which excludes rent, interest and taxes, finds that the US ROP peaked in 1997.   George Economakis, Alexis Anastasiadis and Maria Markaki[i] measure the Marxist rate of profit by the net product less employee compensation divided by net fixed capital of US non-financial corporates, which is very close to my broader measure.  They find that the ROP rose from 10.6% in 1946 to a peak of 19% in 1966, falling back to 9.6% in 1983 and then rising to a peak of 18.2% in 1997, before dropping back again remaining under the peak of 1997 thereafter.  They also find that adding the financial sector into the equation makes no difference to the turning points or trend of the ROP.   And Erdogan Bakir and Al Campbell find that US after-tax profit rate peaked in 1997 at about 7.5% before falling back and the next peak in 2006 was still below that of 1997.[ii]

Some disagree and reckon that a new peak was reached in 2006.  They include French Marxist economist Michel Husson [i]  who reckons that the US rate of profit did not peak in 1997 but went higher (I consider his measurements in the AHE paper).   More recently, Deepankar Basu and Ramaa Vasudevan from two American universities (see concluded that the US rate of profit rose from 1982 and peaked either in 1997 or 2006, depending on how you measure it (see my post, The rate of profit again!, 31 August 2011).
As we can see, these studies found that the rate of profit in the US (a la Marx) rose from 1982.  And most agree that it peaked in 1997 and subsequent peaks have not surpassed the level of 1997.  But all agree that the rate of profit began to fall from 2006, well before the credit crunch descended on the economy in mid-2007.  Indeed, the mass of corporate profits started to fall in 2006 too.

Those that disagree that the rate of profit rose significantly after 1982 either claim that the rise was not significant or that the measurement of the rate of profit was incorrect.  The measurement issue is complicated, but mainly depends on whether you measure surplus value against the stock of fixed assets on an historic cost basis or on a replacement cost basis.  Most of the studies above reckon that using replacement costs is okay, even more correct.  Andrew Kliman[i] is adamant that it must be historic costs.  However, my own study shows that it really does not make a big difference.  There is still a rise in the rate of profit after 1982 up to 1997 at least.

In a recent critique of a new book, Global Slump by David McNally ( Slump), Joseph Choonara takes McNally to task on his claims of a rise in US profitability after 1982 (see Once more (with feeling) on Marxist accounts of the crisis,  Choonara says that McNally’s claim of a doubling in the rate of profit from 1982 to 1997 is incorrect.  He quotes both Mohun’s and Shaikh’s data as above.  Well, the US rate of profit may not have doubled, as McNally claims, but the rise was anywhere between 45-65% – reasonably significant, I think.

Choonara goes on to argue that just looking at cyclical rise in US profitability from a trough in 1982 to a peak in 1997 leaves out the secular downward trend that is evident in the US rate of profit in the post-war period.  Choonara is right, but that does not deny the cyclical upturn.  The debate now seems to be bogged down between those who say the rate of profit fell because there was secular downward trend from 1946 and those who say it rose (cyclically?) from 1982.   It seems to me that both are right and wrong.  There is a secular downward trend but it is broken up by cyclical up phases that can last some time, decades.

Yes, those of you who have read this blog regularly know what comes next.  I now going to put forward my interpretation of the evidence on profitability; namely there is a secular downtrend and there is also a profit cycle in the US capitalist economy that lasts from trough to trough about 32-36 years.  I reckon that the peak year of 1997 sets the marker for the end of the up phase from 1982.  The down phase then began to exert pressure on the US capitalist economy.  It forced an even bigger switch from productive investment in manufacturing, transport and communications into financial and property sectors to maintain profits through the expansion of what Marx called fictitious capital, or credit.  That laid the basis for the crisis in 2007 and the ensuing major slump.  In that sense, Marx’s law of profitability did operate to cause the crisis.  The great upphase in profitability after 1982 had finished in 1997, some ten years before the Great Recession.  The downphase is still here and will last for at least another three to seven years.

Choonara’s criticism of McNally on this score seems harsh.  McNally was not suggesting that the rise in the rate of profit after 1982 meant that Marx’s law played no role in the crisis.  On the contrary, McNally in a recent paper refers to the fact the mass of profits in the US rose only 6% from 1997 to 2007 and then fell absolutely in 2006 (quoting my post, Profits and investment in the economic recovery, 29 December 2010 by the way!).  As he says “underlying the crisis was a peak in business profits which then turned into a classic expression of the contradictions of capitalist accumulation, which rendered the system vulnerable to a dramatic financial shock”.  McNally

McNally says that some Marxists have become obsessed with the Golden Age of capitalism from 1948-65, regarding it as an exceptional period that eventually gave way to the long-term reality of secular decline.  In contrast, McNally points out that the period from 1982 can hardly be called a period of decline for US capitalism if profitability and growth are the criteria.  Profitability rose and so did economic growth compared to the period of falling profitability from 1965-82.  I have made this same point in my book, The Great Recession, when I showed that when profitability rises, so does economic growth under capitalism and when it falls, growth is generally slower.  It is what you would expect when an economy is driven ultimately by profitability.  Choonara seems to want to deny this by arguing that growth was slower from 1982 to now compared to the Golden Age.  But that is an unfair comparison, as growth was faster between 1965-82 but is now much slower in the downward phase of profitability since 1997.

The rise in profitability between 1982-97 also confuses other Marxist economists in different ways.  Gerard Dumenil has argued that the rise shows that the crisis was not caused by a fall in profitability but by ‘structural changes’ in capitalism under a neoliberal regime that promoted ‘uncontrolled credit’ because of the hegemony of the financial sector (see my post, The crisis of neoliberalism and Gerard Dumenil, 3 March 2011).   Also,  Left Minsky-Keynesians like Steve Keen and Riccardo Belliofiore (see my post of 7 October 2011) and even Marxists like Fred Moseley have argued that the financial crash was a product of the collapse of excessive debt.

But if Marx’s law of profitability is still ‘behind the crisis’ (as Guglielmo Carchedi would put it) then what is the mechanism that explains this cycle of profitability and boom and slump?  Marx himself recognised the important role of credit crises but he also said that “the superficiality of political economy shows itself in the fact that it views the expansion and contraction of credit as the cause of periodic alternation of the industrial cycle, whereas it is a mere symptom of them  …(AND) effects becomes causes in their turn and the various vicissitudes of the whole process take on their own periodicity”  (Marx, Capital, 1991).

Marx’s law of the tendency of the rate of profit to fall included a series of countervailing factors that could dominate and so create conditions for a rise in profitability for at least some time.  Marx said that the most likely conditions for such a rise in the rate of profit were when “a rise in the rate of surplus value was coupled with a significant reduction in the value of the elements of constant capital and fixed capital in particular.”  This was precisely the conditions of accumulation from 1982 onwards.  The two deep economic slumps of 1974-5 and 1980-2 had sufficiently reduced the value of constant capital.  At the same time, the slumps had driven up unemployment and weakened the ability of the labour movement to protect wages (the cost of variable capital).   The productivity of labour rose as new techniques, and hi-tech ones at that, were introduced to many sectors of the economy while wages were not allowed to rise as much.  The wage share in the US economy plunged.  The rate of surplus value rose.  At the same time, constant capital fell in value relative to variable capital.

But as Marx argued: “In practice, however, the rate of profit will fall in the long run”.  These countervailing influences cannot last forever and eventually the law of profitability will start exert its downward pressure on profits.  The rate peaked in 1997 with the exhaustion of the gains of new technology in the productive sectors.  US capitalism only sparked onwards through rising profits in the financial sector and a huge expansion of ‘fictitious capital’ not backed by increased value in the productive sectors.  The collapse of the US housing market from 2006 exposed imaginary nature of financial profits and triggered the eventual collapse of the banking sector that relied on them.

That this interpretation of the facts on the Great Recession seems right to me is backed up by work done by David Laibman recently (Capitalism, Crisis and Renewal, Science and Society, July 2010).  Laibman asked the counterfactual question: what if there had not been a ‘neoliberal turn’ from 1982 and wages had kept pace with productivity so there was no rise in the rate of surplus value?  Would there still have been a crisis?  Remember the arguments of many in this debate is that it was low wages, leading to more borrowing, that eventually caused the crisis, not a fall in the rate of profit.   Laibman shows that if the 1980 wage-profit ratio had been sustained through to 2006, the rate of profit would have fallen by 15%.    Wages would have risen by 7% a year in real terms and would have made a significant dent in profitability.  Far from higher wages boosting growth and keeping profits up, so avoiding a crisis, they would have eventually triggered it anyway, because the rate of profit would have fallen due to rise in the organic composition of capital – Marx’s law.  Low wages were not the ultimate cause of the Great Recession; it was low and eventually falling profitability.

Michel Husson has argued that we must distinguish between the cyclical ups and downs of profitability which apparently have nothing to do with Marx’s law and the secular decline which does (see his key paper,  Husson on the rate of profit).  But surely, it is unnecessary to divide the two aspects of profitability.  Marx’s law explains both if we realise that the countervailing factors are what brings about a cyclical effect and the ‘law as such’ is what brings about the secular trend.  As I put it in my AHE paper, “The causes of both the cyclical and secular movements in profitability are broadly two‐fold. The first is driven by the change in the organic composition of capital (or capital productivity). This change is brought about through crisis and the destruction of the value of accumulated capital.  The second is driven by the change in the share of unproductive to productive labour and a long term tendency for the organic composition of capital to rise. A rising organic composition of capital will eventually lead to a fall in the rate of profit and vice versa. A rising share of unproductive to productive labour will lead to a fall in the rate of profit and vice versa”.   So it is perfectly possible to accept that there was a rise in profitability from 1982 to 1997 and still argue that the financial crisis and the Great Recession can be explained best by Marx’s law of profitability.

All this debate has been based on the experience of the US capitalist economy.  But what was happening in other major economies?  And there is another countervailing factor to the decline in the rate of profit in any one capitalist economy: making higher profits abroad.  Profitability in the emerging capitalist economies is much higher and clearly US and other advanced capitalist corporations can compensate there for falling profitability at home by investing overseas.  That factor was not unimportant after 1982.  But I’ll return to the question of overseas profits and the profitability of other capitalist economies on another occasion.

[i] Simon Mohun, The present crisis in historical perspective, November 2010, Historical Materialism conference.

[ii] Li Minqi, Feng Xiao, Andong Zhu, Long waves, institutional changes and historical trends: a study of the long-term movement of the rate of profit in the capitalist world economy, 2007, Journal of World Systems Research

[iii] David M Kotz, Accumulation and crisis in the contemporary US economy, June 2007, Review of Radical Political Economics

[iv] Anwar Shaikh, The first great depression of the 21st century, Socialist Register 2011

[i]Economakis, Anastasiadis and Markaki, An empirical investigation on the US economic performance from 1929 to 2008,   Critique 2010

[ii]  Erdogan Bakir and Al Campbell, Neoliberalism, the rate of profit and the rate of accumulation, Science and Society July 2010.

i] M Husson, Taux de profit 2009, the debate on the rate of profit, July 2010

[i] A Kliman, The persistent fall in profitability underlying the crisis, March 2010

13 thoughts on “The debate on the rate of profit (yet again)

  1. Michael, if the countervailing tendencies were purely cyclical, then economic upturns perhaps could be explained exclusively in terms of countervailing tendencies. But this is an ultra-vulgar empiricist economics which has nothing to do with Marx. For a simple example, the level of average real wages often doesn’t display cyclical characteristics – i.e. it is structural, it is set for an era despite various ups and downs in output and investment. The only logical way out is to declare any economic fluctuation “cyclical” but that makes the economics even more vulgar. In the end, we finish with a tautology: economic growth means an increase in the rate of profit and economic declne means a decline in the rate of profit. At that point, the rate of profit explains nothing, and then you are back to Ernest Mandel puzzling with all the possible determinants of the rate of profit to find your explanation for economic growth. Once you pursue this, you realize that the possible empirical influences on the rate of profit are too numerous to mention. And then you have explained everything and nothing. In vulgar Marxism, capitalism is an economic machine and simply and only a “profit machine”. In the real world (and in the opinion of Marx), it is not.

  2. Michael,
    Marx wrote the first volume of Capital under the assumption of an isolated capitalist economy. What he was trying to show is that a capitalist economy has a built in tendency to become a fetter on the development of the productive forces. Of course, capitalism is not an isolated capitalist economy so it will be extremely difficult to trace empirically the fall in the rate of profit using a single economy such as the US. What would be the symptom of a secular falling rate of profit on a world scale?
    1. Declining of rate of growth on world scale.
    2. Slow growth or decline in capacity utilization in developed countries.
    3. Shift of productive apparatus to newly developing capitalist economy.
    4. Increased financial parasitism in developed countries.
    5. Increasing use of debt to overcome overproductive capacity in the world
    6. Increasing amount of speculative bubbles.
    7. Higher organic composition of capital after each cycle

  3. Guys

    Mick Brooks sent me this email which I have edited and reproduce here.

    Is the LTRPF a cyclical or a secular phenomenon? There is no doubt that capitalism has existed in different eras with very different secular rates of profit from one another in both boom and slump. Henryk Grossman argued that crises are just steps on the road to capitalism’s inevitable breakdown.
    I argue on the contrary that the main importance of the LTRPF is that it is the key to understanding the boom-slump cycle. Of course all crises have unique as well as common features, and falling profits are only the underlying cause of crisis, not the immediate trigger (such as the ‘credit crunch’).
    In Chapter 13 of Capital Volume III Marx sets out the The law itself. In Chapter 14 he deals with The Counteracting factors. The most important of these are the devalorisation of constant capital and raising the rate of exploitation. It is correct to argue that these cannot indefinitely offset the LTRPF, but that doesn’t mean it’s downhill all the way for the rate of profit.
    The important point here is that both the tendency for profits to fall and the counteracting factors which pull profits up are products of the same process (the accumulation of capital). For Marx the laws of commodity production “always operate as a prevailing tendency.” Laws are a force pulling in a certain direction, not a statistical regularity
    In Chapter 15 (Development of the law’s internal contradictions) Marx clearly links the LTRPF with the onset of crisis, that is as part of the cycle. He links the appearance of overproduction with the interpenetration of the law and the counteracting factors to produce crisis. This is very important to this discussion because his whole presentation makes it very clear that the rate of profit does not gently decline over time.
    In Chapter 15 Marx shows the LTRPF is not an empirical trend. By its very operation it produces its own counter-tendencies. As a result the actual direction of the rate of profit at any point in time is the result of the clash of tendency and counter-tendency. It is this clash that produces crisis. (Of course the LTRPF is only ever the underlying cause of capitalist crisis.)
    Andrew Kliman’s formulation is useful: “In short, although the falling tendency of the rate of profit is ‘constantly…overcome’, the tendency is not nullified. It makes its presence felt, since it is only ‘overcome by way of crises.’ Recurrent economic crises, not a declining rate of profit over the long term, are what Marx’s theory actually predicts.” (Reclaiming Marx’s ‘Capital’ , Lexington Books 2007, p.31)
    Finally I agree Choonara is hard on David McNally. In fact McNally has written some of the best stuff on the economic crisis. There are weaknesses. He is not quite sure whether this is a very severe recession or a new period of capitalism, but tends toward the latter explanation. And I think he makes too much of the ‘neoliberal triumph’ since 1980. The golden age of the post-War boom was much more impressive period of growth and will never be repeated.

  4. ‘Henryk Grossman argued that crises are just steps on the road to capitalism’s inevitable breakdown.’

    ‘It is correct to argue that these cannot indefinitely offset the LTRPF, but that doesn’t mean it’s downhill all the way for the rate of profit.
    The important point here is that both the tendency for profits to fall and the counteracting factors which pull profits up are products of the same process (the accumulation of capital).’

    This is really the heart of the question. Grossman did not argue that the fall in the rate of profit was the cause of crisis, he argued it was the relative decline in the mass of surplus value due to the rise in the Organic Composition of Capital. The fall in the rate of profit was a symptom of the rising productiviy of labor. A ‘rate’ can not cause a crises, but an insufficient mass of surplus value can. Crises are just means of getting rid of the capitalist who have the old technology. Marx clearly expected that the period of time between crisis would ‘shorten’ due to the increased application of technology. As the credit system expands due to the development of fixed capital, so too does the concentration and centralization of capital. Which in turn allows an increased application of technology to the production process. For Marx-and Grossman accumulation of capital means the quantitative and qualitative development of the productive forces. For Mick Brooks and Kliman, there are recurrent crises, but no development.
    Both Marx and Grossman argued that they expected the development of capitalism to reach a point where the economy would collapse. All Grossman did was to show Marx’s theory of capitalist accumulation would concretely lead to the collapse as Marx expected. This is no final collapse, but a collapse like the Great Depression. Obviously, if you can destroy enough capital-especially through war- you can restore reproduction due to a lower Value Composition of Capital which would permit a new upturn of capitalist accumulation. There will be a higher rate of profit;however, the technology will be at a higher level and so will the OCC. After World War II, US capitalism had a much higher OCC than it did before WWI- there was development! The US became prosperous by (re)creating its future competitors in Europe, and new ones such as China and India.
    To really understand where we are economically, we need to understand the resurgence of that ‘old Imperialism’, which the US has kindly given us back. An Imperialism made up of competing over-ripe capitalist powers that are hungry for surplus value and will do anything to preserve their wealth.

  5. Guys
    Jim Devine sent me an email on my post. It raises some interesting points. Here are his comments.

    It’s great that Roberts studies the actual data on the fluctuations of
    the rate of profit, but it hardly shows that there’s a secular decline
    of that rate. What he does show is that in the US the measured rate of profit rose from 1982 to 1997 (without attaining the level attained in the 1960s) and then fell. This is what I (and Doug Henwood) have seen too.

    For the US, we could go all the way back to the beginnings of
    capitalist time, but let’s start in the 1970s. After the 1960s, the
    rate of profit fell drastically, encouraging stagflation (as I’ve
    argued elsewhere). This eventually led to the forming of a capitalist coalition aimed at “setting things right” (restoring profitability, ending high inflation, etc.) which led to the rise of what’s now called neoliberalism, led by Paul Volcker and Ronald Reagan. (If we have to draw the line, I’d say President Carter’s appointment of Volcker to chair the Fed in August, 1979 started the neoliberal era.)

    This program actively raised the rate of profit, starting (naturally
    enough) in 1982. The problem I see — which is forgotten in much of the “falling rate of profit” (FROP) literature — is that much of the
    rise in profitability was due to pushing wages down relative to labor productivity. The FROP folks also often miss the fact that the efforts to save profitability can create new problems: starting in the 1990s, we see what I call the “underconsumption undertow” as a result of stagnant wages. This created demand problems that made it hard to keep profits rising after 1997 (due to realization problems). The high US$ exchange rate in the late 1990s also helped here, since any exporting or import-competing US businesses found themselves at a disadvantage. (It also raised the real purchasing power of US wages and salaries.) This combination encouraged the shift toward finance (“financialization”).

    The high-tech bubble and collapse encouraged a recession, which was moderated by the Fed, which (under Greenspan) saw itself as having the job of saving the financiers from their follies and (secondarily) avoiding deep recessions. Its encouragement of interest rates saved the day — but then started the housing bubble, spurred by the way the financiers jumped to provide credit in an increasingly deregulated environment (including predatory lending).

    The bubble temporarily ended the underconsumption undertow, but (like other bubbles) it couldn’t last. The extravagant consumers, after saving the US economy in the mid-2000s, found themselves with too much debt, underwater mortgages, etc. The financial superstructure also was over-stretched. This encouraged the big recession of 2007-09 and the persistence of stagnation afterwards. The problem of underconsumption, which wasn’t the “binding constraint” before, is now much more of one, blocking consumption and also private fixed investment. Falling wages
    and house prices make this problem worse, in what I’ve called the
    “underconsumption trap.”

    While the rate of profit is important to the dynamics of capitalism,
    it isn’t the whole story.

    Jim Devine / “In an ugly and unhappy world the richest man can
    purchase nothing but ugliness and unhappiness.” — George Bernard Shaw

  6. This discussion may turn out to be much like firemen discussing the cause of fires in the middle of a forrest fire. Unfortunately, so much confusion has existed since Marx published the first volume of Capital that it is inevitable that the discussion will continue. Perhaps the discussion needs to be what did Marx really say was how capitalist accumulation would proceed and what, if any, were the limits to that process? –This is what Andrew Kliman tried to do in his book in response to the Sraffians.– If we come to agreement on that question, we can then argue about whether Marx’s theory is adecuate.
    But some will argue that Marx never left us fully developed theory of crisis. I think that Marx left an adecuate explanation in Volume I of Capital of why crises are endemic to capitalism and why capitalism has ‘increasing’ difficulty with developing the productive capacity of human society.
    A question for Jim Devine: do you think that increasing the wages in line with the productivity of labor would have solved the problems of capitalist accumulation in 1982? That is the implication of your explanation. Trade union bureacrats have argued this, ad infinitum, though they always justify accepting cuts in pays and benefits in order to save their worker’s jobs when times get tough for the bosses. Capitalist do not increase the productivity of labor in order to give the benefits to the workers. Marx’s argument about the fall in the rate of profit is that those methods taken to increase the rate of profit have contradictory effects. On the one hand these methods increase the rate of profit for those who introduce them and on the other, as capitalist accumulation takes place, they become less effective in solving their problems the more highly exploited workers become.
    I think that the incredible increase in world debt and the short term benefits of capitalistically developing countries, future competitors, such as Brazil, China, India have allowed the Imperialist of Europe, Japan, and the US to kick the can down the road and have more to do with why capitalism has not collapsed into bitter conflict. Capitalism is a profit driven system, not a demand driven one. Have we reached a limit to those means of survival for capitalism yet?

  7. H.A. Cox asks me: > do you think that increasing the wages in line with the productivity of labor would have solved the problems of capitalist accumulation in 1982? That is the implication of your explanation. … Capitalism is a profit driven system, not a demand driven one….<

    This either/or thinking doesn't work. Rising demand and surplus-value realization allows a greater volume of profits and a higher rate of profit, all else constant. Profitability can also rise due to a fall in production workers' real wages relative to productivity, a shrinkage of overhead costs relative to other costs, and/or increased efficiency in the use of fixed capital.

  8. I would appreciate if you could consider the following three step argument :
    1. With referebce to the paper by Shaikh the author claims that the rate of profit remained roufghly constant in the period following 1980. He also claims that because the rate of profit never rose following the great stagflation of the 70’s interest rates were supressed to boost capitalist growth through the rate of profit of enterprise.
    2. The argument briefly stated above implies that capitalism never recovered the previous depression in the sense that the rate of profit prevailing never secured a mass of profit that could ensure sustainable gowth. The supression of the rate of interest (needed to sustain growth) led to increased borrowing and to breakdown when the debt limit of the economy was reached in 2008.
    3. If the above (1.2) are true the rate of profit remains in the center of the current depression in the sense that the rate of profit never rose sufficiently to ensure capitalist growth leading to a huge pile up of debt and the subsequent breakdown.
    Thank you in advance for your attention

    1. Nikos

      Sorry I have not got back to you sooner on the question of Anwar Shaikh’s analysis (as in his latest piece in Socialist register: the First Great Depression of the 21st century) but it is a complicated one, both theoretically and empirically. First, it depends on what rate of profit you wish to measure: based on the total surplus-value in the broad economy; or just corporate profits; before or after tax; before or after interest.

      I agree with Shaikh that the rise in corporate profitability after the 1980s up to 1997 was partly due to falling interest rates. But even with interest added back, Shaikh’s own data show a rise in corporate profitability from 1982 to 1997 and then a decline after that (see his Figure 1) – exactly what I find.

      Shaikh measures the denominator in current costs, which if you have read this blog, you will know is open to serious question. But even so, I reach a similar result using historic costs as he does In that sense, his emphasis on the ‘profits of enterprise’ is unnecessary.

      The rate of profit in the US has been in secular decline since 1947 but with cyclical ups and downs of about 16-18 years each. That has been my thesis since 2006 and Shaikh confirms it with his data in this piece. But I generally agree with your points 2 and 3, that debt sustained the boom after 1997 even though the rate of profit began to fall. Indeed, the rate of profit in the US has still not recovered to the level of 1997 now and I reckon that US capitalism will need yet another slump to clear debt and dead capital before this decade is out.

      And Shaikh is dead right about the role of government in economic recovery:namely that ‘trickle down’ Keynesian stimulus wont work. Government must act directly in investment.

      1. Many thanks for your response. I am glad that we stand on the same line on what I consider basic i.e the evalution of the current situation and the policy implications.
        It has been ages since I was a graduate student of Shaikh and even then I never got involved in empirical work on the rate of profit. The only point I can make in this regard is that Shaikh bases his empirical calculaion on the distinction between the basic rate of profit (relating to normal capacity utilization) and the prevailing rate of profit, his 1992 paper is indicative of his argument .
        PS : Is there any way I could share with you the latest reports of EU and IMF on Greece for comentary ?

      2. Thanks again , I have the two simulations of the IMF on the sustainability of debt how can I send them to you ?

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