Profitability, crises and inequality: some heterodox views

Last weekend, I presented two papers at the conferences of the Association of Heterodox Economists (AHE) and the Society for the Advancement of Socio-Economics (SASE).

The AHE paper was Revisiting a World Rate of Profit and was a follow-up to my previous paper, A World Rate of Profit, presented to the AHE conference in 2012 (

The 2012 paper made a tentative estimate of what had happened to the rate of profit on capital in the G7 economies and the so-called BRICs.  It was not the first attempt to measure a world rate of profit, but it was a more up to date attempt, using more comprehensive data made available from the Extended Penn World Tables of global economic data.

The 2012 paper recognised that measuring a world rate of profit was problematic.  First, capitalism is not a ‘world economy’ as projected in Marx’s law of value and profitability, but still a bunch of national economies with barriers to the flow of capital, trade and labour that would distort a measure of world profitability using national data.  Second, the available data for a comprehensive analysis of a world rate of profit are inadequate and vary from country to country, making it difficult to estimate Marxian categories of value and surplus value.

However, capitalism has become hugely more ‘global’ in just the last 40 years and neo-liberal ‘reforms’ have opened up trade and deregulated capital flows.  And there has been an emergence of new capitals onto the world stage. So a ‘world rate of profit’ has become more realistic by the day.

What encouraged me in my original paper was that other estimates of global profitability were broadly similar in their results as my own attempt.  Even more encouraging has been work done by other scholars since my effort in 2012.  In particular, Esteban Maito published a paper that looked at the rate of profit on capital for 14 countries going back, in some cases, to 1855 (  He found that there was a discernible fall in the rate of profit on capital over the period, as Marx’s law predicted.  But this secular fall also contained periods when profitability rose according to Marx’s counteracting factors coming into play for periods.

In my new paper, I revisited the old data but also presented a new measure of a world rate of profit based on using the Penn World Tables for all the top economies of the world, the so-called G20, going back to 1950. I found that the rate of profit for the G20 economies since 1950 exhibits a similar secular decline as does the Maito data.  Also, like the US and the UK, there is a significant fall from the first simultaneous international economic slump in 1974-5 to the early 1980s, then a modest recovery before another fall coinciding with the world 1991-2 economic recession.  There is a mild recovery in the 1990s until the early 2000s.  Since then, the G20 rate of profit has slumped, both before the 2008-9 Great Recession and after, with only a tiny recovery up to 2011.

G20 rate of profit

Marx’s law of the tendency of the rate of profit to fall does not imply that the rate of profit will fall in a straight line over time. Counteracting factors come into play that, for a period of time, can overcome the tendency.  My results show that this was the case between the mid-1970s or early 1980s up to the late 1990s or early 2000s (depending on the measure).  The neoliberal period of recovery in profitability did take place but it came to an end well before the Great Recession.  World profitability was falling by the early to mid-2000s on most measures.

The changes in the rate of profit in the post-war period follow Marx’s law, namely that the secular decline was accompanied by a rise in the organic composition of capital that outstripped any rise in the rate of surplus value achieved by capitalists, at least in the G7 economies.  Profitability rose in the neo-liberal period because the counteracting factor of a rising rate of exploitation dominated.

There were several other interesting papers at AHE (apart from mine, of course).  They can all be found at

Of particular note was the paper by Steve Keen, head of economics at Kingston University and the leading proponent of the post-Keynesian/Minsky view that crises of capitalism are caused by an inevitable tendency for the financial sector to expand private sector credit excessively.  I have commented on Keen’s arguments in several posts on this blog, but his latest paper is the most comprehensive in arguing this case.

I also liked the paper on Kondratiev cycles by Leo and Dianad Nefiodow

They presented some interesting arguments to justify the existence of this series of long-term cycles and the reasons for them – namely the cycle of bunches of innovation a la Joseph Schumpeter (Business Cycles).  I have also looked at the role of Kondratiev cycles in my book, The Great Recession and also in a past AHE paper cycles-in-capitalism.

My big difference with the Nefiodow paper is that they consider that the global economy is already in the upswing phase of a ‘sixth Kondratiev’.  On the contrary, I think we are still in the ‘winter’ depressionary phase of the Kondratiev where inflation and real GDP growth are low and profitability has not been restored yet sufficiently for a new innovation upswing.  Also, there is no mention in their paper about AI and robots, an innovatory development that I see as key to the next stage in capital accumulation – more on that on another day.

The main theme of the SASE conference was rising inequality in modern economies.   I presented an updated paper of my critique of Thomas Piketty’s book on inequality, Capital in the 21st century, called Unpicking Piketty (Unpicking Piketty – SASE).

Readers of this post will know that I have covered this issue in some detail in various posts and in my collection of essays on inequality.


or Kindle version for US:
and UK

My main argument is that Piketty had not really proved that inequality of wealth in modern economies would continue to rise inexorably or that his explanation of rising inequality as due to the return on capital will be higher than a slowing rate of growth in national income per head in the major economies was right.  By conflating ‘wealth’ with productive capital, Piketty’s prediction was really founded on a continuation of the property and stock market bubbles of the last 25 years.  And that could easily change in the next 25 years.  The paper contrasted Piketty’s r (rate of return on personal wealth) with Marx’s r (rate of profit on productive capital).  In my view, the latter is a much better indicator of the direction of capitalism and its underlying contradictions.

In the same session, Robert Boyer presented a paper on global inequality.  Boyer is one of the members of what are called the Regulation School, who argue that capitalism goes through different stages or structures of regulation which leads to different causes of crises  Boyer’s argument on rising inequality was that there was no one cause: it depended on the different regimes and stages of development for an economy.  Inequality rises when an economy is industrialising and urbanising fast, as in China now, it also rises when there is a deep depression that hits the poorer parts of an economy, as in southern Europe now; and it rises when the financial sector dominates an economy as in the US; but it can fall when governments of a more leftish persuasion take over, as in Latin America in recent years.

There may be some truth to this view.  But perhaps it is simpler put to say that rising inequality of income (or in Marxist terms, a rising rate of surplus value) is more to do with the balance of forces in the class struggle between capital and labour.  The stronger capital is, the more it can get the rate of surplus value and this acts a counteracting factor to the tendency for Marx’s r to fall.  And that is what has happened in many countries since the 1980s.

SASE was a huge conference attended by 1200 academics and graduate students all with their specialised research subjects.  So there were innumerable papers on inequality seen from various angles, mainstream and heterodox.  The best I can do for readers of this blog is to give you the place to read what you want.—london/sase-27th-annual-conference-theme_fr_202.html


27 thoughts on “Profitability, crises and inequality: some heterodox views

  1. No mention of Ernest Mandel? He has in my opinion done the best study of Long Waves. I agree we are in a depressionary long wave, in fact I think we’ve been in one since the 70’s, of course with exceptions in relaton to China, India etc.

  2. You state “The paper contrasted Piketty’s r (rate of return on personal wealth) with Marx’s r (rate of profit on productive capital).” But what about Marx’s *unproductive* capital–the surplus-value invested in the means and conditions of *unproductive* labor, the entire administrative and commercial and financial apparatus which is as essential to the functioning of the modern capitalist mode of production as are the factories where the surplus value itself is extracted?

  3. “Marx’s law of the tendency of the rate of profit to fall does not imply that the rate of profit will fall in a straight line over time.”

    Never drop to zero ? Does this mean that capitalism is eternal ?

    1. “Never drop to zero ? Does this mean that capitalism is eternal ?”

      What the lack of a long-term fall in the rate of profit means is simply that capitalism will never reach a “zero point” where profitability becomes permanently negative. Profitability can always be restored with a sufficient destruction of capital value, with the “sufficient” part being the nasty bit.

      If you read through Marx’s writings, he never thought that some long-term decline in profitability would bring about a transition from capitalism to socialism. The persistent crises and recessions that come about as a result of the tendency of the falling rate of profit can certainly help to galvanize working people, but it cannot bring a permanent end to capitalism by itself.

  4. Interesting that the graph appears to show profitability falling more or less in line with the rise of neo-liberalism and the drastic reduction of public expenditure ?

    1. You’re putting the cart before the horse. The reason for the rise of neoliberalism (outsourcing, tax reductions, etc.) was because of falling profitability in the post-WW2 period. Profitability didn’t fall because of neoliberalism, but the reforms that neoliberal regimes put in place weren’t sufficient to completely counteract the tendency of the falling rate of profit. (See Andrew Kliman’s “The Failure of Capitalist Production” for more on this.)

  5. Michael,
    How do you count the wages & salaries of “unproductive” labor in calculating the ROP? are they part of surplus-value, variable capital, or constant capital?
    Your numbers fit my hypothesis (for the US, though it is still the leading economy in the world): profit rates were high during the “golden age” of the warfare/welfare state, but various supply-side problems (including falling output/fixed capital ratio) led to falling profits in the 1970s. This spawned the neoliberal policy revolution or “one-sided class war” (starting in 1979 or so) which boosted the rate of profit — until the depression of wages relative to labor productivity started creating aggregate demand/underconsumption problems. What do you think?

    1. Jim
      It’s a tricky one. Ideally, I would measure the rate of profit by excluding net fixed assets in residential housing and government to measure the ‘capitalist sector’ That would still include the financial sector. If we also exclude that, then we get closer to the ‘productive capitalist sector’. Unproductive labour does not create any value for the system as a whole but that part of unproductive labour that is not government workers does create profit for its capitalist sectors (like finance, commerce, business services etc). That profit is really usurped from the productive sector as a necessary cost for the latter. So I would include in variable capital these unproductive workers. All these workers are a cost to the capitalist system.

      Of course, if you want to look at the productive sector alone, then you would exclude these workers. Looking at the productive sector alone gives you a gauge of the underlying ‘health’ of a capitalist economy, but it does not measure the overall rate of profit.

      So for me, the overall rate of profit is measured as net total value added in economy less employee compensation of all workers = surplus value/divided by net stock of fixed assets of the capitalist sector plus variable capital (as above).

      But you can do other measures for just the corporate sector, or just the non-financial corporate sector or just the productive sector to reveal some underlying trends that may differ from the overall measure.

      I agree with your phases of post-war US capitalism: 1) the golden age of high profitability and growth 1946-65; 2) the profitability crisis 1965-82 3) the neo-liberal recovery 1982-97 as capitalism drove up the rate of exploitation to counteract the fall in profitability. But I think the neo-liberal recovery ended, not because of a ‘wage-led’ crisis (underconsumption) but because the profitability crisis returned after 1997 in the US, as my data also show for the G20.

      1. Erm, if the unproductive sector is reliant on the surplus created in the productive sector why can’t you simply measure the size of the unproductive sector as an indicator of the success or otherwise of the capitalist economy?

      2. The larger the unproductive sector, the smaller the productive sector and thus less surplus value to reinvest and reproduce capital. And thus the capitalist economy will start to fail. The increase in the unproductive sector relative to the productive sector, particularly in the neo-liberal era is a major reason for the slowdown in productivity and growth rates in the last 25 years.

      3. Then this isn’t a crisis theory of the rate of profit to fall but rather a theory that says, somehow the unproductive sector is able to grow at the expense of the productive sector even though the former is dependent on the latter.

        More of a structural theory isn’t it?

      4. “The larger the unproductive sector, the smaller the productive sector and thus less surplus value to reinvest and reproduce capital. And thus the capitalist economy will start to fail. The increase in the unproductive sector relative to the productive sector, particularly in the neo-liberal era is a major reason for the slowdown in productivity and growth rates in the last 25 years.”

        You are implying a causal relationship here, and there simply isn’t one.

        The “unproductive sector”– and you need to define it and have others agree with your definition, is indicative of how productive labor has become, and how much more surplus value there is being extracted.

        Where can you point to an example of a “capitalist economy starting to fail because of the relative size of the unproductive sector”? Any examples in everybody’s favorite, the so-called “Long Depression of 1871-1898? Or the Great Depression leading up to WW2? Any economies failing because an “unproductive sector.” Even in “less developed” countries like Spain in the 1930s? I don’t think you can find any evidence for you assertion in the history of capitalism.

        The rate of profit in the US did not decline in the US off its peak in 1970 due to an “overgrowth” of the unproductive sector; and the recovery of the rate of profit 1992-2000 certainly did not include a reduction in the size of the “unproductive sector.”

        Slowdown in productivity the last 25 years? Productivity in the US grew at its highest rate since the 1960s, during the Clinton era.

  6. i world love to read your thoughts on the ramifications of AI and robotics for the future development of capitalism, and for labor theory of value.

      1. Michael perhaps you could just give as a hint on the direction of your thoughts on this issue. How can technologies that are fundamentally labor-poor and designed from the outset to replace labor be the base for a new cycle of accumulation? After all the same was predicted and did not come to pass with the microelectronic revolution.

  7. Mike, you write: “The 2012 paper recognised that measuring a world rate of profit was problematic. First, capitalism is not a ‘world economy’ as projected in Marx’s law of value and profitability, but still a bunch of national economies with barriers to the flow of capital, trade and labour that would distort a measure of world profitability using national data.”

    I think “as projected in Marx’s law of value” is misleading here if you don’t add the reasons for the simplification involved in the “projection” – ie “all other things being equal, in a world market, there is a world rate of profit”. As we all know, and as Marx spelt out very carefully in examining the differences in profitability etc between different sectors of an economy depending on their circumstances, capitalism isn’t a homogeneous system but a bunch of different capitals in cut-throat competition with each other. The result of this competition is what emerges at the end of each period under examination.

    The problem with the world economy and its rate of profit is a bit similar, only the competition between nations adds a far greater layer of distortion(s) to the mix.

    Marx was fully aware of this as we can see from his articles on international trade and in parts of Capital itself dealing with trade and international dealings, but we should never forget that a whole book of Capital dedicated to the role of the state in the capitalist economic system was part of his plan for the work. This would clearly have dealt with the principal kinds of distortion at issue here, and saved us all a hell of a lot of trouble. Particularly Rosa Luxemburg on our side, and the globalist asses on the other side.

    Lenin’s work in The State and Revolution and in Imperialism – the Ultimate Stage of Capitalism should perhaps be seen as rough drafts towards the kind of unifying synthesis we desperately need (updated with the work of Trotsky and Preobrazhensky around The New Economics especially in connection with the question of Primitive Socialist Accumulation). It’s a tragedy that Marx was unable to give us his synthesis before he died.

    There’s plenty of stuff on this by him throughout his works, but we have to focus on it, bring it together and extrapolate to benefit from it. Above all we have to be aware that this is feasible and was part of Marx’s plan. Working on this would be a fabulous agenda for the growing number of real Marxist economists around the world. And it would help them get away from blindly responding to an agenda set by the bourgeois mainstream, useful and necessary as this response may be.

  8. Capital , could be considered as constant and variable capital and in other ways, but let us consider capital as K ; the part of capital that needs to be paid in advance, like a building which must be purchased before any production could happen , and k the part of capital that is being purchased as production process goes on, like most of row material that can be purchased after the start of production and as an ongoing process
    So we have
    Then during next cycle we have:
    During P2,let us assume that a new technology, was, invented,( something like computer that has profound effect on every aspect of production) ,and became widely used , so the SNLT ( socially necessary Labour time)for production of every thing including K, and k were reduced and the value of K is reduced to K’ and that of k to k’. For example a machine which is made by computerized and automated production process , is cheaper than the machine who’s is made before invention of computerized production process.
    Because the investor buys k as production goes on ,the Change in value of k to k’ dose not make any difference for capitalist.
    But because K’was paid as K but now it’s value isK’ which is now cheaper in market , it should be considered in calculation of profit, as a loss for investor.
    So we have
    K= K’+d
    The transferred value of previously paid investment became less .
    Now we can conclude that
    If S2<d , there will be no profit for investor so Production will be stopped because no profit is expected .so we have the crisis
    Then some of weak capitalist sell their K' cheap to others, and close their factories, unemployment raises so wages goes down and profit goes up and the cycle repeats itself

  9. Is there any statistics/reasearch about how much the value (or average labor hour) embodied in every commodity need to fall in comparison with market prices or production prices to pop a crisis? And how much it needs to raise after the bust to restart the boom cycle?

    It would be also interesting verified if that ‘value ground’, in case it exists, evolved through time specially after international trade changes like the beginning of imperialism, globalization and financialization.

    This could be a statistical warming of future crisis mathematically founded, a Marx Moment if you will. And it would be much preciser than any other crisis theory once keynesian does not have a real one, Minsky is nebulous and liberals blame the state. What gave me the idea was the behavior of kalecki’s cycles theory, which has a well defined and almost mechanic boom and bust grounded on the lack of depreciation and net investment.

    1. Lucas – interesting idea. There is some work done on value measures of production. Looking at the profitability of the productive sector of the capitalist economy would be the best statistical indicator of future crises in my view. I have done some work and this year plan to do a joint project with G Carchedi on this. Watch this space.

  10. Hello, This is Seongjin Jeong, a Professor of Economics at Gyeongsang National University in Korea and Editor of MARXISM 21. I am a real fan of your blog and like your works very much. By the way, I have a request for you, regarding the data of your paper, quoted in the above commentary [“Revisiting a world rate of profit”, Paper for the 2015 Conference of the Association of Heterodox Economists, Southampton Solent University July 2015. ]. I will really appreciate it if you could provide me the absolute numbers (hopefully, Excel sheet??) of the rates of profit of the world as a whole and G7, on which your Figure 1 ‘A world rate of profit (indexed 1963=100)’ in the page 2 of above paper is based. My email address is Sincerely yours, Seongjin

  11. Dear Michael, Thank you very much for your kindness. I will wait for the data. Sincerely yours, seongjin

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