The US rate of profit before the COVID

Every year, I look at measuring the US rate of profit. Official US data are now available to update the measurement of the rate for 2019.

There are many ways to measure the rate of profit (for the various ways, see  I have one way and you can check and replicate my results by referring to the excellent manual explaining my method, kindly compiled by Anders Axelsson from Sweden. 

Readers of my blog and other papers know that I prefer to measure the rate of profit by looking at total surplus value in an economy against total private capital employed in production; to be as close as possible to Marx’s original formula of s/C+v. So I have what I call a ‘whole economy’ measure, based on total national income (less depreciation) for surplus value; net non-residential private fixed assets for constant capital; and adding in employee compensation for variable capital.  This is what might be called a general or gross rate of profit.  The rate of profit will be lower if we look only at the corporate sector, or the non-financial corporate sector, before or after tax etc.

Most Marxist measures exclude any measure of variable capital on the grounds that ‘employee compensation’ (wages plus benefits) is not a stock of invested capital but a flow of circulating capital.  And this cannot be measured easily from available data. I don’t agree that this is a restriction and G Carchedi and I have an unpublished work on this point.  Even so, given that the value of constant fixed capital compared to variable capital is five to eight times larger (depending on whether you use a historic or current cost measure), the addition of a measure of variable capital to the denominator does not change the trend or turning points in the rate of profit significantly  (although it does change the absolute level). This also applies to the rest of circulating capital ie. inventories (the stock of unfinished and intermediate goods), or ‘working capital’. They should and could be added as circulating capital to the denominator for the rate of profit, but I have not done so as the results would be little different.

In contrast, Brian Green has done some powerful work in measuring circulating capital and its rate of turnover for the US economy in order to incorporate it into the measure of the rate of profit. He considers this vital to establishing the proper rate of profit and also as an indicator of likely recessions. You can consider the usefulness of Green’s work at his website here:  All I would say is that adding circulating capital to fixed assets in the denominator of the rate of profit does not make much difference to the outcome for measuring the US rate of profit.

Anyway, on my ‘whole economy’ measure, the US rate of profit since 1946 to 2019 looks like this.

In this graph, I have included measures based on historic (HC) and current costs (CC) for comparison.  For an explanation of why I include both, see my previous posts and my book, The Long Depression (appendix).  The two measures differ in the 1960s particularly and from the 1990s.  The difference is caused by inflation. If inflation is high, as it was between the 1960s and late 1980s, then the divergence between the changes in the HC measure and the CC measure will be greater. When inflation drops off, the difference in the changes between the two HC and CC measures will narrow. From 1965 to 1982, the US rate of profit fell 20% on the HC measure, but 35% on the CC measure.  From 1982 to 1997, the US rate of profit rose just 9% on the HC measure, but rose 29% on the CC measure. But over the whole post-war period up to 2019, there was a secular fall in the US rate of profit on the HC measure of 31% and on the CC measure 31%!

Either way, the data confirm Marx’s explanation of the trends in profitability. According to Marx, changes in profitability depend on the relative movement of two Marxian categories in the accumulation process: the organic composition of capital (C/v) and the rate of surplus value (exploitation) (s/v). Since 1946, there has been the secular rise in the organic composition of capital (HC measure) of 60%, while the main ‘counteracting factor’ in Marx’s law of the tendency of the rate of profit to fall, the rate of surplus value, has actually fallen over 10%.  So the rate of profit fell 31%. Conversely, in the so-called ‘neo-liberal’ period from 1982 to 1997, the rate of surplus value rose 16%, more than the organic composition of capital (11%), so the rate of profit rose 9%. Since 1997, the US rate of profit has fallen around 6%, because the organic composition of capital has risen nearly 17%, outstripping the rise in the rate of surplus value (3%).

One of the compelling results of the data is that each economic recession in the US has been preceded by a fall in the rate of profit and then by a fall in the mass of profits. This is what you would expect cyclically from Marx’s law of profitability.

I have argued that the profitability of capital is key to gauging whether the capitalist economy is in a healthy state or not. If profitability persistently falls, then eventually the mass of profits will start to fall and that is the trigger for a collapse in investment and a slump.

In 2019, on my measure, US overall profitability fell slightly compared to 2018. Profitability in 2019 is now 5-9% below the post Great Recession peak of 2014 and 10% below the 2006 pre-Great Recession peak. Also, the mass of profits fell 3% in 2019.  Indeed, the period from 2014 to 2019 is now the longest period of contraction in US profitability since 1946. That suggests the US economy was already heading into a slump in 2020 before the COVID pandemic hit.

In September 2020, we now know that all the major economies of the world (with the exception of China) will suffer the biggest post-war contraction in real GDP in 2020.  But how will that affect the rate of profit in 2020?  Assuming a 7% fall in US real GDP, I calculate that we can expect a 25% fall in the rate of profit.  In my first graph above I feed that into my 2020 forecast.  If correct, the US rate of profit will hit a new post-war low in 2020.

That is on the whole economy measure.  If we consider the non-financial corporate sector, a proxy for the productive sector of the economy, then the rate of profit could drop to as low as 3%, based on data from the Federal Reserve – the lowest level since Fed records were available.

16 thoughts on “The US rate of profit before the COVID

  1. Michael, thank you for directing your readership to my website. I appreciate you do not fully embrace the use of circulating capital but by highlighting the fact that it is now possible to distil the annual rate of turnover from the System of National Accounts (SNA) you are doing a great service to the field of Marxian analysis.

    In the early 1970s, Marxist theoreticians for the first time, in a systematic way, sought to retrieve the rate of profit from the System of National Accounts. Unfortunately, because they believed at the time that it was impossible to estimate turnover, it became customary to use the crude formula, profits over fixed capital. Sometimes inventories were added in improving the accuracy of the metric because as Michael says, inventories are a component of circulating capital. And sometimes the denominator went further to include fixed, plus inventory plus annual compensation. This denominator is however highly problematic due to duplication, because contained in the inventory figure is an element of the compensation figure taken separately. Inventory is the stock of value unsold which contains wages previously paid during the course of their production.

    It was Bill Jeffries, whom I highly regard, who first informed me that the origin of the SNA was to be found in Volume 2 of Das Kapital thanks to Kutznets and Leontief, two of the three main architects of the modern SNA. When I told Bill, that if this was the case, then there was a formula locked away in the SNA that would allow us to determine circulating capital. He said forget it Brian. If it hasn’t been spotted in 60 years it is not there.

    But it was there all along and it is G0/GVA + (GO-GVA)/GVA where GO stands for gross output or the value of total sales, and GVA stands for gross value added or the value of the final sale. It makes possible the conversion of gross output into circulating capital and the conversion of annual compensation into variable capital. I do not seek to criticise Michael here for using annual compensation which assumes a turnover rate of 1, and which Marx and Engels saw as peculiar, but rather to dwell on this point. For the period beginning in the 1970s to 2015 circulating capital was swept under the carpet, and what cannot be seen, is soon forgotten through habit. That period has ended, we can now embrace a much more precise rate of profit, and that we are beginning to do so, is due to Michael’s generosity and integrity in promoting it.

    I will conclude with an analogy I have previously put to Michael. It is true that a thermometer which is 80% accurate and another which is 95% accurate will both show if a patient’s temperature is rising or falling. But in a critical situation, where every half degree counts, as a doctor, would you rather use the 80% accurate thermometer or the 95% accurate one?

  2. Why do you think that the rate of surplus value fell from 1946 to 2019 and from 1965 to 2019? Was it unusually high during 1946 and 1965 or is something preventing the rise of the rate of surplus value in 2019?

    1. Good question! I think the ROSV was very high right after the war for obvious reasons. It was eventually squeezed by a strong labour movement during the 1960s and 1970s – provoking the neoliberal period and leading to a sharp rise that was more or less sustained up to now. Looking at Kliman’s calc of the ROSV, it was more or less the same story. Obviously the best period for capitalism is one with a rising OCC that delivers an even larger ROSV rise and thus a increase in the ROP ie 1982-97.

      1. I am no expert, but doesn’t the fact that the ROSV is lower right now than in 1946 and 1965 (when unions were much stronger in the USA) and the OCC is still rising mean that any sort of major union activity or legislation to raise wages would be an extreme shake-up to any affected company in the US? At this point where so many Americans are living paycheck to paycheck and/or have barely any savings, there is no realistic way to significantly increase the ROSV without a significant fall in living conditions. It’s no wonder why Amazon has to hire data scientists to predict union activity while at the same time lobbying to raise the minimum wage ( yes, really: to crush their competitors by lowering their ROP and hopefully total profits.

      2. If we take the law of value to be that, actually a law of value, how can an increase in the OCC itself increase the surplus value, or increase the rate of profit? Whether workers produce 100 screws per worker-hour or 1000 screws per worker hour, the value of the screws are identical, and unless wage rates decline, there should be no change in the relations of surplus working hours to necessary working hours. Without a decline in the wage, it still takes the same number of hours to produce the workers’ wages. A reduction in the relative number of workers makes no difference, unless the proportion of decline in the total variable capital expended exceeds the proportion of decline in total working hours.

        Marx is ambiguous, when not downright self-contradictory, about this process in throughout his writings in Theories of Surplus Value, in his economic manuscripts etc. i.e.

        “With a given length of labour-time, this surplus-value can only be increased by an increase in productivity, or at a given productivity, by a lengthening of the labour-time.”—Marx, Theories of Surplus Value, Chapter 4 and

        “We have shown previously that a general law of the production of commodities decrees: the productivity of labour and its faculty of creating value stand in opposition to one another”—Marx, Capital, Volume 2, Chapter 6.


        “The growth of the productive power of labour is identical in meaning with (a) the growth of relative surplus value or of the relative surplus labour time which the worker gives to capital”–Marx, Grundrisse, Notebook 7, The Chapter on Capital


        “If the productivity in wool spinning is trebled then, provided the conditions of wool production have remained the same, three times as much time as previously would have to be spent, three times as much capital would have to be expended on labour in wool production, whereas only the same amount of the spinners’ labour time would be required to spin up this trebled quantity of wool. But the rate [of surplus value] would remain the same. The same spinning labour would have the same value as before and contain the same surplus-value.”—Marx, Theories of Surplus Value, Chapter 9.

        And then Marx says this,

        “But nothing is more fallacious than that, generally speaking, the rate of profit can increase while the amount of capital laid out on labour declines. Exactly the opposite takes place. Proportionally less surplus-value is produced, and the rate of profit therefore falls.”—Marx, Theories of Surplus Value, Chapter 24

        I think that last quote from Marx is where he settles the argument he is having with himself, if only temporarily. Nevertheless, it seems to me that relative surplus value has only momentary importance in the accumulation of capital, and is “useful” or important to the accumulation of capital as a distributive mechanism, allocating shares of the total surplus value among the capitalists, AND not as an offset to the decline in the rate of profit.

    2. According to the Statistical Abstract of the United States, the number of manufacturing production workers dropped from 15.2 million in 1947 to 11.5 million in 2009 (the last year the StatAb recorded before ceasing publication), and from 17.2 million in 1998. That might have something to do with it. Fewer workers, and fewer worker hours, equals less surplus value, and unless wage rates decline drastically, lower rates of surplus value.

      1. Well, fewer hours and fewer workers should not matter since it’s the rate not the absolute value, right?

  3. Minqi Li . Profit, Accumulation, and Crisis in Capitalism. Long-term Trends in the UK, US, Japan, and China, 1855–2018. Routledge, 2020

    I think it would be interesting to read your review of this book.

    1. I refer to Minqi Li et al’s earlier work on which I think this book is based in my 2012 paper on A World Rate of Profit.
      I have some doubts about his analysis: he seems to think that real GDP growth drives the rate of profit, not vice versa.
      Also although I am sympathetic to his long wave theory, I am not happy with his turning points or his conclusion that capitalism will collapse due to environmental disaster.

      But it is very useful and relevant work.

  4. What appears to be inexplicable, even contradictory, can often be made explicable when that which has been removed is added back. The rate of surplus value is not annual net surplus divided by annual compensation, it is annual net surplus divided by (annual compensation/turnover). The organic composition of capital is not constant capital/annual compensation, but constant capital divided by (compensation/turnover). When factoring back turnover, annual compensation is reduced to v or variable capital. If annual turnover is 4 it follows that v will only be one quarter the size of annual compensation.

    Why is this important? It is important because turnover is dynamic, accelerating or decelerating and when it does it changes the whole equation. Thus it is entirely possible for the annual mass of wages and the annual mass of profits to be unaltered, but for the rate of profit to increase. Impossible you say. Not so. When the rate of turnover increases the amount of variable capital decreases, and with it total capital everything else being equal, thereby raising the rate of profit. To answer anti-capital, if the rising composition of capital is not so much due to the relative rise in constant capital as much as it is to do with the relative fall in variable capital due to rising turnover, then that rise can and is associated with a rise in the rate of profit. I have shown repeatedly that the movement of the mass of profits is due to changes in the rate of surplus value (which incorporates turnover) and not due to changes in the rate of exploitation. As I do not want to take up space on Michael’s website with a fuller explanation, please view

    1. The argument ucanbe (and Marx) make is essentially that the capitalist only advances the money for wages once, for the initial circuit of capital. That money is returned in total by the completion of the circuit, and thus no further real outlay is required by the capitalist(s) for wages in any successive circuit of capital. Hallelujah! The capitalist has discovered the economic equivalent of the perpetual motion machine, with each successive circuit of capital becoming the equivalent of fusion power, producing more energy than is consumed.

      That line of (circular) explanation doesn’t simply encompass the return of the amount spent on wages, it should also include the amounts the capitalists(s) advanced for every bit of capital, save the amounts embedded in the fixed assets of production. If the circuit of capital is completed, all the money advanced for the elements of constant capital that are totally consumed in the production phase, that form circulating capital, is returned to the capitalist. As a consequence we can extend the “explanation” to include that those means of production too are “free,” without cost to the capitalist as the value is returned in the first circuit. Every successive purchase of “intermediate” components, oil, gas, electricity, iron ore, plastic pellets, is “cost free.”

      So… if we take that “expanded view,” what happens? Everybody is made whole, and all that counts is the value embedded in the fixed assets of production, and the relation of the time period’s total profit to the undepreciated amounts of fixed capital.

      In fact this is exactly what happens in the real world of capitalism, where the distribution and allocation of surplus value sustains the capitals with the most intense and extensive investments in fixed capital, where the higher rates of turnover in circulating capital or fostered by the increased investments in fixed assets which in turn slows down the rate of turnover of the entire accumulated capital.

  5. Eureka anti-cap you have grasped it. If you take a time lapse series of photos of the circuit of fixed capital so that seven or eight years is reduced to say three months you would see the same thing. The sum of depreciation and with it the sinking fund (assuming money does not depreciate) would replenish the outlay the capitalist makes on fixed investment in exactly the same way revenue replenishes the advanced liquid capital advanced upon the conclusion of each sale, except that in the case of fixed capital it would be a multiplicity of sales. What a wondrous thing it is to be a capitalist, being ultimately repaid all your outlays and with a profit to boot. Nonetheless, remember that Marx and Engels were at pains to limit the circulation of capital to working capital and they never included fixed capital as a circuit due to the fixed and extended nature of depreciation. Depreciation is linear, working capital circular. They never described the rate of turnover for the whole accumulated capital.

  6. Dear Roberts,

    As we know, capitalism survived crises when values of the fixed and variable capital decrease enough so that it provides the rate of profit a new jump. Do you think that effects of covid-19 has made the devaluation and so it will made a new increase in the rate of profit for a new expansion period after “normalization”? Or should we think that bailouts has prevented required devaluation to large extent so the profit rates will not change much?

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