The US rate of profit in 2021

Every year, I analyse the US rate of profit on capital.  This is because the US data is the best and most comprehensive to use and because the US is the most important capitalist economy, often setting the scene for trends in global capitalism.  We now have the data for 2021 (that’s as far as the official national data go).

There are many ways to measure the rate of profit a la Marx – see  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), where s = surplus value; C = constant capital – which should include both fixed assets (machinery etc) and circulating capital (raw materials and intermediate components); and v = wages or employee costs. My calculations can be replicated and checked by referring to the excellent manual explaining my method, kindly compiled by Anders Axelsson from Sweden. 

I call my calculation a ‘whole economy’ measure, as it is based on total national income after depreciation and after employee compensation to calculate surplus value (s); net non-residential private fixed assets for constant capital (so this excludes government, housing and real estate) (C); and employee compensation for variable capital (v). But as said above, the rate of profit can be measured just on corporate capital or just on the non-financial sector of corporate capital.  Also profits can be measured before or after tax and the fixed part of constant capital can be measured based on ‘historic cost’ (the original cost of purchase) or ‘current or replacement cost’ (what it is worth now or what it would cost to replace the asset now).  And it can also include circulating capital (raw materials and components used in a period of production) in addition to fixed assets (machinery, offices etc).

There used to be a big discussion over which measure of fixed assets to use to get closer to the Marxian view. For an explanation of this debate, see my previous posts and my book, The Long Depression (appendix). Fixed assets can be measured as historic costs (HC) or current costs (CC).  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 – see  When inflation drops off, the difference in the changes between the two HC and CC measures will narrow. Over the whole post-war period up to 2021, there was a secular fall in the US rate of profit on the HC measure of 27% and on the CC measure 26%.  So, for an empirical measure of the rate of profit over a long period, there is nothing to choose between the HC and CC measures.

Most Marxist measures usually 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 turning over more than once in a year – and this rate of turnover cannot be measured easily from available data. So most Marxist measures of the rate of profit are just s/C.  But some Marxists have made attempts to measure the turnover of circulating capital and variable capital so that these can be included in the denominator, thus restoring Marx’s original formula s/(C+v).

Brian Green has done some important 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 as an indicator of likely recessions.  Here is Green’s past post on his method:

Green’s work is valuable in showing the short-term variations in rates of surplus value and profit caused by changes in circulating capital.  Green considers these short-term variations as an important indicator of the cycles of boom and slump in a capitalist economy.  But they do not alter significantly the longer-term trends in the rate of profit.  If you include circulating capital and variable capital in the measurement of the rate of profit, this will make a difference to the level of the rate of profit, but not much difference to the trend and turns in the rate of profit since 1945. 

I used to make my own annual calculations for the US rate of profit for the whole economy and for the corporate sector alone.  But we can now use the excellent database produced by Deepankur Basu and Evan Wasner ( for the corporate sector only, which is similar to my method of measuring the rate of profit.  So I have replicated their results and highlighted where the rate of profit fell and rose. The Basu-Wasner measure excludes variable capital from the denominator.  You can include it using their database, but it makes little difference to trends and turning points in the rate of profit since 1945.  The graph below shows the US rate of profit in the corporate sector up to 2021.

The first thing to notice is that Marx’s law of the tendency of the rate of profit to fall is confirmed by the trend in the US rate of profit.  This has fallen 27% over the period 1945-2021.  We can also discern the huge fall in profitability from 1965-82 from 23.2% to 13.5%.  And we can identify a recovery during the so-called neo-liberal period from 1982 to 17.5% in 2006.  After that, the rate of profit falls gradually, but in a series of booms and slumps, in what I call the period of the Long Depression, to 16.3%.

What you also notice from this measure is that the US corporate rate of profit rose from 1982 up to a peak in 2006.  So it could be argued, as some have done, that Marx’s law cannot be the underlying cause of the Great Recession in 2008-9 if the US rate of profit was reaching a 25-year high in 2006.  But if we look just at the non-financial corporate sector (NFC), a proxy for what we might call the ‘productive’ part of the capitalist economy (where workers create new value for capitalists), then it is a different story.  In Marxian value theory, the financial sector does not create new value; it takes a cut from the profit extracted from labour in the non-financial (productive) sector.  And it is the rise in financial sector profits particularly since 1997 that distorts the corporate rate of profit up to 2006 (see graph below).

So looking at NFC profit rate is more relevant to the underlying health of the US capitalist economy. When the rise in financial profits is taken out of the data, we find that non-financial sector profitability peaked much earlier than 2006; instead back in 1997.

What the NFC graph also shows is that there has been a secular fall in the US rate of profit on non-financial capital over the last 75 years – a la Marx.  Basu-Wasner calculate the average annual fall in the rate of profit at -0.42%.  Between 1945 and 2021, the NFC rate of profit fell 32%.  

In the so-called ‘golden age’ of post-war US capitalism, the NFC rate of profit was very high, averaging over 20%, rising 6% from 1945-1965.  But then came the profitability crisis period between 1965 and 1982, when the rate of profit fell 44%.  This provoked two major slumps in 1974-5 and 1980-2 and led to the strategists of capitalism trying to restore the rate of profit with the ‘neoliberal’ policies of privatisation, the crushing of unions, the deregulation of finance and globalisation from the early 1980s onwards. 

The ‘neoliberal’ period of 1982-97 saw the rate of profit in the non-financial sector rise by 34%, although at the 1997 peak, the rate was still below the average in the Golden Age.  Then came a new period of profitability crisis, which I have dubbed the Long Depression.  In this period, which includes the Great Recession of 2008-9 and, of course, the COVID slump of 2020, the rate of profit fell 15%.  In 2020, the US rate of profit in its non-financial sector reached a 75-year low, but recovered somewhat in 2021, but still below the pre-pandemic rate in 2019.

This brings us to the causes of the changes in the rate of profit. According to Marx, changes in profitability depend primarily 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 or exploitation (s/v). If C/v outstrips s/v, the rate of profit will fall, and vice versa.

On the Basu-Wasner current cost measure, since 1945, there has been the secular rise in the organic composition of capital (OCC) of 40%, while the main ‘counteracting factor’ in Marx’s law of the tendency of the rate of profit to fall, the rate of surplus value (ROSV), fell slightly by 5%. So the rate of profit fell 32% from 1945 (see graph below).

In the profitability crisis of 1965-82, the NFC rate of profit fell 44% as the organic composition of capital (OCC) rose 29% and the rate of surplus value (ROSV) fell 28%. Conversely, in the so-called ‘neo-liberal’ period from 1982 to 1997, the rate of surplus value rose 14%, while the organic composition of capital fell 15%, so the rate of profit rose 34%. Since 1997, the US rate of profit has fallen around 15%, because the organic composition of capital has risen 28%, outstripping the rise in the rate of surplus value (8%).  In other words, in the first two decades of the 21st century US non-financial sector capitalists exploited the workforce even more, but not enough to stop the rate of profit falling.  So Marx’s law of profitability is confirmed by the results in each of these periods, as it is for the whole period of 1945-2021.

I have argued in many places 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. And one of the compelling results of the data is that each post-war economic recession in the US has been preceded by (or coincided with) a fall in the rate of profit and by a slowdown in profit growth or an outright fall in the mass of profits. This is what you would expect cyclically from Marx’s law of profitability. The Great Recession and the pandemic slump of 2020 were preceded (or accompanied) by particularly sharp falls in profitability and profits growth.

It now looks very likely that by the end of this year, 2022, the major economies will be entering a new slump, just three years after the pandemic slump of 2020.  US corporate profits fell in Q3 2022, according to the latest released data.  Indeed, non-financial corporate profits fell nearly 7% on the quarter.  US corporate profits slowed to 4.4% yoy from 7.7% yoy in Q2 and sharply from peak yoy growth of 22% at the end of 2021.  Non-financial profits have slowed to 6.4% yoy.

A profits contraction has started as wages, import prices and interest costs are now rising faster than sales revenue. Profit margins (per unit of output) have peaked (at a high level) as unit non-labour costs and wage costs per unit are rising and productivity stagnates. The post-pandemic profits bonanza is over.  When we get full data for 2022 corporate profitability, expect it to have fallen again as we enter a new slump in the US in 2023.

40 thoughts on “The US rate of profit in 2021

  1. Unfortunately, your estimates of the rate of profit rest on a very unreliable foundation – the neo-classical fixed capital stock estimates of the system of national accounts. These are not measures of past fixed capital advanced, as demanded by the Marxist calculation, but aggregates of estimated future profits.
    As the United Nations explain:

    “6.246. The value of a fixed asset to its owner at any point of time is determined by the present value of the future capital services (that is, the sum of the values of the stream of future rentals less operating costs discounted to the present period) that can be expected over its remaining service life.”

    The United Nations System of National Accounts p.124

    As this estimated or “imputed”, as the UN put it, aggregate of future revenues, is far larger than the amount of past fixed capital advanced, and as it grows as profitability rises, the use of these figures grossly underestimates the rate of profit and indeed transforms a rise in the mass of profit into a fall in the rate of profit.
    There are other points that could be made about your calculations, but this is enough.

    1. That’s not how the BEA provides its valuations of investment, historical cost, and valuation of fixed assets. From BEA’s website on its methodologies:

      Investment, Depreciation, Net Stock, and Average Age of the Net Stock
      Investment is the value of purchases of new fixed assets. For a given type of owner, it also includes net purchases of used assets from other types of owners (private business, governments, households, and nonresidents). Data are not available to adjust for transfers of used assets among industries or among legal forms of organization. Depreciation, also known as Consumption of Fixed Capital,5 is a charge for the using up of private and government fixed assets located in the United States, which is defined as the decline in the value of the stock of assets due to wear and tear, obsolescence, accidental damage, and aging. For most types of assets, estimates of depreciation are based on a geometric decline; empirical studies on the prices of used assets in resale markets have concluded that a geometric pattern of depreciation is appropriate for most types of assets. Net stock is the value of fixed assets adjusted for depreciation. With the perpetual inventory method that is used to derive the estimates presented here, the net stock in the historical-cost valuation and (at the individual asset) in the real-cost valuation, which are described below, is calculated as the cumulative value of past investment less the cumulative value of past depreciation.6 Net stock in current-cost valuation is the value of the items in the real-cost net stock measured in the prices of the current end of year.7 Average age of net stock for a given end of year is a weighted average of the ages of all investment in the stock at that yearend, with the weight for each age based on its value in the net stock.

      Valuation of the Estimates
      Historical-cost valuation measures the value of fixed assets in the prices of the periods in which the assets were purchased new. Real-cost valuation measures the value of these assets after the effects of price change have been removed. For this valuation, estimates for aggregate series are presented as chain-type quantity indexes, with 1996 equal to 100. These indexes are computed using annual-weighted Fisher type indexes to obtain year-to-year growth rates, which are chained together to obtain cumulative growth rates. Current-cost valuation measures the value of these assets in the prices of the given period, which are end of year for net stocks and annual averages for depreciation. The estimates of private net stocks and depreciation presented here are computed in historical-cost, real-cost, and current-cost valuations, and investment data are presented in historical-cost and real-cost valuations. The average ages of net stocks are presented only for the current-cost and historical-cost valuations. Estimates for government assets are presented on a similar basis except that estimates of net stocks and depreciation are not presented in historical-cost valuation.

  2. These calculations don’t take the profits from real estate and ‘rentier’ capital into account. How do they relate to the falling profit rate for productive capital?

  3. Looks like one of the main features of the Long Depression era is the apparent process where capitalism is eating itself in order to survive in the face of a new growing socialist threat (China). We can see the heavy and sudden swings in the profit rate since 2016 at the least.

    Either way, the strategy of the capitalist class seems to be clear enough: they’re going to try to survive long enough until nuclear fusion energy becomes commercially and militarily feasible, which is expected to become a reality by 2100:

    US’ breakthrough in nuclear fusion targets at ‘nuclear weapon research, but far from practical use’

    Nuclear fusion is a technology that has the potential to, alone, ignite a new Kondratiev Cycle, thus saving the capitalist system for another 74 years on average. However, it this is not an absolute certainty and, even if it does, China (socialism) will also get it. No wonder the USA’s Shangri-La is not fusion energy per se, but a new generation of weapons capable of breaking the principle of MAD, which the USA since Trump (see the 2017 report on the concept of Prompt Global Strike, which gave birth to the B-21 “Raider”) sees as a major obstacle to the maintenance of the unipolar world order.

    In the short and medium terms, what capitalism needs to do in order to survive until fusion becomes a reality is to eliminate its unproductive, parasitic and heavily inflated middle class/petty bourgeoisie. These “zombie capitalists” and army of unproductive bureaucrats whose only role in the system is to consume (“consumer market”) have evidently become a burden to the reproduction of capital as a whole. In the USA specifically, this will mean the formation of bigger and ever more powerful oligopolies, specially Amazon (Bezos), which will be essential to the extermination of the American extremely inefficient and politically problematical petty bourgeoisie, which is heavily concentrated on the commercial sector and thus represent a huge factor on the subpar performance on its logistics. The petty bourgeoisie will then be converted into warehouse workers, that is, will become part of the proletariat.

    The next step the American bourgeoisie should take is to proletarianize its “professional class”/white collar working class. This should be no problem, as automation has advanced and spread far enough to make at least the main professions abundant to the point they can be made “low pay” (proletarianized). The democratization/massification of college education (which already is a reality in the USA), the continuation of the brain drain process from Third World countries (specially China and India) and the cultural revolution on the acceptance of the “gig economy” will do the rest.

    Probably, another major crisis will be necessary to make the process of extinction of the middle class irreversible. Whatever the case, the process we’re witnessing right now confirms Marx’s theory that capitalism, ultimately, tends to have only two classes: capitalist and proletarian — everything else being a historically specific aberration/distortion of the system.

  4. Thank you for your kind words and accurate observation of my work on circulating capital. May I return the compliment and commend you on your hard work, your reviews, your insights and your consistent defense of Das Kapital.

    Marx’s three great formulae which reveal the inner motion of capitalism, and which you elegantly expound upon in the article, all have one common denominator, v, thus s/v, c/v and s/(s+v). Here lies the importance of being able to distil annual compensation into variable capital or v. First a quick question, you say that the data prepared by Deepankur Basu and Evan Wasner allows for an estimate of variable capital. Could you please elaborate on that.

    I do not want to say too much as a comment here, but the importance of circulating capital is not simply the issue of the divergence of peaks and troughs in s/(c+v) compared to s/c. It lies elsewhere as well. The mantra of the FED is that the business or industrial cycle as Marx categorized it, is really an inventory cycle. And superficially it is. At the end of the up-cycle unsold inventories or stocks pile up sending a signal that production needs to be curbed, and at the end of the recessionary phase, stocks are depleted signaling that more production is needed. However, the FED has little or no explanation why inventories should pile up in the first place. They take it to be a natural cycle. Anyway.

    For our purposes, unless we understand the acceleration and deceleration in circulating capital which coincides with the inventory cycle, we cannot understand the crisis of realisation, and unless we understand the crisis of realisation we cannot understand the transition from the relative fall in the rate of profit to the absolute rate of profit which alone heralds a recession. In the phase of overproduction, for reasons I will not go into here, circulating capital decelerates, or what is the same thing the period between the purchase of the factors of production and their subsequent sale-payment extends, first by days then weeks. This requires more working capital (which becomes increasing costly as interest rates are driven up), and it takes longer to realize profits because the sale-payment period is extended by days then weeks. Consequently the mass of profits realised annually, falls. This in a nutshell is the transition to an absolute fall in the rate of profit together with a simultaneous absolute increase in short term debt, forming the scissors which cuts production.

    The point being made is that until the turnover formula was found revealing circulating capital, its movement could not be seen. The acceleration and deceleration which marks the crucial turning points in the industrial cycle remained hidden. I would urge your readers to view my analysis of the rate of turnover in Germany where the accuracy of the data allows us to even see how turnover accelerates into the Xmas period only to decelerate in the post-Xmas period, giving new meaning to the view that retail realizes half its annual profit in the run up to Xmas.

    Finally how accurate is the formula. I put it at between 80 and 90%, or good enough.

    Brian Green.

    1. From a theoretical point of view, there’s no mystery in the failure of realisation or a crisis of realisation: any value not realised is destroyed. It doesn’t affect neither OCC nor the velocity of circulation.

      1. It is a slow down in the velocity of circulation which destroys value because, without exception, the deceleration is always associated with discounting unsold stock. You have it the wrong way round. Marx is quite clear on this point. In the downturn commodities circulate in general at prices below their value.

      2. @ ucanbpolitical #2

        Not necessarily. Optimally (that is, assuming capitalism is functioning perfectly, is at its pinnacle), a capital that can’t realise its value will be eliminated. This capital can be big or small, fast or slow, high or low in OCC – there is no information a bankrupt capital gives us besides the fact that its profit rate must necessarily not be enough to keep its own valorization (but not realisation).

        Lower velocity of circulation doesn’t influence realisation, as circulation already assumes realisation is taking place. Lack of realisation implies in the absence, not the slow down, of circulation (unless you’re assuming the impossible scenario unrealised capital is distributed for free to whoever wants it).

        If a lower velocity capital can’t realise, its extinction would imply the rise, not fall, of the velocity of overall capital; if a higher velocity capital can’t realise, its extinction would imply the fall of the velocity of overall capital.

  5. Excellent presentation ! Question–don’t these charts underestimate the rate of surplus value? The share of wages compared to profits in the U.S. economy has fallen certainly since 1945 , but moreso recently. Isn’t the wage/profit share of the economy a surrogate for the rate of surplus value?

  6. The Basu and Wasner estimates also used the system of national accounts fixed capital estimates.
    They therefore fall on similar grounds to Michael’s.
    The system of national accounts do not measure fixed capital advanced, but are aggregates of future estimated profits.
    Unsurprisingly the picture they paint is hopelessly inaccurate, as they treat profits as a cost, as Joan Robinson explained during the Cambridge capital controversy.

    1. I really do not want to re-open the debate with you. I gave you the benefit of the doubt, used your source material, and tested your assumptions or better still definitions to destruction, and found that the stock of fixed capital as measured by you is wildly inaccurate actually 400% inaccurate whereas the BEA’s measurement is out by +-10%. If we were to use your assumptions, your rate of profit in Q2 of 2022 using operating income would be over 49% for the entire non-financial corporate sector. However, Apple, one of the most profitable companies in the world enjoyed a 27% rate of profit for the same period annualized based on their balance sheet and trading account


  7. Once again, you are using US profits data by govt that includes profits from financial investments, not just from sales of goods and services. This violates Marx’s definition of profits based on production of goods by productive labor only. Approximately one third of US Fortune 500 corporate profits are from financial asset investments. Also, US profits data reflects inaccurate inclusion of US multinational corporations from their offshore operations, where profits are defined differently from how US govt defines them. Also, what is meant by ‘rate’ depends on what base year you choose, which is arbitrary. In short, you cannot estimate profits and therefore the falling rate of same by reference to US govt profits reporting and data. You are using capitalist statistics to estimate Marx’s definition of profits (and rate) which do not conform to Marx’s definition of profits and exploitation.

    1. Jack, firstly the acronym for GDP stands for Gross Domestic Profit, aka profit produced in the USA by US corporations and foreign affiliates based in the USA itself. So no foreign profits accruing to US firms are included. So that is not the problem. The problem lies in the hidden transfer of profits to the USA mainly caused by the (hidden) underpricing of imports which boosts profits, particularly in the the manufacturing, wholesale and retail sector.

      The second issue is the denominator. In replying to Bill I deliberately used Apple whose hardware in terms of components and assembly are produced elsewhere (Taiwan, South Korea and China mainly) and with foreign fixed capital. As a result of this offshoring of production and assembly, Apple’s fixed capital is reduced to mainly structures in the USA and Intellectual Property underscoring that Bill’s assertions are without merit. The overall point I am making is that the offshoring of manufacturing and assembly has reduced the amount of fixed capital in the USA itself. In turn this reduction in the capital denominator has led to a rise in the rate of profit.

      It is this boost to profits courtesy of the transfer of value as well as the reduction in capital which are the primary reasons the rate of profit recovered in the USA to plateau around 2013-4. I will go further, it was the subsequent sharp fall in the industrial rate of profit post-2014 in the USA and globally which marks the beginning of the end of globalisation and subsequently to the flare up of inter-imperialist tensions.

    2. 1. Financial profits for non-financial corporations can be adjusted by restricting the numbers to operating income and profits
      2. It makes little sense to complain that 1/3 of Fortune 500 corporate profits are from financial operations without recognizing that the Fortune 500 includes banks, insurance companies and other financial corporations. The Global 500 is stacked with such institutions. Plus, what’s the rationale for excluding financial profits from the total when Marx makes it very clear that financial profits are deductions from enterprise profits but NOT from the overall extraction of profit?
      3. There general, international accounting standards that are supposed to mitigate “national differences” in categorizing income, sales, profits, etc. If Michael were to eliminate profits for offshore operations, Jack would respond by pointing out that foreign operations account for 30% of US corporate revenue and Michael was thus relying on a partial picture.

  8. The simple truth is that the BEA, United Nations, OECD, Eurostat, BLS etc. all say the same thing – that the stock “value” of an asset is the discounted flow of future income streams it generates. They insist that these estimates are not based on capital advanced, and emphasise that these measures are conceptually different from accounts estimates of the actual cost of capital advanced. For example the OECD;

    The central economic relationship that links the income and production perspectives to each other is the net present value condition: in a functioning market, the stock value of an asset is equal to the discounted stream of future benefits that the asset is expected to yield, an insight that goes at least back to Walras (1874) and Böhm-Bawerk (1891).

    Click to access 43734711.pdf

    That figure is not related to the amount of capital advanced in anyway. That is just true.
    The use of these conceptually, and actually, wrong neo-classical valuations of the FCS, means any estimate of the rate of profit based on them is essentially fictional.
    In fact the current valuations in the SNA produces a figure which is far larger than 400% of the IRS figure for depreciable assets less depreciation, not less, and certainly not marginally different as you claim.

  9. If you take the SNA net historic cost stock of FCS it is around 4 times higher, if you take the net current cost stock of the FCS it is around 6 to 7 times higher.
    You use the IRS figure for total assets to claim that this is closer to the SNA figure, but this is not a measure of fixed capital advanced.

  10. Some thoughts on the rate of profit
    The need to accumulate more and more value in fixed assets as well as use more and more constant capital, is closely related to the pressure of nature as well as of society. For example, if the climate is getting colder, people will have to use more and more energy to keep warm, which leads to increased investment in energy extraction and production facilities. If the land becomes more and more infertile, it will also have to invest more in fertilizer factories, and increase investment in land reclamation. If the population is aging, it will also increase costs on the social welfare system. If geopolitical uncertainty increases, it will also increase logistics costs.
    The profit of an individual capitalist is the portion realized from the surplus product produced by his workers. The profit of all capitalists is nothing more than the total surplus value produced by the working class. According to the law of conservation of energy, nothing is naturally created and nothing is naturally lost. All products produced, including surplus products, must be paid for in energy. Once energy is used, it never comes back. So where do all surplus products go, they disappear? All of them are accumulated into fixed assets and the population to use in next capital cycles. After all, man is also a machine in the capitalist mode of production. In order for people to live and work, they must be energized through food. In terms of value, that is, abstract labor, only humans can create value. But in terms of energy, people and machines are the same.
    As above, all surplus product will be accumulated as potential energy in fixed assets and population. To ensure that the rate of profit does not decrease, in a capital cycle, the ratio of the potential energy accumulated to the total energy used must be greater than or equal to a fixed rate. The question here is at a certain point, will the battery still store more energy? When the battery is full, to store more energy, the system will have to add new batteries or upgrade the old ones. There are ways to add more storage to “the battery system”:
    1. Prolong working time. – This method depends on the biological and physical limitations of the worker.
    2. Positive population growth. – Currently showing a trend of decreasing population growth rate. In developed countries, the natural population growth rate is negative.
    3. Increase the skill level of workers. – This method also depends on the biological and physical limitations of the worker.
    4. Expansion of factories, machinery, mines, cultivation areas, livestock farms, infrastructure, urban areas,… – This way has an upper limit of the 3D volume of the earth. To expand in this way, humanity must expand its base into space.
    5. Invest in new production lines, new technologies with higher efficiency. – Because machines cannot upgrade themselves, only humans can. However, in the capitalist mode of production, people are mechanized, so the capacity to work creatively is degraded.
    6. Is building more real estate and increasing gold reserves considered to increase the capacity of the “battery system”? The answer is yes if and only if in the future there is enough population and industrial force to absorb all that energy.
    7. Will the creation of financial products save the day? The answer is yes if and only if the entire real production system is still well maintained. However the financial system is not free, it also consumes energy, look how bitcoin consumes energy. If the financial system overheats, it will burn off the energy of the real production system, leading to hyperinflation.
    Right now, I see no way to keep the rate of profit from falling.

  11. All long papers start out as short papers! The neo-classicals treat the fixed capital stock like an assignat, a purchase, or investment in, a title to a future revenue stream. The valuation of that assignat is the annual revenue multiplied by the expected duration of the revenue stream, in other words if the asset yielded 100 pounds a year and it lasts for ten years then the value of the asset is 100×10 = 1000. Depreciation or the consumption of fixed capital (the term CFC is deliberately used so as to emphasise this is not depreciation as traditionally understood by accountants) measures the decline in these revenue streams over several years and reduces the aggregate valuation by this amount. The perpetual inventory method measures the positive or negative changes to that aggregated revenue stream.
    As no capitalist would make an investment if it reduced their profit rate then this amount (the aggregated revenue stream) must by definition be higher than the actual cost of the investment or the amount of fixed capital actually advanced. If you take the IRS depreciable assets less depreciation as an estimate of the fixed capital advanced, then the net estimate of the SNA is around 400% higher for historical cost and 600-700% higher for current cost. Irrespective the SNA measures are not estimates of fixed capital advanced but of opportunity costs – future expected revenue streams.
    If you read the primers in a materialistic way – not the way they are used by the BEA – then its very easy to be misled, however, there is no mystery about the method, if you click on the supplementary documents it is explained very clearly.
    The question is how do the BEA define “market price” or the “real cost” or the “real price” of the asset – paradoxically, this is not the actual market price, real cost or real price, but the opportunity cost. This BEA document “Fixed Assets and Consumer Durable Goods in the United States 1925-97”

    Click to access Fixed-Assets-1925-97.pdf

    states unambiguously that “In principle, the current-cost net stock is the market, or replacement, value of the stock; that is, the value for which the assets in the stock could be bought or sold in that year. In equilibrium, this market value will equal the present value of all expected future services embodied in existing assets.” M-8
    The OECD explain how the BEA use the “Hulten and Wykoff” methods here;
    “The value of this asset at the beginning of period t, P0t , to its owner corresponds to the discounted stream of future incomes generated by the asset.”

    Click to access 43734711.pdf

    The methods used for the SNA do not measure the past amount of capital advanced and it really is as simple as that.

    1. Read this:

      BEA provides historic, real, and current cost estimates of fixed assets. The current cost should IN THEORY (i.e. the theoretical equilibrium state of capital) be available in the market at a price that includes expected values of anticipated production. That’s how the bourgeoisie account for “moral depreciation.” Short version: Price is always subject to temporal distortion. That’s why we measure the TREND. It is just that simple..

      1. As I pointed out earlier if you only read the primers/introductions then you can be mislead. Yes the BEA produce historical, real and current cost estimates of the value of fixed assets – but these values are neoclassical aggregates of their future services flows, not past estimates of the capital advanced to install them.
        As the US Treasury Department explain;
        “Hulten and Wykoff begin by positing that the value of a building is a function of its age and its date of acquisition. The notion that the age of a building may affect its value is easily understood. Standard capital theory tells us that the value of an asset should equal the sum of the discounted net revenues the asset will generate in the future (net of operating costs but not depreciation). Aging will diminish this value even if net revenue is constant in each year of an asset’s life, because the stream of future net revenues grows shorter. In addition, the asset may lose efficiency or become obsolescent as it ages, in which net revenue will ·decline with age and the value of the asset will fall more rapidly.122

        Click to access Report-Compendium-1978-Part4.pdf

      2. Bill,

        Where in the discussion of BEA information and/or methodologies ON ITS WEBSITE does it say fixed asset values are priced the way you claim they are priced?

      3. I direct the careful reader to, page M-8 (pdf p 14) of the chapter on “Concepts and Methodologies,” the section on Valuation. Nowhere in that section do I find anything that states BEA valuations of fixed assets include future anticipated revenues. Now my eyesight isn’t what it was, but I remember reading this same section 20 years ago and not seeing anything about valuations being adjusted for future “flows.”

        So where is the evidence for this assertion by BJ. Or is this another “introduction” or “primer” that misleads?

      4. And one last thing, as Bert said to Ernie– the issue of depreciation. When BEA says that in equilibrium (IMO, “in theory”) the value of the depreciated fixed assets should be equal to the total revenues derived from their future use– that is perfectly in keeping with Marx’s analysis of fixed capital– that the instrument of production that are fixed give up their value incrementally over time– therefore the remaining value after depreciation is the value that will be transferred to the circulating capital over the time of utilization–until the time of the exhaustion of the fixed asset’s use value. Now that the capitalist discounts those flows based on not just the physical depreciation, but also the moral depreciation as new and more efficient assets are introduced, is a fundamental recognition of Marx’s labor theory of value– where the value of a commodity is determined by the socially necessary time of its REPRODUCTION.

        This principle is particularly evident in the resale market for used locomotives in the railroad business where the purchase of such assets is a calculation based on the higher unit operating costs, offset by the lower capital cost, is still able to return a margin of profit over the anticipated time of use of the asset. That’s exactly the calculation capitalism makes regarding investments– so if that’s what BJ thinks is a problem, making fixed asset valuations “unMarxist,” he needs to take that up with Marx, as those calculations are the real demonstration of Marx’s critique.

  12. Bill you state that the using current cost vs the historical costing of the stock of capital results in a variation of 50% in the rate of profit or in your terms current cost is overvalued by 600% vs 400% for historical cost. But this is a nonsense. The variation depends on the intervening rate of inflation. When inflation is low in the intervening period the two rates of profit converge. Hence what we are talking about is not discounted cash flows, but the depreciation of money itself. In other words the variation depends on this metric alone, the more money depreciates, i.e. the higher inflation, the greater will be the variation in rates.

    This being so let us walk the walk. GDP is based on final prices, final prices are real market prices, or prices of production measured by means of current money. This applies as much to articles for investment as it does for articles for consumption. The market treats investment goods just as it would articles of consumption otherwise competition would be a joke. Thus GDP should be equal to consumption plus investment plus the balance of trade. (Included here is government consumption and investment.)

    Thus net investment has to be the difference between gross fixed investment (which is real) and depreciation. Theoretically the stock of capital in current money should be growing by the amount of the net investment. And lo and behold it does. Well more or less. There is about 5% worth of adjustments (not 500%) and about 4% worth of imputations (mainly research and development as well as forms of software). How do I arrive at this 5% figure not 500% figure, well I wait for Fixed Asset Table 5.10 to appear which it does late in the year and then I hurry to line 58 to obtain the adjustments. See for yourself:

    You once told me not to underestimate the quality of the BEA, I suggest you do the same. (Michael, please look, at this Table before you complete your article unless you have done so already.) As Marxists we need to go below the level of appearance to look at the actual or what is the same thing, we need to go below the level of definitions to look at the actual adjustments.

  13. No one doubts your respect for neo-classical statistics. What are these changes to the value of productive assets? According to the BEA:
    “The value of an asset changes as the result of depreciation and revaluation./6/ Depreciation is the change in value associated with the aging of an asset. As an asset ages, its price changes because it declines in efficiency, or yields fewer productive services, in the current period and in all future periods. Depreciation reflects the present value of all such current and future changes in productive services.”
    Current cost estimates of the fixed capital stock are aggregates of discounted income streams in the present, historic cost estimates of the fixed capital stock are aggregates of discounted income streams at the point of purchase.
    The table you link to shows the variation in the changes to these estimated aggregate income flows.
    Current cost estimates are larger than historic cost estimates due to inflation. Considering two years for comparison purposes.
    US $ bn
    Table 3.3ESI. Historical-Cost Net Stock of Private Fixed Assets by Industry
    Table 3.1ESI. Current-Cost Net Stock of Private Fixed Assets by Industry
    IRS Total Industry Depreciable Assets Less Depreciation
    Year 2000 SNA/IRS 2017 SNA/IRS
    SNA historic 13598 4.7 28309 5.9
    SNA current 22706 7.9 45177 9.4
    IRS DALD 2892 4783

    The historic or current SNA aggregates of discounted income streams are far higher than the past amount of capital advanced. Hence, any use of these estimates will grossly overestimate the value of the fixed capital stock and grossly underestimate the rate of profit. (The IRS Total Assets are not estimates of fixed capital advanced as they include all assets; govt securities, loans, etc i.e. lots of fictional capital in general).

  14. I have no expertise in in evaluating government statistics so other than registering my despair that while the cosmological community has a fair grasp of the age of the universe and the date of the origin of life seems well in hand, eminent Marxist scholars can’t even agree on what constitutes such a key metric as the rate of profit, I have nothing to contribute to that debate.

    Still, I’ve been alive for most of the period covered by Dr Jefferies’ study and in that span, indeed even in the past 20 years, I have seen repeated large scale breakdowns of the capitalist system requiring massive state interventions to preserve the entire structure from collapse. And these exertions have all had a more or less obvious and ad hoc desperation to them. Not even their proponents and apologists attempt to justify them as anything other than regrettable makeshifts necessary to stave off immediate catastrophe. And yet to read Dr Jefferies’ paper it seems that capitalism, to judge by its (arguably) most basic vital sign, has been in rude health the entire time.

    I don’t necessarily think that a falling rate of profit is the only possible or currently active cause of capitalist crisis, but those crises, persistent low-to-negative real interest rates, low levels of business investment, plus flat-lining productivity all seem hard to reconcile with strong profit growth.

    I suppose autobiography makes for poor history, but perhaps it can help place statistics in context? If the rate of profit has been so robust, why all the drama?

    1. “I don’t necessarily think that a falling rate of profit is the only possible or currently active cause of capitalist crisis, but those crises, persistent low-to-negative real interest rates, low levels of business investment, plus flat-lining productivity all seem hard to reconcile with strong profit growth. ”

      They are not hard to reconcile: they’re impossible to reconcile without a rising and high enough profit rate:

      Interest rate is literally a discount of the profit rate. Interest is profit.

      A capitalist will only invest if he has the prospect to profit from it.

      Productivity of labor is the only source that makes any investment profitable.

  15. Barbara M. Fraumeni’s article “The Measurement of Depreciation in the U.S. National Income and Product Accounts” on the BEA website
    explains that “Depreciation is the change in value associated with the aging of an asset. As an asset ages, its price changes because it declines in efficiency, or yields fewer productive services, in the current period and in all future periods. Depreciation reflects the present value of all such current and future changes in productive services” she also notes that;
    “In BEA calculations, in the absence of investment, geometric depreciation is calculated as a constant fraction of detailed constant-dollar net stocks. In most cases, the rates of geometric depreciation are based on the Hulten-Wykoff estimates” (Hulten and Wykoff 1981b).
    Hulten and Wykoff explain that “We define economic depreciation as the fall in an asset’s price as it ages. Following Hotelling (1925), Hall (1968), and Jorgenson (1974), we assume efficient and competitive capital markets in which, under perfect certainty, the acquisition price of an asset will equal the present discounted value of the future flow of after tax user costs, inclusive of tax credits and depreciation allowances, up to retirement plus the present value of any retirement value of the asset.”
    The key conceptual point to note is that these discounted aggregates of future services would only equal costs, they would only equal capital advanced, if there were no profits. Those who argue it makes no difference whether you use aggregates of future services or measures of actual capital advanced are essentially arguing that there are no profits – a curious assertion given that these measures of fixed capital stock are to be used in estimating the profit rate.
    The real difference is very large indeed but varies according to which SNA measure of the fixed capital stock you care to choose. Given that all these measures are essentially fictional this is basically just a matter of taste.
    On the separate issue of how to explain the crises and bubbles of the last three decades if profit rates were not falling. Actually this presents no difficulty at all, firstly there are the specific historical reasons related to the given crisis itself, the hi-tech bubble, the housing bubble etc. secondly Marx’s theory of crisis does not rest on falling profit rates alone, it includes the anarchy of production, disproportionality, under consumption and the tendency of the rate of profit to fall.

    1. So, what is the USA’s true profit rate then? Give us your numbers.

      And this part:

      “The key conceptual point to note is that these discounted aggregates of future services would only equal costs, they would only equal capital advanced, if there were no profits. Those who argue it makes no difference whether you use aggregates of future services or measures of actual capital advanced are essentially arguing that there are no profits – a curious assertion given that these measures of fixed capital stock are to be used in estimating the profit rate.”

      Is absolutely wrong. It makes no logical sense. You’re assuming the linear passage of time, by itself, create profits. Well, if the mere passage of time generates profit, then there would be no need for capital advanced in the first place: humans would just sit idle and wait for progress to happen by the pure action of Kronos.

      In the real world, the capitalist knows exactly how much he advanced and how much he needs to “earn” after the rotation of said capital is over in order to make a profit or a loss, and how much exactly he/she profited or lost. If the Marxist methodology is applied, worst case scenario there’s a problem with approximation.

      The capitalists may mask and falsify any data they want – except the profit rate.

      1. Not at all – I’m simply recounting what the SNA do – the SNA’s neo-classical Hulten and Wykoff estimates of the fixed capital stock – simply assume that services accrue in the future – which makes no logical sense – agreed – which is why they should not be used. There is a difference between economists depreciation – a neo classical measure used in the national acccounts – and accountants depreciation – the actual measure of what is going on in a business or sector. These form the basis for the IRS dataset that I use. My estimates of the profit rates are here
        The US rate of profit 1964–2017 and the turnover of fixed and circulating capital

        the article is open access.

    2. “secondly Marx’s theory of crisis does not rest on falling profit rates alone, it includes the anarchy of production, disproportionality, under consumption and the tendency of the rate of profit to fall.”

      Bill gets it almost right. Indeed Marx’s “crisis theory”– and the existence of a worked out theory of crisis in Marx’s work is debatable–does not “rest on falling profit rates alone.” That’s because Marx always regards “crisis” as a short-term occurrence, representing a moment in capital reproduction, while the FROP is the long term tendency or trend that identifies the forces immanent to and in capital reproduction that present systematic obstacles and limits to that accumulation over extended periods.

      In vol 3, and I think also in the Grundrisse, makes a couple of connections between crisis and FROP, as the countervailing factors to the FROP exacerbate the underlying tendency of capital to….. the very thing Bill omits from his list of causes…. overproduction. And I don’t mean or need to speak for Michael, but it is evident that almost all of Michael’s work is exploring precisely that connection between the long term trend and the short term actions and reactions.

      That’s one, or two. Secondly, or thirdly, the argument Bill makes is solely relevant to depreciation calculations. Of course, it’s easy, but tedious, work to adjust final numbers for net PPE, and fixed assets values for “simple” depreciation — stripped of anticipated flows. It might be rude to ask Bill if he’s ever “corrected” FA values and used his corrected value to recalculate and compare ROPs to those rates calculated using the “standard” value. OK, I’m just that rude, so Bill, can you give use an idea of the magnitude of discrepancy we’re dealing with and, more importantly, the variance in the trend of the rate of profit over time..

      I remember way back in the early part of this century an argument made by a well-know Marxist defender of the FROP, who when confronted with the uptick in US industrial profitability between 1992-1997/8, thought that to defend the FROP analysis, the uptick had to be fictitious.

      He claimed then that the profits were merely paper entries derived from……accelerated and increased rates of depreciation.

      Of course, if such accounting machinations were really at the heart of the matter, then real investment should have declined, real cash flows should have been flat or reduced in the 92-98 years, and… the resulting contraction in 2000-2001 should never have occurred. But real investments in plant and equipment did increase. Real cash flows were greater. And the profits booked in the 1992-1998 period were real profits which elevated the values of plant, property, and equipment, which values then fell dramatically as the accumulated profits were themselves offset by the real losses in 2000-2002.

  16. There are 4 concurrent crises facing capitalism. Firstly, the crisis of reproduction caused by the rate of profit resulting in systemic falls in standards of living. Machine learning exacerbating the contradiction between the forces and relations of production. The climate emergency brought on by capitalism’s abusive relation to nature. Finally, the hegemonic struggle threatening World War III. These are all maturing this decade and I for one do not believe capitalism has the capacity to resolve them even on the backs of workers. Let us be clear, capitalism hitherto has been able to resolve its recurring crisis on the backs of its workers and nothing else. The bigger the crisis the more reliance on the backs of workers. But he question is now posed, are these inter-related crisis too big for the backs of workers?

    However, within this all of this the rate of profit reigns supreme. It will always be the lightning rod. Michael and I disagree over the period. I have always rejected his ‘Great Depression’ thesis after 2008 as Western Centric. My view is that capitalism entered a period of prosperity popularly known as Globalisation from the mid 1990s which endured to no later than the end of 2015. A twenty year Goldilocks period for global capitalism interspersed by two recessions which were actually caused by the embarrassment of riches during this period of globalisation and innovation looking for outlets. But this ended in 2013-4 when the rise in the global rate of profit ended, giving way to a sharp fall which in turn led to a fall in turnover and investment. The fall was enduring and systemic. In the USA, the fall in the rate of profit in the manufacturing sector between 2014 and 2019 was over 40%. Such a fall is always associated with recessions but thanks to easy money the global economy skirted around this both at the end of 2015 and again in 2019. However, the point being made, is that it is this fall in the rate of profit which ended globalisation and which gave rise to the struggle between the US and China, and not the other way round. It is the fall in the rate of profit which will accelerate machine learning and it is the fall in the rate of profit which will make capital’s relation with nature more abusive.

    Michael you are instructed to rest over Xmas. Legs up pen down.

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