Did the US rate of profit trend upwards from 1982 and when did it peak? The debate/argument continues among Marxist economists. And behind this debate about the facts is the analysis. If the rate of profit did rise from 1982 onwards, how can Marx’s law of the tendency of the rate of profit to fall play any role in explaining the financial crisis and the Great Recession of 2007-9?
First, did the rate of profit in the US rise from 1982? The evidence is pretty conclusive: it did. In a paper on this presented last summer to the Association of Heterodox Economists (The profit cycle and economic recession), I summarised all the recent studies on this question along with presenting empirical evidence of my own. Let me quickly run through what I found.
Measuring the rate of profit (ROP) by closely as possible to the Marxist categories of surplus value and constant and variable capital (what Dumenil and Levy call “a la Marx” – see G. Duménil, D. Lévy, “The Crisis of the Early 21st Century: General Interpretation, Recent Developments, and Perspectives“, 2011), Simon Mohun found that [i] “that US capitalism is characterised by long secular periods of falling profitability and long secular periods of rising profitability and crises are associated with major turning points”. Mohun’s turning points seem to be a 1946 trough in profitability, a 1965 peak, a 1982 trough and a 1997 peak – similar to mine. Li Minqi, Fenq Xiao and Andong Zu[ii] looked at the movement of the profit rate and related variables in the UK, the US, Japan, and the Euro-zone. According to them, since the mid-19th century there have been four long waves in the movement of the average profit rate and rate of accumulation. They find a peak at 1997 in the ROP for the US. David M Kotz[iii] uses an after-tax rate of profit measure of the nonfinancial corporate business sector as a percentage of net worth. Kotz finds that the US ROP rose rapidly to 1997. Then it peaked and fell sharply thereafter. Anwar Shaikh[iv], using another measure of ROP as profits of enterprise, which excludes rent, interest and taxes, finds that the US ROP peaked in 1997. George Economakis, Alexis Anastasiadis and Maria Markaki[i] measure the Marxist rate of profit by the net product less employee compensation divided by net fixed capital of US non-financial corporates, which is very close to my broader measure. They find that the ROP rose from 10.6% in 1946 to a peak of 19% in 1966, falling back to 9.6% in 1983 and then rising to a peak of 18.2% in 1997, before dropping back again remaining under the peak of 1997 thereafter. They also find that adding the financial sector into the equation makes no difference to the turning points or trend of the ROP. And Erdogan Bakir and Al Campbell find that US after-tax profit rate peaked in 1997 at about 7.5% before falling back and the next peak in 2006 was still below that of 1997.[ii]