The sources of profitability

Flaschel, Peter; Fröhlich, Nils and Veneziani, Roberto

This paper is built around a theorem proved analytically and exemplified empirically in Flaschel, Franke and Veneziani (2010) which states that profitable capital-using labor-saving technical change is under mild conditions always reducing the labor content of commodities. This type of technical change therefore increases Marx’s value rate of profit in a systematic way. Against this background the paper studies the relationship between the actual value and price rate of profit and derives expressions that show that the deviation between them may be of a secondary and unsystematic nature. This result is then exemplified empirically using flow as well as stock matrix data for the German economy. The paper argues on this basis that prices of production are in fact of a questionable nature and an unnecessary detour in the input-output oriented analysis of the profitability nexus between total labor costs and the actual prices of the considered commodities.

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