Abstract
This article proposes a simple new model that helps to analyze the long-term movement of the profit rate. The article applies the new model to the United States and China, the world's two largest economies, to illustrate how the new model may help analyze the global capitalist crisis in the 21st century. In the new model, the long-term movement of the profit rate depends on the long-term average economic growth rate and the ratio of accumulation. As the capitalist economy stagnates and ecological sustainability imposes constraints on future economic growth, capitalism may have exhausted its historical capacity to check the tendency for the rate of profit to fall.
Highlights
Thomas Piketty’s book, Capital in the Twenty-First Century, has received widespread attention
The article applies the new model to the United States and China, the world’s two largest economies, to illustrate how the new model may help analyze the global capitalist crisis in the 21st century
The long-term movement of the profit rate depends on the long-term average economic growth rate and the ratio of accumulation
Summary
The “Law of the Tendency for the Rate of Profit to Fall” was one of the most important propositions on political economy developed by Karl Marx. While Marx proposed the tendency toward rising organic composition of capital, Piketty argues that when the capitalist rate of return is sufficiently large relative to the economic growth rate, there is a tendency for the “capital-income ratio” to rise (what Piketty calls the “capital-income ratio” is similar to what modern Marxist political economists call the “capital-output ratio” and related to Marx’s “organic composition of capital”). Piketty proposes what he calls the first and the second “Fundamental Law of Capitalism.”.
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