Is the Rate of Profit Falling?

Abstract

THE PRETAX net rate of return on corporate capital reached a thirty-year low in 1974 of only 6.4 percent, according to the estimates that we develop in this paper. Although profits have rebounded substantially since then, there is still a widespread suspicion that the rate of profit may have been declining over a number of years. A primary purpose of this paper is to use the new official estimates of profits, capital consumption, and the capital stock to assess whether such a decline has in fact occurred. In a widely cited paper written a few years ago, William Nordhaus concluded that the rate of profit has been falling and attributed this decline to the higher capital intensity that resulted when investors shifted funds into the corporate sector because their perception of the risk of such investment declined.' Important revisions in the national income accounts data on profits and in the corresponding estimates of the capital stock have become available since Nordhaus did his work. Moreover, Nordhaus' conclusion was based on his visual inspection of the data and not on any for-