The Decline of the Rate of Profit in the Postwar U.S. Economy: An Alternative Marxian Explanation

Abstract

This paper presents an explanation of the decline of the rate of profit in the postwar U.S. economy which is based on Marx's distinction between productive labor and unproductive labor. According to this theory, the conventional rate of profit depends on the rate of surplus-value, the composition of capital, and the ratio of unproductive labor to productive labor. Estimates of these variables are presented which suggest that the main cause of the decline of the rate of profit was a very significant increase in the ratio of unproductive labor to productive labor. This explanation is contrasted with the "profit squeeze" explanations presented by Weisskopf and Wolff, and a post-period empirical test is conducted to evaluate the relative predictive ability of these competing explanations. The results of this test suggest that the alternative Marxian explanation presented here is the most consistent with the absence of a significant increase in the rate of profit in the past decade.