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Financialization, the Great Recession and the Rate of Profit View metadata, citation and similar papers at core.ac.uk brought to you by CORE provided by Lund University Publications - Student Papers Master programme in Economic History Financialization, the Great Recession, and the rate of profit: profitability trends in the US corporate business sector, 1946-2011 Themistoklis Kalogerakos [email protected] Abstract: The tendential fall in the rate of profit lies in the center of a long-lasting debate among Marxist scholarship on its centrality and empirical relevance in the investigation of structural crises. Without neglecting the financial aspect of the current crisis, which is covered in the vast majority of academic accounts, we try to discover its underlying roots in the entire spectrum of capitalist production in the US, in reference with that debate. Our empirical evidence indicates that the US economy experiences an inability to recover profit rates to the high levels of the first postwar decades on a sustainable basis. It is proposed that this is due to the reluctance of policy makers to allow the vast destruction of unproductive capital, because such a process entails a potential systemic risk for the established socioeconomic and political status-quo. Key words: Falling rate of profit, US economy, structural crisis, Great Recession, Marx, financialization, profitability trends EKHR61 Master thesis (15 credits ECTS) August 2013 Supervisor: Anders Ögren Examiner: Kerstin Enflo Website www.ehl.lu.se Themistoklis Kalogerakos EKHR61 Economic History: First Year 870106-5495 Independent Research Table of Contents TABLE OF CONTENTS ................................................................................................................................ 1 LIST OF FIGURES ....................................................................................................................................... 2 LIST OF TABLES ......................................................................................................................................... 3 LIST OF ABBREVIATIONS .......................................................................................................................... 4 1. INTRODUCTION .............................................................................................................................. 5 1.1. AIM, HYPOTHESIS, AND OUTLINE OF THE THESIS ...................................................................................... 6 2. THEORETICAL FRAMEWORK............................................................................................................ 8 2.1. THE “LAW OF THE TENDENCY OF THE RATE OF PROFIT TO FALL” ................................................................ 8 2.2. MARXIAN THEORY OF CRISES ............................................................................................................... 9 2.3. THE LAW OF THE TENDENCY OF THE RATE OF PROFIT TO FALL AS THE MARXIAN INTERPRETATION OF CRISIS AND CRITICISM TO IT ............................................................................................................................................ 12 3. DATA AND METHOD ..................................................................................................................... 15 3.1. MAIN DATA SOURCES AND BASIC METHODOLOGY .................................................................................. 15 3.2. QUALITATIVE AND QUANTITATIVE METHODOLOGICAL ISSUES ................................................................... 16 3.2.1. Current-cost (CC) vs. historical-cost (HC) valuation of the net stock of fixed capital ............ 16 3.2.2. Profit flow measures ............................................................................................................. 17 3.2.3. Why the US corporate business sector? ................................................................................ 19 4. HETERODOX INTERPRETATIONS OF THE CRISIS ............................................................................. 20 4.1. A SMALL NOTE ON THE HISTORICAL DEBATE ON THE STAGFLATION CRISIS.................................................... 20 4.2. THE CURRENT DEBATE ..................................................................................................................... 22 4.2.1. The financialization approach .............................................................................................. 22 4.3. THE DISPUTE OVER PROFITABILITY TRENDS ........................................................................................... 24 5. RESULTS ........................................................................................................................................ 26 5.1. PROFIT RATES ................................................................................................................................ 26 5.1.1. Current-Cost (CC) Profitability Trends ................................................................................... 27 5.1.2. Historical-Cost (HC) Profitability Trends ............................................................................... 31 5.1.3. Concluding remarks with regard to profitability trends ....................................................... 34 5.2. ORGANIC COMPOSITION OF CAPITAL (OCC) ......................................................................................... 36 5.3. RATE OF ACCUMULATION ................................................................................................................. 38 5.4. DECOMPOSITION OF THE PROFIT RATE ................................................................................................ 42 6. CONCLUSION ................................................................................................................................ 44 REFERENCES ........................................................................................................................................... 46 APPENDIX A ................................................................................................................................................ 54 Descriptive Statistics ........................................................................................................................... 54 APPENDIX B (ENDNOTES) ....................................................................................................................... 55 1 Themistoklis Kalogerakos EKHR61 Economic History: First Year 870106-5495 Independent Research List of Figures Figure 1. Share of Employee Compensation (L), Wage and salary accruals (W), and Total Average Weekly Earnings (secondary axis) in the Net National Income, 1946-2011, Annual Figures with HP-filtered trends ............................................................................ 20 Figure 2. Profit rates, US Corporate Business Sector, 1946-2011 (Current-Cost Net Stock Valuation), Annual Figures with HP-filtered trends ......................................................... 27 Figure 3. Profit rates, US Nonfinancial Corporate Business Sector, 1946-2011 (Current- Cost Net Stock Valuation), Annual Figures with HP-filtered trends................................ 28 Figure 4. Share of Corporate Financial Profits (Before-Tax) in Total Corporate Before- Tax Profits, 1946-2011, Annual Figures with HP-filtered trends ..................................... 31 Figure 5. Profit rates, US Corporate Business Sector, 1946-2011 (Historical-Cost Net Stock Valuation), Annual Figures with HP-filtered trends ............................................... 32 Figure 6. Profit rates, US Nonfinancial Corporate Business Sector, 1946-2011 (Historical-Cost Net Stock Valuation), Annual Figures with HP-filtered trends ............. 32 Figure 7. TSVR and Organic composition of capital (secondary axis), US Nonfinancial Corporate Business Sector, 1946-2011, (Current-Cost Net Stock Valuation), Annual Figures with HP-filtered trends ......................................................................................... 36 Figure 8. Scatter Diagram, TSVR and Organic Composition of Capital, US Nonfinancial Corporate Business Sector, 1946-2011 (Current-Cost Net Stock Valuation), Annual Figures with Linear Trend ................................................................................................ 37 Figure 9. Scatter Diagram, TSVR and Rate of Accumulation, US Corporate Business Sector, 1946-2011 (Current-Cost Net Stock Valuation), Annual Figures with Linear Trend ................................................................................................................................. 39 Figure 10. TSVR and Rate of Capital Accumulation, US Corporate Business Sector, 1946-2011 (Current-Cost Net Stock Valuation), Annual Figures with HP-filtered trends ........................................................................................................................................... 40 Figure 11. Share of Net Dividends in After Tax Profits, US Corporate Business and Nonfinancial Corporate Business Sector, 1946-2011, Annual Figures with HP-filtered trends ................................................................................................................................. 41 Figure 12. TSVR and Profit Share (secondary axis), US Corporate Business Sector, 1946- 2011 (Current-Cost Net Stock Valuation), Annual Figures with HP-filtered trends ........ 43 Figure 13. TSVR and Output-Capital Ratio (secondary axis), US Corporate Business Sector, 1946-2011 (Current-Cost Net Stock Valuation), Annual
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