Long-Term Trends in Profitability

It is accepted doctrine among economists that the rate of profit in the United States has declined since the mid-1960s. What is less a matter of agreement is whether this decline represents a stage in a long-term secular decline. In a recent article, Dumenil, Glick, and Rangel (1987) reviewed the existing empirical evidence on this topic and found that, independent of variation in the definition of the rate of profit, any series extending back to 1929 reveals a stable or increasing trend. Although two periods of serious decline exist—after World War I and in the late 1950s—they are connected by a "leap forward" during World War II. In fact, in any measure that does not subtract taxes from profit, World War II coincides with a considerable restoration of the rate of profit.

The purpose of the present study is to investigate more carefully this leap forward in profitability. In the first part we will fully explore the statistical characteristics of the leap forward. Specifically, we will compare the leap forward with earlier and future fluctuations and trends in profitability (an effort will be made, in spite of the deficiencies of the data, to cover a period of 120 years). We will further determine whether the leap forward is invariant to the choice of the definition of the rate of profit or whether it can be explained by a specific choice of statistical categories. The second part will consider whether the leap forward is the expression of changes in the relative price of fixed capital or a variation in the workweek of capital. The final part will explore whether the leap occurred in specific industries or whether it was a general feature of the economy. In the conclusion, we will discuss a number of further alternative explanations.