Analysing the world rate of profit: A new approach

Abstract

Profitability is the driver of capital accumulation and a key factor for economic growth and crisis. This thesis examines the Marxian law of the tendential fall in the rate of profit. To control for the impacts of scope, definition, and data sources on the results, the thesis maps four different definitions to different data sources to derive the world rate of profit. A downward trend for the rate is consistently found from 1952 to 2019.

Compared to previous studies on the world rate of profit, this study covers the largest number of countries (32) over a 68-year period for which data is available; it applies four definitions of the rate of profit to multiple data sources; it assesses a wider range of impacting factors; and, more importantly, it includes the Marxian concept of productive labour. Previous studies have ignored the distinction between productive and unproductive activities. By contrast, this study distinguishes productive labour as the labour employed by capital to produce use values and surplus value.

The results of this study demonstrate that the driver of the fall in the world rate of profit is faster growth of the composition of capital compared to the change in the rate of surplus value. In other words, the investment in labour-saving technologies has raised surplus value per hour of paid work but at a slower pace than the growth of advanced capital. The long-term fall is not due to a profit squeeze, as the labour share has fallen since the mid-twentieth century. However, this fall has not translated into a substantial rise in the profit share because depreciation has absorbed an increasingly larger portion of the value added.

The most recent downward phase of the rate of profit, accompanied by the declining rate of worked hours since the 1970s, the declining share of productive labour of the total worked hours, and the allocation of new investment to unproductive activities, point to a slower growth rate.