[OPE-L:6145] Re: falling profits

From: Fred B. Moseley (fmoseley@mtholyoke.edu)
Date: Sat Nov 03 2001 - 00:09:27 EST

Hi Rakesh,

Thanks for your comments and questions.  Sorry for my delay in
responding.  Brief replies below.

On Mon, 29 Oct 2001, Rakesh Bhandari wrote:

> Fred,
> thanks for your very helpful answers--would it possible for you to send me a 
> copy of your capital and class paper over the net?

This paper is on my website: www.mtholyoke.edu/~fmoseley

> need to read it more carefully since i see that i confused your explanation for 
> the movement in the profit rate of the non financial sector and for the profit 
> rate in economy as a whole--it would seem that the present decline in the 
> profit rate for the non financial sector in the US has been rising energy and 
> interest costs, no? i thought interest rates had begun to rise in 1999--both in 
> terms of Greenspan's action and the tightness in the corporate bond market? 
> energy costs went from lows in early 1999 of $10 a barrel to highs in 2000 of 
> $30 a barrel (as OPEC attempted to extricate itself from mounting 
> indebtedness), which is now down to about $22. 
> Did these rising costs kick in after the decline in the non financial sector 
> profit rate?  

Interest rates began to rise in 1999, but (surprisingly) interest payment
of the NFCB sector increased about 25% before that, from 1997 to 1999,
while the gross profit (profit plus interest) remained more or less
constant.  The explanation must be that the NFCB sector took on more debt
in relation to its income or gross profit.  

Rising energy prices contributed to the decline in the rate of profit
since 1999, but falling energy prices had the opposite effect from 1997 to

> In an earlier post, you said the present steep decline in the US profit rate 
> may have been caused by a decreasing rate of surplus value, but unit labor 
> costs seemed to have been relatively stable throughout the late 90s (as the WSJ 
> had been reporting; some of their editorialists were incensed by greenspan's 
> rate hikes); so are unit labor costs not a good proxy for the rate of 
> exploitation?   

Unit labor costs by itself is not a good proxy of the rate of
surplus-value, especially if "labor" includes unproductive labor.  The
unit costs of productive labor, together with prices, i.e. their relative
rates of increase, provide a decent proxy for the trend in the rate of

But the proxy I usually use is the relative rates of increase of real
wages and the productivity of labor, both in terms of productive labor
only.  More on this below.

In my previous post, I guessed, without thinking about it too much, that
since the decline in the profit rate since 1997 has been so sharp, it must
have been due in part to a reduction in the rate of surplus-value.  

But the more I think about it, I am not so sure.  According to my
estimates, the rate of surplus-value increased significantly from the
mid-70s to 1994 (about 30%), because real wages remained more or less
constant while productivity (although not increasing rapidly) was
increasing 1-2% a year.  

Since 1997, real wages have increased some, due to the exceptionally low
rates of unemployment, but I would be surprised if real wages increased
faster than productivity since 1997.  So perhaps the rate of surplus-value
has levelled off since 1997, but I doubt if it has declined.  

That means that the decline in the profit rate since 1997 must have been
due mainly to  continuing increases in the composition of capital and in
the ratio of unproductive labor to productive labor.  I have not updated
my estimates of these variables after 1994, but this discussion makes me
want to do that asap (hopefully in January).  


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