The Profit Rate in the Presence of Financial Markets: a Necessary Correction

This is a prepublication version of the article by the same name in the Journal of Australian Political Economy. It should be cited as “Freeman, A. 2012 'The Profit Rate in the Presence of Financial Markets: a Necessary Correction'. Journal of Australian Political Economy, Number 70, Summer 2012, pp 167-192” In the past two decades the number, variety, and monetary value of marketable financial instruments have grown by orders of magnitude. While traditional equities have certainly grown in number and value, the greatest growth has taken place in securities since the turn to securitized lending in the 1970s. This is probably the single most significant development in what many writers term ‘financialisation’. This article argues that these assets, when they function as money-capital, enter into the equalization of the rate of profit. They constitute part of the capital advanced by the capitalist class as a whole and should therefore be included in the denominator of the rate of profit. In the two main world financial markets at least – the UK and the US - The resulting measures of the rate of profit reveal a general, systematic and virtually uninterrupted decline in the rate of profit in these countries since the late 1960s. The paper then re-examines the definition of the rate of profit found in Marx’s writings on the subject and argues that it confirms the inclusion of financial instruments in both the concept and measure of the general rate of profit as defined by Marx.