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The historic rise of financial profits in the U.S. economy

Author

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  • Costas Lapavitsas
  • Ivan Mendieta-Muñoz

Abstract

The ratio of financial to nonfinancial profits in the U.S. economy has risen greatly during the last four decades, a period often called the financialization of capitalism, but the reasons for the increase are not well understood. This article tackles the issue by developing a model that incorporates the relationships between financial and nonfinancial capitalists that are characteristic of the period of financialization. It is shown that the ratio of financial to nonfinancial profits depends positively on the net interest margin and the noninterest income of banks, but negatively on the general rate of profit, the noninterest expenses of banks, and the ratio of the capital stock to interest-earning assets. Empirical estimation for the United States strongly supports the model and reveals that financial profits have varied mainly with respect to the net interest margin, although non-interest income has also been important.

Suggested Citation

  • Costas Lapavitsas & Ivan Mendieta-Muñoz, 2019. "The historic rise of financial profits in the U.S. economy," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 42(3), pages 443-468, July.
    • Handle: RePEc:mes:postke:v:42:y:2019:i:3:p:443-468
    DOI: 10.1080/01603477.2019.1616561
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    Citations

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    Cited by:

    1. Gouzoulis, Giorgos & Constantine, Collin, 2020. "The Political Economy of Inequality in Chile and Mexico: Two Tales of Neoliberalism," SocArXiv gruzp, Center for Open Science.
    2. Stefano Di Bucchianico, 2020. "A note on financialization from a Classical-Keynesian standpoint," Department of Economics University of Siena 824, Department of Economics, University of Siena.
    3. Zolea, Riccardo, 2021. "The relation between interest rate and profit rate: the role of bank profitability in an endogenous money framework," MPRA Paper 108973, University Library of Munich, Germany.
    4. Ivan Mendieta‐Muñoz & Doğuhan Sündal, 2022. "Business cycles, financial conditions, and nonlinearities," Metroeconomica, Wiley Blackwell, vol. 73(2), pages 343-383, May.
    5. Giorgos Gouzoulis & Collin Constantine, 2020. "The Political Economy of Inequality in Chile and Mexico: Two Tales of Neoliberalism," Working Papers 235, Department of Economics, SOAS University of London, UK.
    6. Zolea, Riccardo, 2022. "A Model of the Relationship between the Interest Rate and the Profit Rate," Centro Sraffa Working Papers CSWP55, Centro di Ricerche e Documentazione "Piero Sraffa".
    7. Costas Lapavitsas & Aylin Soydan, 2020. "Financialisation in developing countries: Approaches, concepts, and metrics," Working Papers 240, Department of Economics, SOAS University of London, UK.
    8. Giorgos Galanis & Giorgos Gouzoulis, 2020. "Financialisation, working conditions and contagion dynamics in developing and emerging economies," Working Papers PKWP2018, Post Keynesian Economics Society (PKES).
    9. Giorgos Gouzoulis, 2021. "Finance, Discipline and the Labour Share in the Long‐Run: France (1911–2010) and Sweden (1891–2000)," British Journal of Industrial Relations, London School of Economics, vol. 59(2), pages 568-594, June.

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