Long-Term Trends in Profitability: The Recovery of World War II

It has become 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 which does not subtract taxes from profit World War II coincides with a considerable restoration of the rate of profit. This is an important anomaly for Marxists who predict a long-term declining tendency yet it has never been addressed in the empirical literature on this topic. There is no doubt that a restoration of the rate of profit discovered in the 1940s questions the relevance of Marx s famous thesis of a falling tendency of the rate of profit in capitalist economics. Certainly when Marx discussed the tendency of the rate of profit he acknowledged the important role of counter tendencies. However one would not expect the counter tendencies which Marx discussed to have such a concentrated impact over such a short span of time. The purpose of the present study is to investigate more carefully this leap forward in profitability. In a 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. A 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.