The Decline of the Rate of Profit in the Postwar U.S.

Economy: Regulation and Marxian Explanations Author(s): Fred Moseley and Charles Roberts Reviewed work(s): Source: International Journal of Political Economy, Vol. 19, No. 1, Declining Profitability and the Current Crisis (Spring, 1989), pp. 48-66 Published by: M.E. Sharpe, Inc. Stable URL: http://www.jstor.org/stable/40470496 . Accessed: 30/04/2012 05:24
Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at . http://www.jstor.org/page/info/about/policies/terms.jsp JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org.

M.E. Sharpe, Inc. is collaborating with JSTOR to digitize, preserve and extend access to International Journal of Political Economy.

http://www.jstor.org

Fred Moseley

The DeclineoftheRateofProfit in thePostwar U.S. Economy

and Regulation Marxian Explanations1
in The rateof profit theU.S. economy declined has over significantly thepostWorld WarII period.According various to the declined estimates, rateof profit 30-40 percent from early the tothemid1970s(e.g., approximately postwar period Bosworth declinein therateof profit wouldseemto be 1982).2This significant one of theimportant causes of theeconomiccrisisof thelast decade. It seems that in in in resulted a slowdown investment plausible thedecline therateofprofit in which turn contributedthe ofunemploymentthe to rise of pastdecade. spending, At thesametime, decline therateofprofit in the also to probably contributed the in acceleration therateof inflation recent of as capitalist atyears, enterprises to their ofprofit increasing rate at a faster Thusthe rate. tempted restore by prices in decline therateofprofit wouldseemtobe atleastpartially for responsible both ofthe"twin evils"ofhigher and inflation. is important It to unemployment higher understand underlying the causesofthis if decline we aretohavesomeidea about thelikelihood an increase therateof profit thefuture thusof a full of in in and from current the economic crisis.3 recovery The Parisbased "Regulation school" has also generally that emphasized this decline therateofprofit an important of was causeofthecurrent in crisis theU.S. theorists have 1979;Lipietz1986and 1988).Regulation economy (e.g.,Aglietto also analyzedthecauses of thedeclinein therateof profit have generally and the in after mid1960sas themain the emphasized slowdown productivity growth cause of thisdecline.Thispaperwillcompare Regulation the of explanation the in rate decline the ofprofit, as with alternative an especially represented Lipietz, by Marxian of which Marx'sdistinction between decline, explanation this emphasizes labor labor. section the of paper consider will productive andunproductive Thefinal the different "ways out of thecrisis" thatare impliedby thesetwo different of in explanations thedecline therateofprofit. Fred is of at Moseley ProfessorEconomics Colby College.

SPRING 1989

49

I. Regulation explanation in rate TheRegulation of decline the ofprofit be illustrated explanationthe may the ofprofit the rate of share profit the into product the of and bydecomposing as ratio, follows: output-capital (1) P = ? ' y K K K

P K the for where stands profit,for capital and total or stock, Y for income output. to accounting the rate profit varies framework, of Accordingthis obviously directly with share profit with output-capital the of and the ratio. of Estimates these proximate two determinants rateof profit the of the for of U.S. economy 1947to 1973show both these Business sector the from that of declined the share variables declined percent the 18 and significantly: profit 14 ratio to explanation, the Thus, output-capital declined percent.4 according this of rate decline the ofprofit duetoa combinationthe was of decline the of profit of output-capital with decline the share the and decline the in profit share ratio, the in rate decline the ofprofit. contributing more the slightly to overall of share profit then in Further of is conducted terms the of analysis the usually which further is as follows: wageshare, decomposed (2) W = w_ Pj ' " Y y Py * w/L Pw y/L' Py

where stands the for price wagegoods, stands the of for price all final of Pw Py L stands thequantity laboremployed of in hours), for and (measured goods, letters realvariables. Sincetherelative ratio lower-case represent price Pw/Py in of remained constant theBusiness sector thepostwar U.S. approximately in ratio be ignored further can this to this Thus, analysis. according economy, in wage in on relative ofincrease share rates the framework,trend the depends the the oflabor and average the real productivity (y/L). average wage(w/L) two determinants wageshare ofthe from 1947to Estimates these proximate of into subperiods. the For "golden 1973divide (1947age" subperiod sharply two of laborincreased at real productivity 65), theaverage wageandtheaverage remained so the the approximately samerate(2.7 percent), that wage share the of the constant. However, (1965-73), rate during second subperiod essentially rate down (to considerably anannual of1.4percent), growth productivity slowed the rate at to real continuedincrease approximatelysame while average wage the

50

JOURNALOF POLITICAL ECONOMY INTERNATIONAL

in to this as in theearlier Thus,according thisexplanation, slowdown subperiod. in causeofthe increase thewageshare was the (and proximate productivity growth in U.S. economy. ofthedecline theprofit share)in thepostwar the between "productivity-pull" this explanation Lipietzemphasizes distinction which shareandthe"wage-push" of thedeclineof theprofit explanation, postuof of realwage (due to lower latesan acceleration therateofincrease theaverage cause of thedeclinein theprofit ratesof unemployment) theproximate as share. the This"wage-push" is clearly supported thedatafor postwar not explanation by U.S. economy.5 the ratiois further it Similarly, output-capital analyzedby decomposing as follows: (3) y = z Fy K k' Pk

= y/L fy
k/L Pk

wherePk standsforthepriceof capitalgoods. Again,therelative priceratio remained constant this over period. tothis Thus, approximately according equation, in thetrend theoutput-capital depends therelative ratio on rates increase the of of oflabor(y/L) therealcapital-labor and ratio productivity (k/L). Estimates theaverage of of realcapital-labor for ratio productivitylaborandthe thepostwar also divideclearly era intotwo distinct subperiods. Again,forthe these ratios two increased approximately samerate, at the "goldenage" subperiod, so that nominal the ratio remained constant. However, output-capital essentially we havealready seenthat there a significant was in slowdown productivity growth the to real during period1965-73.By contrast similar theaverage wage),the (and realcapital-output continued increase approximately samerateas in ratio to at the theearlier tothis in theslowdown producThus, subperiod. according explanation, wasalso the causeofthe decline the of output-capital ratio. growth tivity proximate Thisanalysis leadsto theconclusion theproximate that cause of thedeclineof in therateofprofit thepostwar U.S. economy theslowdown productivity was in in slowdown resulted growth thelate 1960sandtheearly1970s.Thisproductivity in both thedecline theprofit of share inthedecline the and of output-capital ratio, in bothofwhich turn causedtherateofprofit decline. to to the slowdown was in turn theorists, productivity According theRegulation caused by "the exhaustion Fordism an organizing of as for principle thelabor both from technical thesocialside" (Lipietz1986).The technical the and process, of was due to the "diminishing returns" that aspectof theexhaustion Fordism occurinanyregime accumulation itsproductive of as are eventually potentialities more more and The of was fully exploited. socialaspectoftheexhaustion Fordism

SPRING 1989

51

within laborprocess, in due to theincreasing class conflict the which resulted a of increased lowerintensity labor, etc. absenteeism,

n. Marxian explanation
now Marxian of We turn attention to an alternative our explanation thedeclineof in of U.S. economy.6 Marx'stheory thefalling of of rate therate profit thepostwar but that theory not does apply is wellknown, itis lesswellknown this profit directly rate to theconventionally defined ofprofit discussed above.The maindifference the rate and Marxian ofprofit todo with between conventional ofprofit the rate has between Marx'sdistinction laborand unproductive whichwill labor, productive nowbe briefly reviewed.7 is Marx'stheory basedonthe that are assumption valueandsurplus-value created where is to activities, onlythrough production production defined fairly broadly includesuchactivities transportation storage as and 1 (Marx 1977,Chapters and of for of it 7). The important point thisassumption thepurpose thispaperis that in that valueis created non-production activities (Marx implies novalueorsurplus1977,Chapter 1981,Chapter and 1982,Chapter 13; 6; 17).8 activities consist twomaintypes: of Non-production or Circulation relatedto the exchangeof commodities, activities, activities suchactivities sales,purchasing, as debt-credit including accounting, advertising, financial securities real relations, insurance, estate, analysis, exchange, legalcounsel,etc. or related the to control the of labor production of activities, activities Supervision as such of workers, including activities direct supervision, supervision supervisors creation processing performance and of records and (upthrough management), top of definition workrulesand procedures, of calculation incentive reports, pay, etc. management, supervision, record-keeping, toMarx,no valueand surplusin valuearecreated circulation activiAccording are of ties,because theacts of circulation assumedto be essentially exchanges values.No additional valueis produced a result these as of equivalent exchanges a ofequivalent values.Instead, givenamount valueis converted of from form the to ofcommodities theform money, viceversa.Similarly, of or toMarx, according in no value and surplusvalueare produced supervision because these activities, activities nottechnically are for but required production, are instead necessary in within capitalist the modeofproduction becauseof theclass conflict inherent and employees between overtheintensity thelaborof of employers capitalism employees. The basic underlying for criterion Marx'sdistinction between labor productive labor a laboractivity common andunproductive seemstobe whether particular is of or to all typesof economicsystems insteadis a specificfeature capitalist

52

JOURNALOF POLITICAL ECONOMY INTERNATIONAL

Productive is labor economies 1972; 1; 1977, 1972). (Marx Chapter Rubin Gough which would necessary matter type be no to what of labor common alleconomies, value"ina capitalist This economic because "produces economy system. labor is andindirectly this labor socially the unconsciously regulated through exchange in and of ofcommodities, than rather consciously directlyterms labor time. the On is other labor labor isrequired the that characterishand, unproductive by specific of circulation bythe labor or tics capitalism: nature capitalism, of exchange market andsupervisory bythe labor classnature capitalism. ofthese types of Both two of in labor not are necessary "productiongeneral" would for and not unproductive in be necessary a planned, classless society. Since assumption and in value surplus-valuecreated production are activities, by Marx inproduction referred labor tothe as activities "productive labor" employed in and capital the investedproduction activities"productive as Productive capital." consists twomain of constant which thecapital is capital components: capital, in material invested the to activities and inputs production (buildings, equipment, rawmaterials), variable and which the is in invested productive capital, capital Both labor. constant and can either capital variable capital beconsidered as a stock oras a flow, for purposes, but our will constant as capital be considered solely a stock variable and as flow. of falling rate capital solely anannual Marx's theory the ofprofit to that is i.e., applies only this productive capital, itassumes all capital productive capital. On theother sincealso byassumption valueandsurplus-value no are hand, in created non-production Marxreferred thelaboremployed to in activities, as activities "unproductive and labor" capital in invested non-pronon-production duction activities "unproductive as to the capital."9 According Marx's theory, in invested non-production activities recovered, is with capital together a profit, outofthe labor. surplus-value produced productive by Thesedefinitions nowbe usedto formulateMarxian can a of theory the conventional ofprofit. rate in conventional of Profit thenumeratorthe rate (P), is to between annual the flowof profit, assumed be equal to thedifference flow unproductive (//) of the (5) surplus-value andtheannual capital (mostly but costs non-production of workers, also theannual wagesofnon-production and buildings, equipment, materials):10 (4) P = S - Uf

the of inthe of isassumed (K), denominator rate profit, Similarly, stock capital the tobe equaltothe sum constant of andthe of in stock capital invested (C) capital structures equipment and (Us): non-production (5) K = C + Us

SPRING 1989

53

the Marxian for (4) equation Combining Equations and(5),weobtain following conventional ofprofit rate the (RP):
(6) p RP RP - K - S~Uf ~cVWs

aboveequation the side on righthand ofthe all by dividing terms the Finally, we flow annual ofvariable capital, obtain: (7) = S/V Uf/V = RS- UF CC + US C/V + Us/V

to From (7) according thisMarxian analytical Equation we can see that, on composition of not rate the framework,conventional ofprofit depends only the ofthe determinants Marxian rate value(RS)(the (CC) andthe ofsurplus capital two of of but rate profit), alsoonthe ratios unproductive tovariable capital capital rate the varies More and precisely, conventional ofprofit (UF = Uf/V US= Us/V). two of with capital. capital inversely these ratios unproductive tovariable in postwar of rate Inorder apply Marxian to decline the ofprofit the to theory the for period I derived annual of Marxian variables the estimatesthese U.S. economy, The sources methods and sector the .economy. data of U.S for Business 1947-73 the in Appendix more and are to these used derive estimates described fully brieflythe in These are inthe references therein. estimates presentedTable1. cited trends:11 the ofsurplusrate estimates thefollowing show These (1) long-run in in 14 to increased percent 1.40 1947 1.59 1973); the value (2) composition (from 20 3.46 ratio increased percent ofcapital (from in 1947to4.15in 1973);(3) the to 61percent 0.54in1947 0.87in1973); and a very UFincreased (from significant an 102percent 0.42in 1947to0.85 the ratio increased even US (from (4) greater in 1973).12 in proximate ofeach trends the determinants tothe Thecontributions ofthese in in rate datashow the that are 2. decline the ofprofit shown Table These total in rate for decline the ofprofit the most was determinant responsible the proximate in ratio hadmore a negative of effect the of on rate UF ratio Theincrease the UF. in compositioncapital, trend Marx of the than increase the emphasized profit the effects partially were These rate inhisanalysis the of "Marxian" ofprofit. negative in rate which offset the positive by increase the ofsurplus-value, hada significant rate profit.13 of on effect the in rate prof ofthe Marxian This compatible explanation decline the of itispartially discussed above.Evenif the of thisdecline with Regulation the explanation there a was in labor of is oflabor defined terms productive only, productivity as emphasized the in after slowdown productivity by growth 1965, significant

54

JOURNALOF POLITICAL ECONOMY INTERNATIONAL Table 1

and its Marxian determinants The rate of profit

RS 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1.40 1.36 1.50 1.42 1.44 1.41 1.35 1.46 1.51 1.44 1.50 1.59 1.61 1.62 1.68 1.71 1.71 1.73 1.73 1.72 1.72 1.69 1.62 1.61 1.71 1.67 1.59

CC 3.46 3.48 3.68 3.81 3.66 3.58 3.46 3.73 3.74 3.84 3.95 4.19 4.00 3.97 4.03 3.91 3.83 3.76 3.75 3.74 3.86 3.84 3.88 4.08 4.27 4.13 4.15

UF 0.54 0.53 0.59 0.58 0.56 0.57 0.58 0.64 0.65 0.67 0.70 0.75 0.75 0.78 0.81 0.81 0.80 0.81 0.80 0.81 0.84 0.84 0.85 0.89 0.93 0.89 0.87

US 0.42 0.41 0.44 0.44 0.43 0.41 0.40 0.44 0.46 0.49 0.51 0.56 0.54 0.56 0.60 0.60 0.62 0.63 0.65 0.67 0.70 0.71 0.73 0.78 0.86 0.85 0.85

RP 0.22 0.23 0.22 0.22 0.22 0.21 0.20 0.20 0.21 0.18 0.18 0.17 0.18 0.18 0.18 0.19 0.20 0.20 0.21 0.21 0.19 0.18 0.17 0.14 0.14 0.15 0.15

see Sourcesand methods: Appendix

effect had slowdown a significant school.This productivity negative Regulation on of effect thecomposition valueanda significant on therateofsurpluspositive the on effect therateof profit. bothof whichhad a negative However, capital, wouldhave slowdown itself that productivity Marxian by explanation suggests this cause of The in resulted onlya smalldeclinein therateofprofit. mostimportant in increase theflowratio was thedeclinein therateofprofit thevery significant ofunproductive capital(UF). capitaltovariable causes what weretheunderlying further raisetheobvious Theseresults question: in of thisincrease theflowratioof unproductive capital?Its capitalto variable in of of increase theratio thenumber causewas a roughly proportional proximate in U.S. workers thepostwar of workers thenumber productive to unproductive of showthat number unproductive the of Estimates thesevariables economy.14 incirculation supervision increased and workers workers activities) (i.e., employed workers increased of 1947to 1973,whilethenumber productive from 118percent in of in increase theratio unproducthus 32 percent, resulting a 66 percent byonly of examination these workers. a detailed tiveworkers productive to estimates, (For a task future that very Thisconclusion see Moseley1983.)15 important for suggests

SPRING 1989

55

Table 2 to Contributions theDeclineoftheRate ofProfit, 1947-73

RS: 0.038 CC: -0.033 UF: -0.066 US: -0.016

Totaldecline RP: in

-0.073

were to Thesecontributions calculated which is method, according thefollowing from Wolff (1986): adopted A= RS-UF Let B = CC+US Then:

-^_ " B2
" = ^A_ B2

di + I _ B2 B2 M (SB) BiBi

Bi

The contributionseachofthefour of to Marxian variables theoverall decline in of therate profit calculated was from lastequation abovebyallowing the eachvariable tochange at a time holding other one and the three variables constant. of e.g. thecontributionRS is given by SRS CC2 + US2 Table 3 Detailed estimates maintypesofunproductive of labor
TRD^ F/JV2 CRC* SUP* ionsofworkers ( null ) UL TRD CRC CRC UL

1950 1960 1970 1980 19501980

%dUL

8.9 11.6 14.8 21.0 12.0

65

1.9 2.6 3.6 5.2 3.3

18

10.8 14.2 18.5 26.1 15.3

82

2.0 2.6 3.8 5.3 3.3

18

12.8 16.8 22.3 31.4 18.6

.83 .81 .80 .80

.85 .84 .83 .83

1: TradeLabor:

all unproductive in Wholesale RetailTrade labor and in Services plusall labor Business in industries" plusall sales workers "productive workers "productive in industries" plus75% ofclerical

2: Finance Labor:all laborinFinance, and Insurance, Real Estate 3: Circulation Labor.TradeLaborplusFinance Labor 4: Supervision Labor all Unproductive Laborminus Circulation Labor

56

INTERNATIONAL JOURNALOF POLITICAL ECONOMY

research linesis toidentify underlying the causesofthis alongthese very significant in in increase therelative of workers theU.S. economy. proportion unproductive The next section an initial is to these causes. attempt identify underlying

III. Causes oftheincreaseofunproductive labor

To beginwith, should recalled it be that labor of unproductive consists twomain circulation laborand supervision labor. estimates that types: Preliminary suggest circulation laboraccounted approximately percent thetotal for 80 of unproductive laborinthe U.S. economy the and labor throughout postwar period supervisory for theremaining percent Table3). 20 (see Circulation tradelaborand labor,in turn, maybe dividedintotwo subtypes: finance labor. Tradelaboris defined all theunproductive intheWholesale as labor andRetailindustry thelaborin other in industries of plus employed thefunctions and etc. related thereto. clerical, occupations buying sellingand theaccounting, Financelaboris defined all thelaborin the as and Finance, Insurance, Real Estate industries. estimates that trade laboraccounted approxifor Preliminary suggest 80 of laborandthus approximately percent the for 65 of mately percent circulation total labor task unproductive (see Table3). Thusthemost important inan analysis ofthe causesofthe increase unproductive is toexplain increase trade of labor the of which accounted almost for two-thirds thetotal of increase unproductive of labor, labor.The remainder thissection of a of presents preliminary analysis thecauses of this relative of increase trade A labor. discussion thecauses of very significant ofthelesssignificant increases supervisory andfinance of labor labor postponed is for later a occasion. The most likelycause of the relativeincreaseof tradelabor is thatthe of laborincreased a slowerratethantheproductivity at of "productivity" trade In labor. other the of and words, quantity output productive production) (or bought soldperhouroftrade laborincreased a slower at ratethan quantity output the of of If labor. oneassumes the"services" that produced hour productive per provided and by tradelaborper unitof output credit, (e.g., promotion advertising, etc.) remained then of laborfollows constant, theslower"productivity" growth trade from faster the increase trade of laborcompared productive to labor. The directly of labor(PL) must sold by trade be quantity output produced productive (0 by labor(TL). Thus theproductivity productive of laboris givenby Q/PLand the of If laboris given Q/TL. TL increased a faster than at rate "productivity" trade by it that at rate PL, then follows As immediately Q/TLincreased a slower than Q/PL, a result, higher a of laborhadtobe employed trade as laborin percentage thetotal order sell themore to of labor.16 rapidly increasing output productive Another causeofthe relative increase trade of laboris an increase the in possible "sales effort" credit In firms. other (advertising, extension, ofcapitalist etc.) words,

SPRING 1989

57

devoted moreand moreof their laborto promotional activities sales employees of and Suchan increased saleseffort functions buying selling. the beyond ordinary in of with "monopoly the has often beenassociated capitalism" the20thcentury, whichsales competition replaced has pricecompetition (e.g.,Baranand Sweezy increase profit individual of saleseffort the but, firms, 1966).Thisincreased might of the amount surplus-value it toMarx'stheory, does notincrease total according in thecapitalist as economy a whole,because it does notincreasetherateof that of To extent onefirm the orreduce composition capital. the gains surplus-value firm another loses. as a result itssales effort, of in increase thelabor for causeofa significant Themost required the"sales likely in of is in thepostwar U.S. economy an increase thepercentage consumer effort" theadditional laborofinvestigation, Credit sales require sales financed credit. by with length theterm the of increase etc. collection, (all of which record-keeping, ofthecredit). extended total to consumer salesdidin credit installment of Theratio consumer 11 this factincrease (almostdoubled)during period:from percent significantly around1980 (1978-82 average) around1950 (1948-52 average)to 19 percent in percentage consumer of sales Reserve Federal Board).Thisincrease the (source: of of was madepossibleby a number innovations lenders financed credit by by lowerdownpaysuchas longer thisperiod, credit consumer maturities, during in bankcredit credit department stores, cards, ments, "all-purpose" "revolving" increased consumer loans to theextension credit nondurable of goodsandservices, the maturities more laborfor etc. banks, In addition, longer require bycommercial Thusthere to of extended. a givenamount credit appears havebeena significant in U.S. economy. in "sales effort" thepostwar increase thecredit-related creditwas held by financial However,mostof thisincreaseof consumer than finance credit institutions unions, banks, etc.),rather (commercial companies, The percentage totalconsumer of installor companies. by retail manufacturing in increased from percent 1950 to 84 79 institutions ment credit heldbyfinancial laborrequired in to percent 1980 (see Table 3). Thus,almostall theadditional in Finance was which consumer credit employed the the industry, process increased In the not labor.17 other aboveas finance is classified words, increase labor, trade to havebeena significant cause ofthe in thecredit-related "sales effort" appears but causeoftheincrease laborduring period, onlya minor this of increase finance 8 in which being is themost oftrade labor, analyzed this paper.1 important category, in for causeoftheincrease thelabor Another required the"sales effort" possible cost is an increasein advertising. However, advertising is only a verysmall from did this of sales,although percentage increase slightly percentage consumer in in 3 percent 1980.Furthermore, 2 percent 1950toapproximately approximately of in agenciesin 1980 was less than1 percent thetotal employment advertising has and out trade labor(approximately 150,000 of21 million) this percentage even

58

INTERNATIONAL JOURNALOF POLITICAL ECONOMY

declinedslightly sincethe 1950s (source:Bureauof Labor Statistics). Thus,an "sales does notseem to have been a increasein theadvertising-related effort" cause oftheincrease trade of laborduring period. this significant On the thespread "self-service" (vending of sales other hand, machines, gasoline discount of the for stations, stores, hadtheeffect reducing labor etc.) required each in transaction. effect probably This was minor theaggregate, itdid but exchange in at leasttosomeextent offset increase the"sales effort" from other sources. any in Thus mytentative conclusions that are there was a significant increase the inthepostwar "sales effort" U.S. economy, for activities, especially credit-related butthat increase notan important this was causeofthetotal increase trade of labor this it the during period.19 processof elimination,wouldappearthat farmore By cause of labor the was slower important oftheincrease trade "productivity" growth of tradelabor,compared production to labor.More definite conclusions would in of direct estimates thelaboremployed thevarious of require aspects the"sales which very are and to effort," difficult, perhaps impossible, derive.20 The underlying causeoftheslower"productivity" of laborwould growth trade seem to be thatit is inherently moredifficult mechanize to and selling buying in than is tomechanize it becausebuying selling most and cases must production, remainto a large extent person-to-person a transaction. example,in the For automobile continual mechanization greatly has increased producthe industry, of but workers, the sale of each automobile tivity production requires highly service that madeitdifficult increase number carssold has to the of personalized persalesperson. the of increase "distribution" inanearlier labor (1955) attributed relative Barger in sold per laborhourin periodto thissame cause: theslowerincrease output in distribution to in compared theincrease output produced laborhour producper tion.Barger's of is far explanation thedifferentialthat "technology changed less in it and rapidly Retailand WholesaleTradethan did in Manufacturing, Mining, a of Agriculture" 10). Wolff (p. (1987) presents similar analysis thecausesofthe relative increaseof employment Wholesaleand RetailTradein thepostwar in period. Marxargued, thehistory capitalism and of seemstodemonstrate, change that in is an inherent feature capitalist of economies. as seems production If, technology to be thecase, technological is than changeoftrade muchmoredifficult technoofproduction, theslower then oftrade labor logicalchange "productivity" growth and theconsequent in increase therelative oftrade laborwouldalso employment seem to be inherent of tendencies capitalist economies.In fact,the relative of labordoes seemto haveincreased all capitalist in economies proportion trade since themid 19thcentury theU.S., see Barger1955). Further, Marx's on (for that laborproduces value,therelative no increase trade of labor assumption trade causestherate profit decline. of to Thusthis an causeof analysis suggests inherent

SPRING 1989

59

thedeclineof therateofprofit, whichhas hitherto received little attention, very butwhich seemstohavebeenvery in thepostwar U.S. economy.21 important

IV. "Ways outofthecrisis"

Thisfinal will section briefly examine "waysoutofthecrisis"or "solutions" the to thecrisisthat implied theRegulation Marxian are and of by explanations the in decline therateofprofit discussed above.Boththeories that essential the imply of from current the crisisis a significant in increase precondition a fullrecovery therateofprofit, back levelswhich in the presumably up to thehigher prevailed 1950sand early1960s.But sincethetwotheories offer different of explanations in rate profit, imply the decline the of different prior they significantly adjustments that must takeplace inorder restore rateofprofit itsprior to the to levels. We saw above that Regulation the that theory suggests themaincause of the declinein therateofprofit theslowdown productivity in was of growth thelate 1960sandearly1970s.Thistheory that most the implies important "way out" of thecrisisis a restoration productivity of backup to itsearlier, morerapid growth rates. Suchan acceleration productivity of in wouldresult increases both in growth the share theoutput-capital both which turn and of in wouldcontribute ratio, profit in to thenecessary increase therateofprofit Equations (see (l)-(3) above). that of wouldinturn Lipietzhasargued suchanacceleration productivity growth new and (a) require fundamentally technology (b) significant changesin social in relations the workplace. Fundamental innovations might that technological in result such significant increases productivity appearmostlikelytodayin the fields microelectronics of new etc.), (computers, robots, materials, biotechnology, etc.However, that suchtechnical are innovations, themselves, Lipietzargues by not likelyto generate acceleration productivity the of thatis required. growth suchtechnical innovations be accompanied newsocialrelations, must Instead, by whichwouldinvolve moredemocratic and of decision-making morecontrol the labor The workers. more democratic socialrelations necessary are both process by in orderto utilizemorefullythe productive of the new technology potential the based on microelectronics) to and production (especially flexible techniques the in address socialcausesoftheproductivity slowdown. and others the Lipietz schoolmakeno definite thelikelihood these of Regulation predictions concerning But from Regulation the of necessary changes. itfollows explanation thedecline intherate profit, ifthese of that weretobe implemented productivity and changes the crisis be accelerated, profitability should solved,i.e.,the significantly growth rateofprofit should restored itsearlier be to levels. higher in of the here theory thedecline therateofprofit presented By contrast, Marxian of such wouldcontribute that, although an acceleration productivity growth implies in rate value the of toanincrease the ofprofit, increasing rate surplus- andreducing by

60

JOURNALOF POLITICAL ECONOMY INTERNATIONAL

what wouldbe much smaller than increase the of thecomposition capital, resulting In suchan acceleration of therateofprofit. other to is required restore words, fully a wouldnotprovide "wayout"ofthecrisis.22 growth productivity thatverydifferent heresuggests the Instead, Marxianexplanation presented to in to the arenecessary order increase rateofprofit. According this adjustments wereincreases causesof thedeclinein therateofprofit theprimary explanation, of laborand in thecomposition in theratioof unproductive laborto productive thatin order increasetherateof to This explanation obviously implies capital. the labor laborand/or composition the profit, ratioofunproductive to productive ofcapitalmust reduced. be the of meansbywhich composition capitalcouldbe reduced The primary (and of of has been reducedin depressions thepast) is by widespread bankruptcies Whena company its assets(buildgoes bankrupt, physical enterprises. capitalist soldoff auction surviving to The etc.) by companies. ings, equipment, areusually the crucial is the must surviving companies point that pricethat pay for assetsof is of companies generally a smallfraction the"bookvalue"ofthese only bankrupt assets.Marx described thisadjustment of processas the "devaluation capital" of the assets devaluation, samephysical (Marx 1982,chapter As a result this 15). a smaller investment constant of require much capital thesurviving by companies. In this the is of and of is way, composition capital reduced therate profit increased At for surviving the of this results companies. thesametime, course, "adjustment" in widespread for of misery largenumbers workers.23 It is unclear how theratioof unproductive laborto productive laborcouldbe We reduced. have seen above that trade laboraccounted approximately for twothirds thetotalincrease unproductive of of and that maincause of the the labor, of relative increase trade labor was theslower of labor, "productivity" growth trade to productive labor.Further, appearsthat slower"productivity" it the compared in If laboris inherent thenature exchange of of transactions.so, then growth trade oftrade andhenceofunproductive in general, therelative labor labor, proportion in to instead declining, likely continue increase theyears of is to ahead,whichin downward on therateofprofit makeit turn wouldcontinue exert to and pressure rateof profit its earlier to moredifficult restore to the levels. Thus the higher of factor inhibits that increase unproductive addsa further labor the destabilizing of rate profit. of Thusthemost scenario thenext for foreseeable recovery the likely future a continuation thestagnation the1970sand 1980s. of of is eventhisgloomy It However, mayproveto be too optimistic. seems prospect that within next the decadeorso, during next the or recession likely at somepoint the the World nations as that, spreading (of perhaps one after bankruptcies Third will for to wellas ofcapitalist enterprises) becometoomuch governments stop.If into then wouldturn depression, as as this perhaps devastating happens, stagnation evenworse. theGreat Depression, perhaps

SPRING 1989

61

in how will workers the raisestheobviouspolitical This conclusion question: crisis increasing tosucha deepening and U.S. (andelsewhere) hardships? respond Or Willthey suffer capitalist through another yet depression? willthey passively of resources their to control theworld'sproductive from beginto attempt wrest the with aimofsatisfying own the their andreorganize economy "owners" present The for outcome seemsvery than needsrather producing profit capitalists? latter if climate time. the But political atthepresent change might drastically in unlikely fact crisis as myanalysis the deepens, suggests.

Appendix:Data Sourcesand Methods

1. Constant capital. capital(C) (stock):thesumof fixedcapitaland circulating and used forproduction value ofbuildings equipment Fixed capital:thecurrent from Estimates derived are BureauofEconomicAnalysis activities. (BEA) data fixed various for "netprivate nonresidential capital" (current cost), excluding types and activities used forcirculation supervision of buildings equipment and (e.g., furniture fixtures; commercial and and machines; office, computing, accounting valueofinventories. are Estimates etc).Circulating capital:thecurrent buildings; Accounts Incomeand Product derived from National (NIPA) datafor"business see For inventories." a detailed description, Moseley(1985b). 2. Variable flow):The total compensation (including supplecapital(V) (annual from NIPAdata Estimates derived are of workers. ments benefits) production and in excludsector theeconomy, of for"total employee compensation" theBusiness The of workers. percentage total of employee ingthe compensation non-production that within classifications was paid eachoftheeight industry major compensation the various toproduction workers estimated is sources, primarily usingdatafrom which data the andConstruction, provides for of Censuses Manufacturing, Mining, and workers," theBureauofLaborStatistics Employment wagesof "production of whichprovides data forthenumbers and Earnings(Establishment Survey), in industries andConstruction workers" theManufacturing, Mining, "production in industries. a For of andfor number "non-supervisory the employees" theother see Moseley(1985a). detailed description, new between valueandvariable value(S) (annual 3. Surplus flow):thedifference NIPAdatafor "netproduct" the from of Estimates newvaluearederived capital. that minus"imputations" do business Businesssector, indirect of the taxes, plus of sold on themarket percent to notcorrespond goodsand services (80 actually andminus of services" owner-occupied which the is valueofthe"housing homes), see For thevalueproduced self-employed description, proprietors. a detailed by Moseley(1985a). BEA datafor from are 4. Stockofunproductive capital(Us): Estimates derived and fixedcapital" forvarioustypesof buildings "net privatenonresidential

62

JOURNALOF POLITICAL ECONOMY INTERNATIONAL

For activities. a detailed and used forcirculation supervision descripequipment see tion, Moseley(1985b). labor 5. Flow ofunproductive capital(Uf):thesumofthewagesofunproductive labor: of andtheannual of capital. Wages unproductive depreciation unproductive minus NIPAdatafor"totalemployee from are Estimates derived compensation" see For variable deprecidescription, Moseley(1985a).Annual capital. a detailed from sameBEA source the as are ationofunproductive capital:Estimates derived in #4. a detailed see For description, Moseley(1985b).

Notes
of at 1. An earlier version this Conference the on paperwas presented theInternational of Autonomous of 1988. Barcelona, University Barcelona; Theory Regulation; Spain;June I wouldliketoexpress to and appreciation PaulMattick especially tothe following people whomadehelpful comments earlier on drafts this of Michele Carchedi, paper:Guglielmo Paolo Giussani, and I Gouverneur, AngeloReati. wouldalso liketothank DeVroey, Jacques WilliamRalph and Tone Freddete their for and assistance, Colby verycapableresearch financial assistance. Collegefor 2. These estimates refer thebefore-tax of profit, which to rate with thispaperis solely concerned. 3. Thisdecnein therate profit a worldwide of is all OECD nations phenomenon; major a decline overthe (see Hill 1979). experienced similar postwar period 4. 1973is chosen the ofthe as end for analysis the of causesofthe crisis because period the theRegulation theorists consider 1974tobe thebeginning thecrisis of All itself. generally estimates below are fortheBusinesssector theU.S. economy thissame of for presented unlessstated otherwise. period, 5. Wolff an of in of in (1986) presents explanation thedecline therate profit thepostwar U.S . economy is similar the that to Regulation in the slowdown explanation that productivity is emphasized themaincause oftheprofit decline. as rate (1979) selectsas his Weisskopf sectorof analysis Non-Financial the Businesssector, rather thantheBusiness Corporate sector a whole,andconcludes themaincause ofthedecline therateofprofit as that of was neither nor but a "productivity-pull" "wage-push," was instead declinein thepriceratio in causedthe share profit decline, of to in which turn primarily was (2), Pw/Py Equation which for in responsible thedecline therateofprofit. 6. It shouldbe notedthat Marx'stheory mostrigorously appliesto theworldcapitalist as not national it (Mattick 1959).Therefore is economy a whole, to an individual economy somewhat to apply Marx'stheory a national to in thiscase theU.S. illegitimate economy, The of variables mayresult that from economy. possiblebiases in thetrends theMarxian this are discussed belowinnote13.1 thank PaulMattick, theeditor of Jr., procedure briefly this for this to on issue. journal, emphasizing point me andfor stimulating thinking this my 7. Foramorecomplete discussion this of see distinction, Moseley(1983). Other important on issueinclude references this Rubin (1972),Gough (1972),Braverman (1974,chapter 19), andLeadbeater (1985). o. Moreprecisely, Marxassumed theaggregate that valueaddedproduced a during given

SPRING 1989

63

workers and is amount labor of production of to periodis proportional the aggregate it that workers. Fromthisassumption, follows ofthelaborofnon-production independent of amount to is or amount surplus-value profit proportional theaggregate of theaggregate workers. laborofproduction thesurplus labor sensetoinclude broader labor of 9. Marxalsousedthe concept unproductive inthe and in production). (e.g., in government household production employed non-capitalist in laborto refer of used theconcept unproductive Adam Smith onlyto laboremployed within activities in nottolaboremployed non-production capitalproduction, non-capitalist labor"refers tothelatter the In istenterprises. this category only "unproductive paper, term functions. in oflaborwithin employed unproductive enterprises capitalist in of from Marxs concept surplus-value also rate 10. The conventional ofprofit differs business taxesarenotincluded here: indirect are which ignored minor the respects, following transacfor and in and inprofit areincluded surplus-value; various imputations non-market in and in tions included profit arenotincluded surplus-value. are becauseI aminterested for fluctuations have beenadjusted cyclical 11.Theseestimates not rate utilization at theendofmyperiod(e.g., and trends thecapacity heresolelyin secular rate utilization at the was in 83.9 percent 1973 forManufacturing) close to thecapacity oftheperiod (82.0 in 1974). beginning taster than rateot surplusthe somewhat of increased 12. Smce thecomposition capital is 5 percent. Thissmalldecline of declined value,the"Marxian"rate profit approximately See rate of of a weakconfirmationMarx'stheory the"falling ofprofit." Moseley(1988) for U.S. economy. in rate of discussion theMarxian ofprofit thepostwar a further results to of 13.The application Marx'stheory a national misleading economy mayyield with low a from of transfers valueandsurplus-value nations becauseinternational primarily of with to ofcapital nations ahighcomposition capital U.S.) willaffect (e.g.,the composition and and "rateofsurplus-value" "rateofsurplus-value" "rate of theestimates theobserved I with which am primarily their trends overtime, in ofprofit" theU.S. andmaynotaffect value and therateof in of The of concerned. extent theerror thetrends therateofsurplusof to the of on this from source depends theextent which trend thecomposition capital profit in of of from different thetrend thecomposition capital theother in theU.S. is significantly in of of I nations. do notknowtheextent theactualdivergence theratesof increase the becauseI knowof in ofcapital theU.S. andelsewhere thepostwar in period, composition takeintoaccount Marx'sdistinction variable of Marxian estimates the no rigorous (i.e.,that other countries besidestheU.S. laborandunproductive between labor)for productive of in is the a assumption that composition capital theU.S. increased Perhaps reasonable of of becausetheincrease thecomposition capital of than therest theworld, in more slowly a slow andbecausetherestof theworld in theU.S. was rather pace of experienced faster transfer value of In in thepostwar case, theinternational period. this change technological of the becausethegapbetween composition over totheU.S. woulddecline relatively time, of decline over Thisrelative diminished time. rest in capital theU.S. andin the oftheworld increasein the in of inflow value intotheU.S. wouldresult a smaller theinternational and rateofsurplus-value would Marxian than "rateofsurplus-value" in thetrue observed In declinein the"rateofprofit." thiscase, themainconclusion to contribute theobserved in not of in that ofmyanalysis, therate profit theU.S. declined becauseofa decline therate to variable in of but of surplus-value, becauseof increases theratios unproductive capital

64

JOURNALOF POLITICAL ECONOMY INTERNATIONAL

of would havenotbeenaltered. this and Indeed, conclusion composition capital, capital inthe The this wouldhavetobe altered wouldbe strengthened. onlycase inwhich conclusion is of in in of ifthecomposition capital theU.S. increased significantly than therest the faster whichwouldresult a smaller in increase thetrue in Marxian rateof surplus-value world, in "rateofsurplus-value," in theextreme, than theobserved evena decline in and, perhaps This the Marxian ofsurplus-value. case seems true rate in postwar highly unlikely the period. Another of is of of in possiblesource error that ofthedecline therate profit theU.S. part havebeen due to slower in theU.S. compared other to nations, may growth productivity such thatthe "social value" of commodities in produced theU.S. was less thantheir "individual value."Thereis someevidence productivity that in growth theU.S. was in fact slowerthanaverage, international of are although comparisons productivity growth very difficult make.Evidenceto thecontrary that rateofprofit other to is the in majorcapitalist nations declined roughly sameproportion in theU.S. (see Hill 1979). the as by 14. The ratio theaverage wageofunproductive of real workers theaverage wage to real ofproductive workers remained constant this over essentially periodat a valueofapproxi1.7. mately 15. Elsewhere a of (Moseley1985 and 1987) I have presented similar explanation the decline theshareofprofit thepostwar in in U.S. economy. 16. Another of increase trade laborwas theshift U.S. of possiblecause of therelative activities continued produce theU.S. to for overseas, "runaway i.e., production shops"that market. thiscase, trade In laborwouldhave to sell moregoods thanthoseproduced by workers theU.S. However, thiswerethecase, it wouldresult a U.S. in if in production balanceoftrade and was U.S. deficit until the deficit, there no significant balanceof trade the of for paper. the of the of 1980s,after period study this Thus,during period study, shift U.S. production activities overseas havebeenoffset an increase exports other must of of by the of laborin theU.S. remained goods,so that quantity goodssoldbytrade roughly equal to thequantity goodsproduced productive of laborin theU.S. In anycase, thenumber by ofproduction workers in smallpercentage of employed these"runaway shops"was a very thetotal laborin theU.S., certainly than million less 1 workers in productive (concentrated a fewindustries, as textiles electronics), such and to 37 compared approximately million total workers 1973. in production 17. Data for non-installment consumer credit extended notexist. do Data for non-installmentconsumer credit for to consumer (less appropriate comparison current outstanding but and their sales) do exist, arejudgedtobe unreliable areno longer source, published by the Federal Reserve Board.Thesedataindicate ( 1) Non-installment hasincreased that: credit moreslowlythan installment so non-installment as a percentage total credit of credit, that consumer credit declinedfrom percent 1950 to 15 percent 1980; and (2) the 36 in in of credit institutions increased from percent 43 percentage non-installment heldbyfinancial in 1950to75 percent 1980.Thus,as inthecase ofthe in more installment credit, significant " of additional most the labor to non-installment was "financial credit labor, required process not"trade labor." 18. Forthefirst of the20thcentury,arger half B comesto theevenstronger conclusion that there probably "declineinthe was a relative of amount service furnished merchants by to thepublicin theform credit of sales" (p. 35, emphasis this added).Bargerattributed declinemainly thetransfer thefinancing consumer to of of credit from merchant the to

SPRING 1989

65

as and a trend financial outside institutions, industry which, we pioneered theautomobile by in haveseen,continued thepostwar period. "sales effort" due to a "realization was this is 19. A further question whether increased or as by problem," elaborated Baran and Sweezy and manyothers, insteadwas due to a for other than "realization of increased problem." type reasons non-price competition this determination of to wouldrequire, beginwith,an empirical to An answer thisquestion in fact existed thepostwar in U.S. economy. or whether notsucha "realization problem" I to is beyond scopeofthis the determination Suchan empirical However, do intend paper. in to return this important question thenearfuture. are of 20. Otherpossibleforms an increased"sales effort" traveling salespersons, etc. and free returns adjustments, trials, I havenotyet warranties, promotion, point-of-sale functions. in estimates thelaboremployed theseother of evenindirect beenable toobtain of in was increase thepercentage that there no significant at It is myhypothesis this point U.S in postwar . economy. other forms the"sales effort" the of inthese trade labor employed main "variants": includesthree said that Marxiancrisistheory 21. It is often rising This of (or problem). squeeze,andunderconsumptionrealization profit composition capital, As labor variant: rising the a unproductive variant. we have suggests fourth paperineffect with is labor seenabove,the (or rising unproductive variant compatible complementary) the is laborvariant In the of capitalvariant. theory, rising unproductive composition rising variant. the but the with profit variant, notwith underconsumption compatible squeeze of in to of rate profit also 22. Faster might contribute anincrease the growth productivity in to nations. theU.S. by achieving However, growth compared other higher productivity decline therate in wouldbe offset a corresponding the a gainfor U.S. economy this case, by does notprovide "way a Thusfaster in ofprofit someother nation(s). growth productivity contribution out"fortheworld but, economy, atbest,couldmakeonlya limited capitalist of in in totheincrease therateofprofit a smallnumber nations. discussion theprocessof the of 23. See Mattick 7-10, fora further (1969), chapters of devaluation capital.

References
Michel. 1979. A Theory CapitalistRegulation:The U.S. Experience. of Aglietta, London: New LeftBooks. ReBaran,Paul, and Sweezy,Paul. 1966. MonopolyCapital. New York:Monthly view Press. Place in theAmerican Harold. 1955. Distribution's EconomySince 1869. Barger, Press. Princeton Princeton: University and 1982. Capitaliormation economicpolicy. tsrooKxngs Bosworth, tapers Barry. on EconomicActivity. Review 1974. Labor and MonopolyCapital. New York:Monthly Braverman, Harry. Press. and Carchedi, captalism."InternaGuglielmo.1988. "Marxianpricetheory modern tionalJournalofPoliticalEconomy18: 3. labor." New Left and of Gough,Ian. 1972. "Marx's theory productive unproductive Review.

66

JOURNALOF POLITICAL ECONOMY INTERNATIONAL

for Paris: Organization Economic Coopand Hill, T.P. 1979. Profits Rates ofReturn. and eration Development. labor of of David. 1985. "The consistency Marx's categories productive Leadbeater, labor."History PoliticalEconomy17: 4. and unproductive of of Lipietz,Alain. 1986. "Behind thecrisis:The exhaustion a regimeof accumulation."ReviewofRadical PoliticalEconomics18: 1-2. . 1988. "Accumulation, crises,and ways out.*'Internationaljournal Politiof cal Economy18: 2. Marx,Karl. 1977. Capital, Volume1. New York:RandomHouse. _.1981. Capitai Volume2. New York:RandomHouse. . 1982. Capital, Volume3. New York:RandomHouse. Volume3. Moscow: Progress. . 1971. TheoriesofSurplus-Value, Paul. 1959. "Value Theoryand Capital Accumulation."Science and SociMattick, ety22: 4. Boston:Porter . 1969. Marx and Keynes:The LimitsoftheMixedEconomy. Sargent. laborand unproductive Moseley,Fred. 1983. "Marx's conceptsof productive labor." EasternEconomicJournal9: 1-2. . 1985a. "The rateof surplus-value thepostwar in U.S. economy:A critique ofWeisskopf estimates."Cambridge 's JournalofEconomics9: 1. . 1985b. "Estimatesof thecomposition capitalin thepostwar of U.S. econat omy."Presented the1985 Allied Social Sciences AssociationAnnualConventi nn. . 1987. "The profit shareand therateof surplus-value theU.S. economy, in JournalofEconomics11:4. 1975-85." Cambridge . 1988. "The rateof surplus-value, organiccomposition, thegeneral the and rateofprofit theU.S. economy, in and 1947-67: a critique updateofWolff esti's mates."American EconomicReview78: 1. Black and Red Press. Rubin,LI. 1972. Essays on Marx's Theory Value.Detroit: of ThomasE. 1979. "Marxiancrisistheory therateof profit thepostand in Weisskopf, warU.S. economy."Cambridge JournalofEconomics3: 4. Edward. 1986. "The productivity slowdownand thefall in theU.S. rateof Wolff, 1947-76." ReviewofRadical PoliticalEconomics18: 1-2. profit. . 1987. Growth, and New York:CamAccumulation, Unproductive Activity. Press. bridgeUniversity