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Rate of Profit, Rate of Surplus Value, Organic Composition of Capital and their Determinants, USA.   Four graphs below, from 1929 until 2021 :

Value and productive labour. A purely social approach to some basic concepts of Marxist economic theory, Louvain-la-Neuve, Diffusion Universitaire Ciaco, 2019, 60 pages : see section 6.

250 years of Capitalism §01&02 and its dynamics Rate of Surplus Value, Rate of Profit, Real Wages...

Rate of Profit and Periodic Crises - United States 1929-2022

[Gb] - EU 1929-2022 -  Taux de profit et Crises cycliques

Note for the reading of our graphs : All our indicators have been transformed into indices (1929 = 100). An index of 166 in 1966 for the profit rate means that it was 66% higher than in 1929, while an index of 68 in 1938 means that it was 32% lower. The shaded bars are only there to indicate the years of economic crisis officially recognised as such by the NBER, so their height has no particular significance. The NBER refers to a recession as « a significant decline in economic activity across all sectors over several months, normally visible in output, employment, real income and other indicators ».

Profit rates and cyclical crises

Profit is the goal and the driving force of all investment in the capitalist economy : a capital owner will only invest if he expects to earn a sufficient amount and rate of return : "The rate of profit is the driving force of capitalist production, and only what can be produced at a profit is produced... [...] ...the rate of development of total capital, the rate of profit, is indeed the spur of capitalist production (just as the development of capital is its sole end)..." [1]. It measures, as it were, the final profitability of the capitalist economy since it relates the profit obtained to the investment made. Marx calculates it by reducing the surplus value obtained to the total capital invested [2]. When the rate of profit is rising (green arrows up in the graph above), business flourishes, when it is falling (red arrows down), it contracts, and when it reaches the lowest point of a boom and bust cycle (red circles), a crisis breaks out (vertical grey lines).

The consequences of the crisis will be to harden the conditions of exploitation of workers and to depreciate all the elements involved in productive activity: wages decrease as a result of rising unemployment and 'machine capital' (or constant capital) devalues as a result of bankruptcies, unsold goods or liquidations. In other words, by increasing the numerator of the rate of profit (the surplus value resulting from the exploitation of wage earners) and by decreasing its denominator (devaluation of machines and a fall in wages), the crisis allows it to recover. A new cycle of production can then be restarted until the next crisis and so on : "The stagnation which has occurred in production would have prepared - within capitalist limits - a subsequent expansion of production. Thus the cycle would have been run through once more. A part of the capital depreciated by stagnation would regain its former value. Moreover, the same vicious circle would again be followed, under amplified production conditions, with an enlarged market, and with an increased productive potential" [3]. The internal mechanism of the crisis thus creates, by itself, the conditions for an "enlarged market", an "increased productive potential" and an "amplified production".

This is exactly what the graph above shows us, where each crisis comes after a cycle of rising and falling profit rates. The exception of the crisis in 1945 can be explained by the difficulties in reconverting the American economy just after the end of the war [4]. Thus, the downward turn in the rate of profit since 2013 heralds the next economic crisis, which the pandemic accelerated in 2020. This self-sustaining breathing of productive activity, interspersed with periodic crises, is one of the most beautiful confirmations of the analysis that Marx drew from his empirical observations and theoretical work. Engels summarises it in the Anti-Dühring [5]:

"...since 1825, when the first general crisis broke out, the entire industrial and commercial world, the production and exchange of all civilised peoples and their more or less barbaric satellites, has gone haywire about once every ten years. Trade comes to a standstill, markets are clogged, products are there in quantities as massive as they are unsaleable, cash becomes invisible, credit disappears, factories stop, the working masses lack the means of subsistence for having produced too many means of subsistence, bankruptcy follows bankruptcy, forced sale follows forced sale. The bottleneck lasts for years, productive forces and products are squandered and destroyed en masse until the masses of accumulated goods finally run off with a more or less strong depreciation, until production and exchange gradually resume their march. Gradually, the pace quickens, becomes a trot, the industrial trot becomes a gallop, and this gallop in turn increases until the belly to the ground of a complete steeple chase of industry, trade, credit and speculation, to end up, after the most perilous jumps, in the ditch of the crash... And always the same repetition. This is what we have experienced no less than five times since 1825, and what we are experiencing at this moment (1877) for the sixth time" [6].

The relevance of this analysis is not only attested to by all the cyclical crises that have occurred since 1929, as shown in our graph above, but more globally by the twenty-five crises that capitalism has experienced over the last two centuries [7] if we consider 1825 as the first general crisis of capitalism : "...it is only with the crisis of 1825 that the periodic cycle of the modern life of capitalism opens" [8]. This gives us an average cycle of more or less eight years between two crises at international level over two centuries, and six and a half years for the period considered here (1929-2022).

The cyclical character of the accumulation of capital and its crises over the last two centuries, as well as the perfect correspondence between the evolution of the rate of profit and the outbreak of crises, should, to say the least, be puzzling to those who still claim to be part of the Luxemburgist analysis, which affirms, in spite of such evidence, that : "the formula of a decennial period fulfilling the whole cycle of capitalist industry was, for Marx and Engels in the 1860's and 70's, a simple statement of fact : these facts did not correspond to a natural law, but to a series of determined historical circumstances... [...] The decennial periodicity of these international crises is a purely external fact, a chance" [9]. That in two centuries of capitalism there have been twenty-five international crises so closely correlated to the evolution of the rate of profit is not "a purely external fact, a coincidence", especially since this correlation corresponds in every respect to the analysis outlined by Marx in Capital.


[1] Marx, Capital, Book III, Ed. Sociales, volume 1: 271, 254.

[2] In everyday language: profit / total capital = profit / (wages + machine capital) or, in Marxist terms: surplus value / (variable capital + constant capital).

[3] Marx, La Pléiade - Economie II, book III of Capital: 1037.

[4] We have chosen the example of the United States because, despite its loss of power from the 1970s onwards, this country has remained the dominant economy for more than a century and, as such, is often the trigger for crises on an international scale (think of the 1929 crisis or the subprime crisis in 2008-09). Thus, an international economic crisis inevitably affects the United States and a crisis in this country de facto affects the world economy. With the exception of emerging Asia, which we will only mention and which unfortunately we cannot dwell on here, the developments described in this contribution are valid for most of the developed world economy.

[5] This work, signed by Engels, was in fact conceived, discussed and co-written with Marx : "...the foundations and development of the conceptions set forth in this book being due in the main to Marx, and to me only in the smallest measure, it was self-evident between us that my exposition should not be written without his knowledge. I read the whole manuscript to him before printing and it was he who, in the section on the economy, wrote the tenth chapter...", Engels' preface to the second edition, Ed. Sociales 1973: 38.

[6] Chapter II, Theoretical Concepts, Ed. Sociales 1973: 312-313.

[7] 1825, 1836-39, 1847-48, 1857, 1864-66, 1873, 1882-84, 1890-93, 1900-03, 1907, 1911-13, 1918-21 (23 in All), 1929-32, 1937-38, 1948-49, 1952-54, 1957-58, 1966-67, 1970-71, 1974-75, 1980-82, 1990-91, 2001, 2008-09, 2020.

[8] Marx, The Pleiades, Economics I, Afterword to the second German edition of Capital : 553.

[9] Rosa Luxemburg, Reform or Revolution (1898), Maspéro.


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Rate of Profit - Rate of Surplus Value - Organic Composition of Capital, United States 1929-2022

[Gb] - EU 1929-2022 - Taux de profit - Taux de plus-value - Composition du capital


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Rate of Surplus Value and its Determinants, United States 1929-2022

[Gb] - EU 1929-2022 - Taux de plus-value et ses déterminants


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Organic Composition of Capital and its Determinants, United States 1929-2022

[Gb] - EU 1929-2022 - Composition organique du capital et ses déterminants


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Real Wages and Productivity, United States 1948-2021

[USA] - EU 1948-2021 - Salaires réels et Productivité

The postwar period is characterized by a parallel increase in productivity and real wages. This stabilizes the share of wages in total output and enables capitalism to avoid, for some time, « Over-production [which] arises precisely from the fact that the mass of the people can never consume more than the average quantity of necessaries, that their consumption therefore does not grow correspondingly with the productivity of labour » (Marx [1]).

Such is the basic explanation adopted by postwar Marxists to account for that period’s prosperity : « It is undeniable that wages have risen in the modern epoch. But only in the framework of the expansion of capital, which presupposes that the relationship of wages to profits should remain constant in general. Labour productivity should therefore rise with a rapidity which would make it possible both to accumulate capital and to raise the workers' living standards » (Mattick [2]). In other words, « both wages and profits can rise if productivity grows sufficiently » (Mattick [3]). This shows us that the regulation school has not invented anything basically novel : it has simply extended an analysis already well developed by Marx and his followers (Marx [4]).

The lag between productivity and wages will only become apparent and increasing from the 1980’s onwards. The more rapid increase in productivity (upper curve) than in wages (lower curve) materializes capitalism’s natural tendency to expand production to a larger extent than solvent demand. This is nothing else than the basic explanation of overproduction put forward by Marx : « Over-production is specifically conditioned by the general law of the production of capital : to produce to the limit set by the productive forces, that is to say, to exploit the maximum amount of labour with the given amount of capital, without any consideration for the actual limits of the market or the needs backed by the ability to pay…» [5]. In other words : « The ultimate reason for all real crises always remains the poverty and restricted consumption of the masses as opposed to the drive of capitalist production to develop the productive forces as though only the absolute consuming power of society constituted their limit… » [6].This is also what Engels summarized in a formula typically of his own : «While the productive power increases in a geometric ratio, the extension of markets proceeds at best in an arithmetic ratio » [7].


[1] Marx, Theories of surplus value (1861). Chapter XVI : Ricardo’s Theory of Profit, 3) Law of the Diminishing Rate of Profit, e) Ricardo’s Explanation for the Fall in the Rate of Profit and Its Connection with His Theory of Rent.

[2] Paul Mattick, Intégration capitaliste et rupture ouvrière, EDI, p151 (our translation).

[3] Paul Mattick, Le capital aujourd’hui, published by Maximilien Rubel in Etudes de marxologie, n°11, juin 1967 (our translation).

[4] Especially by 'Socialisme ou Barbarie' (1949-67), a French Marxist journal well-known at that time. The latter has largely inspired the regulation school (Aglietta, Souyri, Lipietz,…), as can be seen from this long quotation (we translate) : « Capitalism can make a compromise concerning the distribution of the social product, precisely because wages that increase more or less at the same rate as labour productivity leave the existing distribution practically unaltered. (…) The classical idea was that capitalism could not bear wage increases, for the latter would imply decreasing profits, hence a reduction of the accumulation fund that any firm badly needs to survive competition. But this static picture is not realistic. If workers’ productivity increases by 4%, with wages increasing at the same rate, profits also must increase by 4%, all other things being equal. (…) As long as wage increases are generalized and do not substantially exceed productivity gains, they are perfectly compatible with the expansion of capital. They are even indispensable from a purely economic viewpoint. In an economy that grows at an average yearly rate of 3%, and in which wages amount to 50% of final demand, any somewhat substantial gap between the rate of increase of wages and the rate of expansion of production would fairly rapidly lead to formidable imbalances and to an inability to sell off production, which could not be remedied by any ‘depression’, deep though it might be » (Socialisme ou Barbarie, n° 31, article written in 1959 and published in 1960.)

[5] Marx, Theories of Surplus Value, Ch. XVII.

[6] Marx, Capital, Vol 3, Chapter 30 : "Money capital and real capital: 1", p 615.

[7] F. Engels, Preface to the English edition of Volume I of Capital (1886).

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The methodological framework of Marx’s theory of crises and its empirical validation

The three phases after World War II and their determinants [1]

1) From the end of the war up to 1965, the profit rate remains at a high level (figure 1) due to labour  productivity gains (figure 2), which tend to reduce the value organic composition of capital (figure 3,  as well as figure 1 for the inverse of this composition). This reduction in the composition of capital is sufficient to compensate the reduction in the rate of surplus value (figure 1). The latter is due to the fact that real wage increase more than labour productivity (figure 2 [2]).

2) From 1965 to 1979, the profit rate continuously goes down due to the decline in the rate of surplus value (figure 1). This decline in the rate of surplus value is first coupled with a stable composition of capital (1963-73), then with a rising composition (1973-84) (figures 3 and 1). Firms compensate this decline in the profit rate through massive cuts in employment (figure 4). The growing industrial reserve army during the seventies results in a slowing down of the rate of increase of real wage (figures 2 and 4).

3) From 1979 to 2001, this slowing down of the rate of increase of real wage, compared to the rate of increase of labour productivity, results in a remarkable recovery of the rate of surplus value and, consequently, of the profit rate, but not so much of economic growth. The latter will be mainly stimulated by indebtedness of an Anglo-Saxon type as we know it today.

... More will be found in our article : "The methodological framework of Marx’s theory of crises and its empirical validation" ... unfortunately only in french : « Le cadre méthodologique de la théorie des crises chez Marx et sa validation empirique ».


[1] These four figures appear in an excellent article by Sergio Camara Izquierdo : "The Dynamics of The Profit Rate in Spain (1954-2001)". The latter is available on-line : http://rrp.sagepub.com/cgi/content/abstract/39/4/543.

[2] The shadowed areas of figure 2 refer to periods during which real wage rise less than labour productivity. The year 1979 shows a marked change : during the preceding period, real wage generally rise more than labour productivity, and conversely thereafter.


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