The world rate of profit

Wols (Alfred Otto Wolfgang Schulze), untitled (time_money), 1988.


Overwhelming empirical evidence supporting Marx's law indicates falling rate of profit

Karl Marx's law of the tendency of the rate of profit to fall (LTQTL) has always been much criticized or even ignored. It was treated as an irrelevant explanation of crises under capitalism, both theoretically and empirically. The critics do not belong to traditional economics, which generally completely ignores the role of profit in crises. They come, in part, from post-Keynesian economists who see “aggregate demand” as the engine of capitalist economies, not profit directly. But the biggest skeptics come from Marxist economists themselves.

Although Marx regarded the LTQTL as “the most important law of political economy” (floorplans) and the underlying cause of recurrent cycles and flare-ups (The capital, vol. III, Chapter 13) of capitalist economics, skeptics argue that Marx's law is illogical and "indeterminate" as a theoretical proposition (Michael Heinrich). Empirical support for this law is said to be non-existent or unobtainable. Instead, they argue that we must look elsewhere for a theory of the crisis, whether resorting to Keynes or amalgamating various eclectic theories that are based on “overproduction”, “underconsumption” or “financialization” – or simply accepting that there is no such thing as a crisis. Marxist theory of crises. In my view, these criticisms have been answered effectively by several authors, including myself.

But let us set aside the logical validity of the law and consider here only the empirical evidence that supports Marx's formula for the rate of profit of capital. In a capitalist economy, the rate of profit is given by s/C+v, where s = surplus value; C= stock of fixed and circulating means of production and v = value of labor power (wage costs). Marx's two key points about the LTQTL are as follows: (1) there will be a long-term secular decline in the average rate of profit on the capital stock as capitalism develops, and (2) the balance of trend factors and countertendency inherent in the law itself explains the regular booms and slumps in capitalist production.

Thanks to better data and the work of several Marxist economists – too numerous to name them all here, but among them, one must at least mention Shane Mage, who did his work as far back as 1963 – there is now overwhelming empirical evidence to support the law. from Marx. This evidence was initially limited exclusively to US data, which were the most comprehensive. In the first decade of the twenty-first century, however, some Marxist economists began compiling evidence to calculate a world rate of profit.

In my first attempt to calculate a world rate of profit, I argued that such a calculation was necessary because capitalism is a “closed economy” on a global level and because capitalism had spread its tentacles to all parts of the world throughout the twentieth century. So it was necessary to calculate a world rate if we wanted to find better empirical support for this law.

As early as 2007, Minqi et al made the first attempt to calculate a world rate of profit, followed by David Zachariah in 2010. My first attempt, still very crude, took place in 2012 (it was revised in 2017). Then came a much more comprehensive calculation, with a series going back to 1855, for 14 countries made by Esteban Maito (2014). Some Marxist economists were vehement in their skepticism about calculating a world rate of profit, among them Gerard Duménil. But some of us don't give up. Given the new data from the Penn World Tables 10.0 database, now available for law components as well, in series starting in 1950 for almost 150 economies, I did a much better calculation in 2020.

But now, Marxist economists at the University of Massachusetts Amherst, led by Deepankur Basu, have presented new evidence using data compiled by Brazilian Marxist economist Adalmir Marquetti. This author from Rio Grande do Sul expanded and modified the Penn World Tables developed by Groningen Growth and Development Center, creating what he calls Extended Penn World Tables (EPWT). EPWT was developed by Marquetti in 2004. Since then I have been using this database for my world rate of profit calculations. But now Marquetti has released an updated EPWT 7.0 series. And this series can be used to calculate a world rate of profit compiled based on statistics from many countries since 1960.

Basu et al used the new EPWT data to construct a worldwide profit rate as a weighted average of profit rates. In this average, the share of a country in the world capital stock is used as a weighting variable. Of course, this worldwide rate is only an approximate worldwide average. A proper world average would involve aggregating all s, C, and v in the world.

Basu et al claim that it is incorrect to aggregate country-level profit rates using gross domestic product (GDP) as weights. Thus, previous studies, such as Maito's and mine, used an incorrect weighting scheme. Here we use GDP when we should have used each country's capital stock. Having agreed with the criticism, in my most recent version of the world rate of profit I went further and aggregated the C and v for the G20 countries using Penn 10.0 World Tables going back to 1950.

Let us therefore see the results of Basu et al using the most correct method. They are convincing to empirically support Marx's law. Here is the key chart using all countries with data since 1960.

Based on this evidence, Basu et al conclude that: “The world profit rate series aggregated by countries shows a strong negative linear trend for the period 1960-1980 and a weaker negative linear trend from 1980 to 2019. A decomposition analysis medium-term analysis reveals that the decline in the world rate of profit is driven by a decline in the output-to-capital ratio. The industry's aggregate world profit rate shows a negative linear trend for the period 2000-2014, which, again, is driven by a decline in the output-to-capital ratio.

Thus, once again, Marx's law was emphatically justified empirically with aggregated data from the world economy. In the Amherst figures, there has been a secular decline in the world rate of profit over the past 80 years of -25%, starting with the huge profitability crisis of 1966, leading to the great global slump of 1980-82.

The so-called “neoliberal” revival of profitability followed until 1996 (+11%). Thereafter, the world economy entered what I called “a long depression” as profitability declined, appearing briefly in the credit boom of the 2000s through 2004, before falling again in the Great Recession of 2008-9. Since then, the world rate of profit has stagnated and was close to its lowest level in 2019, before the 2020 global pandemic crash.

In the post-war period, after a slump it was possible to revive profitability, but not for long.

How does Basu's calculation compare to mine, done in 2020? Note at the outset that my last calculation was only for the world's top 19 economies (the EU is a separate member of the G20) and that my method of calculation is slightly different. Despite this, my results bear a striking resemblance to the results obtained by Basu and his colleagues. There are the same secular declines and turning points. This is perhaps not very surprising as both Basu and I use the same underlying database.

Marx's LTQTL argues that the rate of profit will fall if the organic composition of capital (OCC) increases faster than the rate of surplus value or rate of exploitation of labor. That is the underlying reason for the trend drop. Basu et al decomposed the components of the world rate of profit to see if this is correct. They found that the world rate of profit declined at a pace of around 0,5% per year from 1960 to 2019, while the output-to-capital ratio declined by 0,8% per year (this is a reciprocal proxy for the COC), and profit sharing (proxy of the rate of surplus value) rose by around 0,25% per year. Therefore, this empirical evidence supports Marx's law that the COC will exceed the rate of labor exploitation most of the time and thus lead to a fall in the rate of profit. I showed a similar result in my 2020 paper.

Ahmet Tonak, the world's leading Marxist expert on national accounts, had some concerns about using the Penn Tables as a source of raw data for calculation because there is no distinction between productive work (value creator) and unproductive work (value user). And this can lead to divergent results in the rate of profit of national economies – which, by the way, he found for Turkey.

We can go some way to dealing with this possible divergence by considering the rate of profit in the non-financial and non-residential real estate sectors of a capitalist economy in general. It doesn't solve the problem of separating unproductive from productive work within a sector, but it does provide greater accuracy.

Basu and Wasner also produced a profitability panel for the US rate of profit, which distinguishes non-financial corporate profitability from corporate profitability. I compared Basu et al's (global) results for the US rate of profit with their results for the US non-financial corporate rate of profit. Both series follow the same trend and turning points, so divergence at this level is not a significant issue.

However, during the neoliberal period, the US profit rate based on global data (which does not distinguish between productive and unproductive sectors) increases much more than the profit rate of the non-financial sector alone using Basu-Wasner calculations. This suggests that the neoliberal recovery in profitability was mainly based on the shift of capital to the financial sector – another explanation for the drop in productive investment in the US in that period.

In sum, the study by Basu and his colleagues in the department added even more empirical evidence in support of Marx's law at the world level. The evidence is overwhelming, yet skeptics continue to ignore it, denying its relevance. Skeptics of Marx's law of profitability are becoming increasingly denier, such as climate change skeptics.

The dashboard showing the historical profitability of the US economy can be found at and the panel for the world rate and various countries can be found at

*michael roberts is an economist. Author, among other books, of The Great Recession: A Marxist View.

Translation: Eleutério FS Prado

Originally published on the website The next recession blog.


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