The Kaleckian Profit and Profit Rate and Post-WWII U.S. Business Cycles

Abstract

This article studies the Kaleckian profit and profit rate in U.S. business cycles. Kalecki emphasized the critical role played by investment in the determination of profit. The alternative mechanisms that he operationalized in his discussion of profit generation usually played an insignificant role then. However, since Kalecki developed his framework for profit and its determinants, the U.S. economy has gone through some significant transformations, specifically with the neoliberal turn beginning in the early 1980s. We consider some of these changes under the new corporate governance system and shareholder-value ideology, and discuss the role they play in relation to Kaleckian profit generation. We also discuss the components of the profit, as distinct from its determinants, to discuss how the allocation of the profit within the capitalist class influences Kaleckian profit generation. Finally, we compute the determinants and the components of the Kaleckian profit rate in the post-WWII U.S. business cycles to empirically observe the influence of the neoliberal turn on the Kaleckian profit generation.

Keywords:

• Kalecki
• business cycles
• profit
• profit rate

JEL Classification Codes:

• E11
• E32
• E01

Notes

1 Kalecki ([1939] 2007) argues that Marx did not pay attention to the important question of what will happen if the investment is inadequate. This issue, however, was later taken up by Rosa Luxemburg. Luxemburg “stressed the point that, if capitalists are saving, their profits can be ‘realized’ only if a corresponding amount is spent by them on investment” (Kalecki [1939] 2007, 255). Luxemburg, on the other hand, also saw limits to investment in a closed economy, specifically in the long-run. Thus, as Kalecki points out, she sees export to non-capitalist countries crucial for the expansion of the capitalist system. Even though Kalecki points out that her theory cannot be accepted as a whole, he still credits Luxemburg for outlining “the necessity of covering the ‘saving gap’ by home investment or exports . . . more clearly than anywhere else before the publication of Mr. Keynes’s General Theory” (Kalecki [1939] 2007, 255).

2 This single factor is specifically important for non-capitalist consumption via the wealth effect, since homeownership in the U.S. is relatively high (65.4% in 2021 Q3 according to the U.S. census bureau) compared to the highly concentrated stock ownership.

3 Two other changes occurred in the neoliberal period; productivity gains slowed (with the exception of the second half of 1990s), and hourly wages stagnated for most workers. Any gain in productivity went mostly to top managers and capitalists. This upward redistribution of income, along with the aforementioned shareholder-value ideology, could increase capitalist consumption as they can also result in reduced investment. To the extent that capitalist consumption increases more than the investment, these will contribute to the generation of profit.

4 Note also that a higher rentier income in the current period is the result of the decisions made by the enterprises in previous periods. The past decision to issue the debt to execute a large share buy-back (especially if the internal funds are insufficient), for example, can influence the past corporate income via the consumption of shareholders due to asset-price inflation, and current corporate income via the consumption of the rentiers due to the interest payment on the previous debt. Thus, if corporations issued debt to finance share-buybacks in the past, that could lead to lower investment in the current period as corporate income is redistributed away from the entrepreneurs towards rentiers, while it would not necessarily cause changes in the investment at the time when the debt was issued.

5 Jan Toporowski (1999) introduces what he calls the Kaleckian profit rate based on the Kaleckian profit above. In defining the profit rate, Toporowski uses the net capital stock since the depreciation is not in itself an addition to the capital stock. Our empirical analysis of the Kaleckian profit rate in business cycles follows Toporowski’s definition of the Kaleckian profit rate, with one difference. Toporowski defines the net capital stock measured on a historical cost basis whereas we use the capital stock measured on a current cost basis. We also define both profit and private investment net of depreciation.

6 See Bakir and Campbell (2016) for the sources and the computation of variables in tables 1–4.

Additional information

Notes on contributors

Erdogan Bakir

Erdogan Bakir is an associate professor of economics at Bucknell University. Al Campbell is an emeritus professor of economics at the University of Utah.

Al Campbell

Erdogan Bakir is an associate professor of economics at Bucknell University. Al Campbell is an emeritus professor of economics at the University of Utah.