7 The Falling Rate of Profit as the Cause of Long Waves: Theory and Empirical Evidence ANWAR SHAIKH INTRODUCTION (Ceptats accumulation sa turbulent dynamic proces. Ithas power ful bitin tythns which conjunctural factors and specific historia! ‘events only serve 10 modulate a8 log as they remain within the ‘apts cules ofthe game. Any analy ofthe coneret history of ‘apts accumulation aust therefore distinguish between the in tose patterns of capitalist sccumulation, and thelr partial histor ‘al expresion Business cycles are the mot visible elements of capitalist dy rams. A fast (3 to Syear inventory) eee arises fom the perpetual Oellatios of sggregte supply and demand, and a median (710 Tovyear fixed capital ye from the slower Buctuaion of aggregate capacity and supply (Shaikh, 1985 19856). Underlying these bus tes eyes is a moch slower rhythin consisting of alternating log pase of accelerating snd decelerating scamulation which frm the ‘pase cuve of capital development. The vanous batines eles ae articulated into this Basic ute, and are modiid by it (Mandel, 1075, pp. 126-7), Conjunctral inuences and historical evens feed into these intrinsic patterns. Te tage upon which capa istry played out always om the move ‘Marx recognised thatthe analysis ofthe rate of profit is crucial cate cepts sumtin I drven by proftaity. Tn recent times, Ernest Manel has pioneered return fo Mary's emphasis on {he laws of motion of exptaisteecumultion, and onthe cetality of the rate of profit (Mande, 1973, 197, 1980). In particular, he has fargued that what we perceive a long wavs’ Yarlous economic ‘arabes are the expressions of lteriting long phates of accelerated m —_—_—_——— eee ‘Anwar Shaikh Ms and decelerated sccumlation which ae ed directly to eorrespond: ing foctustions in the rate of proft (Mandel, 1880, ch 1). Inthe throes of long depression, some postive combination of exogen- fous extracconomic factor tigers 2 sudden rise im the rate of profi and this set offen accelerated phase in accumulation (Ma 441, 1880, p. 2). Dung tis phase, two thins happen: the organic ‘omposiion of capital ses as capitis invest it new and’ more Capitaintenive technology; and the rate of surplus value rises 35 prodctvity growth generally outstrips the growth is real wages. The {rowth n the rate ofsurphs value intially outpaces the growth in the [Srzanc compestion,s0 tht the rate of proftcontnies wo ise. But ‘ventully national reserve armies begin fo dey Up eal wage growth ‘rcelerates, and th rete of surpls value begins to slow down and Pethapr even stagnate. Now the effect ofa sing organic composition ‘tap becomes dominant, the rate of prof fal and the economy tne along decelerated phase of accumulation (Mandel, 180). On the whole, ong wanes ofaecelerated and decelerated secumulation™ late dest expressions of corresponding ‘ong waves inthe rise and ‘ectne ofthe rate of prt (Mande, 198, p. 13). ‘My argument i smlar to Mande’, with one crucial diference, ‘Man's long-wave theory based on up-and-down movements in the rte of pro: In conrst to ths, Ihave long argued that Marx’ theory of asculany fling rate of profit proviges 4 natral founda tion fora theory of og waves (Shaikh, 1978, 198; 1987, 1987). In What follows, {wil st brie oui the steps in this thesis, and then develop and analy dita onthe longtuntenéency ofthe rat of profit inthe USA from 1809 to 1984. My aim iso sdenty the strong forces generated by capitalist accumulation, 10 at to provide an ‘alequate foundation fr subsequent analyse ofits economic history LONG WAVES AND THE THEORY OF THE FALLING RATE OF PROFIT ‘The bate element ofthe theory ofthe fling rate of profit can only te sketched here, dve to limitations of space. Details are inthe ‘various references provided atthe end of the chapter. 'Ac noted eave, capitalist accumulation is characterised by ot cal ftuation around a longterm curve. Conjanctral fctors and pacar torical events then modify both cycle and trend. The fverall movement ofthe ate of profit reflect all ofthese influences.176 The Falling Rae of Proftas the Cause of Long Waves "The present discussion concerns the forces which determine the underlying trend, the “basic curve’, of capitalist accumulation. This Tequirs us to diinguish between the base rate of prot * eorre- ‘sponding to this undetying tend, and the actual ate of prof which ‘the sythese ofthe tend and all other factors, The si ae ay ‘be defined asthe at of profit which obtas st some standard rate of| ‘capaci ulisation. Otelatons and over variations inthe bancet between aggegste demand, supply, and capacity, as well as changing tends in shit work, wil then show up as fly lage movement pac atilistion which case the actual ate of profit oft found the slowly changing basi rate +". Capasty uation thas plays central role ia medium: sod shor term movements (Maris 1984). ‘Karl Marz, lke Adam Smith and David Ricisdo before him, believed that the base rate of prot tended to fall overtime, His analysis ofthis tendeney begins fom the observation thatthe desi {or profits ie unlimited. This desire driver each capital to stugale sgainst labour and against other esptals. The struggle of labour ‘anes telf in he mechansation of production, i which workers fre replaced by machines i order to rave the productivity of abou. ‘But this increased productiviy of labour can only be eealised in the struggle against ther capitals itis expresed as lower uni cot of product ‘Asa general rule, such lower unit ors of production are achieved st the expense of greater fixed capital tied up per unit output (and hence the epiasaton of production). To put ic ia the language of smirocconomic, capitalist prodaction display an inherent tendency {owards lower sverige variable and average total costs, atthe ex ‘ense of higher everage fed cot, Tecividual capitalists take advantage of the lowor rit costs a forded by @ new method of production by lowering their pies and expanding their marketshare. To quote Mars: "The bat of com petition i fought bythe cheapaing of commodities’ (Mar, 187, ‘ol. eh 25, p- 626), in which one expitalist can deve another from the cid and capture hs capital ony by sling more cheaply’. And in ‘order to be able 1 sll more cheaply without ruining himself, he Imust.. rae the productive power of labor much ab posse’ ‘hich intra is achieved ‘above all, by a greater division of labor, by {more universal intraduton and contin improvement of machin. xy (Marx, 1867, p. 89). Agaresive pic sting and pice cutting ‘behaviour therfore inerea in capitalist competition, This simple Anwar Shak i” fact can be shown to completely invalidate the socalled Okishio ‘Theorem. “The mechanization and capitalisation of production lead to ising technical organi, valve (CIV), and materialised (Ci(v + )) com> postions of epi. Vey Brie, the rring capitalisation of produc- $n implies «greater amount of xed capital ied up per unit output (Grising copialnet output rao KY), which incur impis a sing ‘materialised composition Civ + ) (Shaikh, 1987). 'A ring materialised composition produces a downward dit inthe ‘sneta ate of prot ven hen the rate of curl value sv ring faster thon the materialised composion of copial Cy ~ 8). Tis faite rena i quite remarkable. Rosdosky has shown that Man's fSscusion inthe Grundrse already contains the core of this esl (Roodolsky 1977, che 16, 17,26, andthe appendix to part V). Lets = Surplus value, C= toa (fixed and circulating constant capital,» =| ‘ave capital, andi'=¥ living lu, Then we ean wate the basic rate of prot as Soe CTC" ya0 C7 Tea C ‘Marx argues thatthe rate of surplus value tends to rse overtime, because real wages wll ot generally ie as fast as productivity (ms ‘which are forced to hand all the productivity gins of technical ‘hange over to worker wages wll Not lst long a epitalistener- ‘ries, Tris evident fom the above expresion fr the asi ate of Pf that even when sv isee without mit, the rato (ahi + 2) fice at an ever decreasing Fate, since in the nut it approaches 1. “Thus no matter Bow ft ties the rate of profit eventual falls ‘rate asymptotic tothe fall of UC (whic i fur is the rate at which the materialised composition of capital Cf rises), For any combina- tions of rates of reo and Ci, one can easily show thatthe basic {ate of profit wil incitaby fal. To se his Tet us assume that both ‘ivand Cl are postive functions of ime such that stv = ff > 0, P20, and Cil= A), F > 0,2 0. The 1 con ro 7 wed178 The Faling Rate of Proft as the Cause of Long Waves tis cea rom the above expression forthe base rt of profit that as /(nses over tins, fgets smaller and sale, that the te ‘tr i eventually dominated bythe tea of the materialised com Postion Ci! (9, Farther analysis sn Shaikh (1984) ‘A secolaly falling rate of poi necessarily prodoes 4 tong wave! in the basi mass of pro, whick iret acelerates, then develerats, ‘agnats, and even als, Consider the following imple represent; tion (more details available in Shaikh, 19670). The bese mass Of rol P*= °K, whete K'= the stock of apital advanced. Assume thatthe basi a of prt falls at some gen rate, 29 that "= Then the tate Of growth gy ofthe mae Of prot is fe howe g- and ge ae the growth rates of #* and K,cespectively: Bat frm the expression fo", Marever ifn general the tate of capital accumulation is propomtinal tothe tate of prof, £0 Ut gy = sr, wharo 4, ~ the capitate’ propensity to save (Bice Marx-Kaleck-Kidor, and 39 08), thet we may wite othe geemetice ‘A Tong uptse comes about precisely when profitability has been estore othe pont where the Basie ars of profit bepas to grow ‘Tuusin the begining ofthe long boom, gy-> Now, She eae of oft eins during ie long boom (or the reasons luidted above), and hence ge declines ual at some critical evel of the basi eof proftr™” = als gyr™=0. At this pot, the base mas of prof has become stagnant. ‘To complet the argument, this analysis of the long wave inthe basic miss of profit must be complemented by 3 comeeponding analy ofthe path ofthe actual mace of proBt. The diference berseen depressions and normal accumulation becomes cri het normal accumulation, the actual eel of capaci wtstion tends {o gravitate around some normal level But in depression, sccume Jason is stagnant and eapacty uteation ean be below normal for long intervals. Thus the begining of along upturn wil be tended by are incapacity wtlsation, unl such te a the normal mech anisms of accumalationcaure te rate of capacity wfsation to once gai gravitate to around the normal level. The actual eae of prof Faqwe Ta Rate of pote Pune 12 Mose of pt may therefore intially rise even when the basi ate may be fling. ‘Morcover, since the dual vate of accumlation is routly propor tional tothe setual ate of profit, g 10 may rs inal. Both the rise inthe actual rate of prot and the seslerntion in accumulation wl serve inal to raise the actual mae of pot faster than the basic mass of prott. Fgutes 7-1 and 7.2 strate this intros ‘dynamic, upon which bitorial factors then operate. The bade mast and rate of profit ace depicted as ded ines, andthe sctal mass a rat as solid lines. Note that the asc rate of pots dept 35 "hing atthe Desonng ofthe long upturn, but ten fling throughout the subsequent portion of th Jag boom into the ong downturn, ‘Ti emphasises the fet that in Mae's theory ofthe fall rate of| profit he transition betwean long-wave phases is corclted with the ‘movements of mas of profi and mot with hat ofthe rat of profi as in Mande). 1 ako makes it clear that Ma's argument does nat ‘exclu secular or conjunctaal departces fom the dominant ter. dency ofthe rat of profit to fall. Marx calls the pint of transition rom normal accumulation tothe cis phase the ‘point of absolute overacrumolation of cata Tt ‘marks phate chonge nal the major pattern cf sscumlaton. The ‘vac patterns in the log downtum phase depend on mote conccte180 The Falling Rate of Profi a the Cause of Long Waves and conjuncturl factors involving the credit system, onthe roe of the state wledvis workers, busteses, andthe ba, and on the strength ofthe case stage "The basic tends implied by Man’s argument are summarised below: (© Rising ratios of fied capital to output and wo wages. In Marxian term these ratios epretent the money forms of rising materia ‘sed and vale compositions of capital, respectively ‘¢Prodoctivy rising faster than real wages (in Maraian terms, & thing rate of expotaion). ‘© A falling rate of profit even inthe boom years (os opposed to a ‘hing rate throughout the Boom, as ia Made) ‘©The fang sate of prof leading ton eventual stagnation in the base mast of pros. 1 A stagnation of prott of enterprise signaling the begining ofthe criss phase, in which there sa qualitative change fom sabi 9 lnsabuty (Shaikh, 198), ‘As we shall se, these are exactly the patterns one finds over two successive long waves ia the US LONG WAVES AND PROFITS IN THE UNITED STATES, 1859-1984, ‘The preceding analysis requires ws to distinguish the basi underlying rate of profi rom the atl rte. ecalarl falling basic rte get ‘eto the ‘curve in accumulation which we perce ase long wave “This cuve wil alo be fected In the actual rate, Dut only ak 8 fongterm end hidden under twrbent and erate tations de to fast and slow cycles, historical evens, andthe ever-present ana chy of capitalist produsion. Since al this turbulence wil be picked ‘pin the ate of capacity utisaton a good empirical measre of his ‘te becomes crocal° Socha messi must pick up nolo ‘resins and world wars and the fly large ons associated withthe fast @ 10 Syearinventoy) cpl, but alo the more subtle ones associated with the slow (7 10 10year fied capital) cycle and with Tong term trends in normal sit work. Anwar Shaikh 181 Conventional measures of capacity tition are inadequate be cause their very methods of corset orlentate them towards fort txm fctetion, Ata el, they tend oad all median std Jong term fsctuations in eapocty utisation ont the estimate ofthe ‘wend’ This tue of survey measures of operating rates sch as ‘tom the Boreas of Eeonomie Alyse (BEA), dhe Bureau ofthe Census, and Rintet Assoriates, which tend to understate even Shortem yclicl ectaations, It i also tue of peak output measures ich the Wharton index, which assume that all hortun peaks im output corespond to the same (100 per cent) level of Expacyutiston, thereby automaticly excising ll meio. nd longerterm fscwations. The widely used Federal Reserve Board imeisure i= based on an eclectic combination of survey data oa ‘operating rats and survey dala ‘on capacity leveh, 30 that It 109 ‘Sifts or the same defect Hertaherg, ra, 1974; Shader, 184 Shaikh, 1987) “The only measure which avoids thes biasesis the one based on the ublstonofeletrie motors which dive capital equipment. In. How asi study, Fore (1963) showed that tis pose to dry ‘measure capacity ulation by comparing the instaled capac of the electri motors which ar edt dive capital equipment, tothe ‘cual ue. Folloming the methodology developed by Jorgensen and Giles (1957) aod by Christensen snd Jorgenson (1959), 1 have recaoalated ths series, moditied ito incorporate Foss new data on theslow change inthe tendo normal level of hit werk Fos, 1984), fat extended tack to 1899, a8 explaied ia the data "sppen” fic 0 this chapter, on page 190, "The great advantage ofthe electric motor index is that its based ‘on direst measure of eapacty and us. Is ajo imitation sin the {act that the dita on fsa cap was no Tonge collected fet the 1963 Cene, However, for the postwar period there exit 4 ‘Completely diferent dats source which ao directly refers to ind trl capocty and its ase. The annual McGraw il survey oa bus tes plas contain information onthe annul ditions to expat in ‘mandtacturig (DCAP}, and the anneal proportion of gros inves tment which goos toward the expansion of capa (E). Taese two Series ae widely wid in research on capacity and investment spend ing, respectively (ee, for example, Feldstein and Foot, 1971). Khave sh that thie dats can be teed conse a new measie of ‘apocy tiation forthe period 1947-85, As it tums ou, this new182 The Fling Rute of Profi asthe Cause of Long Waves ewe 7.3. Capac wiiation lose motor and ides chained) measure corresponds closely to the clstric motor messure of Dacty wlistion ove the 1947-63 period in which the two ovelap (Ghai, 19870). This allows us to chain the evo measures tether adjust for rend inthe noemal level of shift wock (Foss, 1984), and tnd up with a new long-term messre of copocty eilsation for 1699-1984, Details of ths and all ober calelations ae provided in ‘the dta appendix to this chapter Ge page 189), igure 7-3 presents the long-term measure of eapacy wtsation, ‘As explancd inthe data eppendix on page 192, ths sa measure of acta production relative to normal economic capacity. The laters ‘etna ac the capacity corresponding to sors ves of shift work. 1 subsumes noma reserves of capacity. The resulting measure of ‘capacity utilisation therefore only teflecs cyclical and eonjunctral Auccuatins, as is teoreically desired. Depresions and wars tyi- cally induce large facuations in capacity ulsation, but in less tulent years the tend hovers around 80-90 per cet ‘The existence ofa good, long-term measure of eapacity utilisation allows us to address the thoceteal arguments outlined earlier. The {theory ofthe fling at of peat etes the base tend a the Level (ofthe general rate of proft (the rao of surplus value 10 normal apt Sdvanced), not merely atthe level of the normal business ate Anwar Shaikh 3 of return. The profit rate measure shown here is therefore coa- ‘ected tobe as general as posse, with prodt defined a the excess ‘ver cots of poucton, so that cost of sles and facial ates [cealistion cots) swell a all axes, are included in prot. Thi infact, the general measure which besiness accountants cal proton ‘Sls (prot minus costs of production), as opposed to the nariover ‘messae called net income’ (prot on sles minus ates and admin trative, sales, and Bancial expentes) (Meyer, 196, pp. 19-51. Since realisation costs have general rea faster than production fonts over the Tong run, the business fate of profi Hey 10 fall felaive tothe penal rate. But witht some notion ofthe tend of the former, we would be unable o distinguish between primary and seondary infunces on the tend ofthe latter (whore derivation and ‘nals is part of the continuation ofthis wor) in onder to dsnguls structural tends from shrt- and medium tum cyleal and conjunctural fucwations, we must adjust variables Sacha the capcal-cutput ratio and the rate of profit for fuctuations in eapacty ulation In his chapter I make this adjustment in the ‘simplest posible way, by deflating ow variables sich as output and prof bythe capastytsation rte in order to get normal capacity (that is, poteatal euput and profit. More sophisticated techniques wl be explored in subsequent work! "The Sseyea interval fom 1805-1984 encompases almost two shoe long wave: one begianing in the mid-18905 and culminating ‘he Gret Depression of 129-33, and another beginning inthe 1980s fn continuing into the present. From the point of view of the theory ofthe faling rate of peo, eof great importance ro analyse the two ‘eociated phases of so-aled normal accumulation, running fom 1899-1929 tad 1947-4, reepoctnely. Figures 7447.8 compare the adjusted and unadjsted measures for captalproduction worker ‘wager, cpialloaipat, snd fate of prof, with trend lines super posed on the adjated measures” tis evident a each case that even Sur simple adjustment for capacity utilisation captres a substantial portion (ba not all) ofthe shor and medium-rubMostutions in the Unadjacted varables, thereby helping bring out tbe secular trend. “This is moe srking inthe Depression years aftr 1929, in which the level ofthe adjusted variables are exsentaly stable, while those of the unadjusted ones Dustuate wily. Ia Figure 7-6 for instance, the Houma ite of prot” more or leis constant over the Depresion, ‘we the actual rate of prot frst plunges sharply as accumulation Cllapes fons 1925-33, and thea ries sharply ar accumulation181 The Falling Rate of Profit ar the Cause of Long Waves Anwar Shaith 1s gure 74. Capitawape in manuticrrng H gue 7. Capotpt in manutscrrng we 16 Kates of prof in manutcing recovers As Figure 7.3 makes clear, the latter two effects are primary de wo ucustions incapacity uation. Such Macuations te theoreticlly expected, 1 was noted in the previous section. ‘Sinilaly, over the post-war perod the normal rate of profit is playsa clea dowavardtead, But ths is maskedby a 7-year wave in Expat utilisation, which ies sharply from 1958-66 and then de ns jst ae sarpy from 1965-75. The actual rate of profit thus ree in the upturn phase of the post-war long wave and then fallin the tlownturn phase. Mandel would Interpret this 8 evidence of a ise- Andfll in the actual rate of probit cesing the Tong uptum and ‘dowaturn (Mandel 1980, ch, 1) 1 would interpret it as a fet ‘secular fling normal rate of profi, which ising probity fventually chokes off the long uptura and reverses the ring level of apacty tation begining in 1958 (sce the earlier discussion ‘round Figures 7.1 and 7.208 page 179). Figure 7.7 looks atthe ratios of eos profits o gross valu added IY ano gross profs tothe wage bill of production workers PIWp. Siac those ae ratios of Wo Bows, they ae not adjusted byw. They are eatentialy constant in the Sst period, bu is considerably nthei | | 186 The Falling Rate of Profi asthe Cause of Long Waves | lela) | rere gue Petenages and prosoupet | second. Figute 78 depicts crucial lnkage in the theory of thefaing | fate of profit. The tp cuve represent the normal maxim rate of rot, which simply the reciprocal ofthe normal spta-ouput | Frio K/¥*. The bottom curve shows the normal rte of prot. As wwe cam se, the ewo mae in very sir ways inthe pre Depression pesod, aed in fay imalarwaye inthe postwar period, The difer- nce in the relative movements the two periods frexplanea by the | Alferences in the trends of the profit kare PY in the two periods, indleted in Figure 7.7 ener. None theless, one can se than both periods the long-term tend ofthe agra rate of profits dominated bythe red of the eapta-output ratio. We have already shown in the previous section tat this dominancs ia necesary commence of arising captal-outpt ratio. Profit rates in manufattring are good proves forthe soil rate ‘because pri rats tend to eqaie sess Broad sectoral roupings. But the matt of profit depends also onthe rate of growth of the fector, ad here there need be no tendential equality rom sets In this case, the weight ofthe sector in total social capital i import- ant For the pre-Depreson period, manufucturiag dominates total gure 78 Noval aod maior normal prot ates capital, so that we can safely infer the soci) movement from it Figure 79 looks tthe movement ofthe mass of etal tnd of norma fit in manufacturing 1899-1925. Most striking in this data isthe Slowdown and stagnation inthe mas of profit Gutng the 192s, well betore the Great Crash of 1929 which led into the Depression Inthe postwar period one can no longer read the path of total profi from {hat of manufacturing profs. But have shown elsewhere that exact the same sccsleration/deeleraion patera holds for wt nonfinacial profit in the postwar period (Shaikh, 19876), The profit ata andthe underying theory woud therefore cad st locate the ‘uring point in the two long waves inthe 19205 and the late 19605, respectively. More precise dating requzes the development sad “navn of more eonerete measures ofthe mas of prof. None the les, these pattems provide important support for the theoretical argument stout long waves ‘Table 7-1 summarises the longterm trends depicted above. Tt shows that in site of important ferences betweea epochs, the general rate of prot nevertheless flyin bot. Both the rae of Surplus value (approximated by PIWp) and the value composition of188 The Falting Rat of Prof os the Cause of Long Waves gure 9s of pron manuttring 189-1984 Table 7A Anca od ats, in percentages 19-109 Ir wp “08 z iio Dip sor by too © 10 : 1 ‘ait (pproximated by KIWp)appeat to se much more rapidly in ‘the secondperiod than ia the fst Nonetheless, the ater eects ‘dominant i both periods, so thatthe general ate of profit fallin both (eit ata slower rate in he secon), SUMMARY AND CONCLUSIONS | have tried to outin theory of long waves based on Mary's theory of scaly falling cate of prott. Te rate of profit alls because & Arar Shah 19 ‘ising materialised composition of capital necesuly overwhelms ‘vena sng ate of Surplus valuc. The falling tendency in the eae of pro chokes off the inal scoertion im the mas of prof, ich then decelerate and eventually sagnater The pont of tgnstin in ‘the mas of profit, which Marx called the “pont of absolute overecc- ‘mulation, signals tbe turning point inthe long nave. It shers in a pase ehange from sable and healthy accumulation to unstable and fepresied secumulation. The empincal examination of the above thesis roquied adjusting the rate of prott for variations in the rate of ‘apa uilisation, so as to bring out de base structural artrns nd compare them io the above thesis In his regatd, he theoretical Srgument fares toerably wll. "Thor ae several nes which need to be developed further, The several messute of profit ured inthis chapter aecds tobe inked to hove concrete measures, 0 that we can move frm the general rate ‘of profit inthe sense of Marx tothe rate of return which businesses perce, This woud allow us to addres the impo of cicalation a Fealation cost, and of taxes, onthe Binal profitably of capital. Furthermore, the method of sdjuting variables for variations in ‘apacty ulation needs 10 be refined. Lally, it should be men: tioned that al states of proiaility ster rom the fact that connen ‘ional measures ofthe capital stock (including our ova) suer Crom ‘major deficiencies in ther construction (R.A. Gordon, 1971: RJ Gordon, 199, 1970, 1971; Perio, 1968). This too isan ares which ced frther work, fo iis quit key that the defect in the capital Hock measires proce a bins in mearure of the rate of profi ‘Atempis to corect for these defects are unr ay DATA APPENDIX Some ofthe data series used below were not available for every year in the interval 1899-1984. Where posible, the missing values have been filed In, taking their ratio to tome correlated variable and Intrpoating this between avaiable point, 1, Manufactaring capital sock, value add, wages and profs The capital stock measure used isthe gross eurent-dlir stock of plant and equipment in manufacturing, 1889-196. This ean unpub Fished backward exteasion of the series on input-output Indtstty190 The Falling Rate of Prof ar the Cause of Long Waves capt stock, published by the Bureau of Industrial Economic (BIE), I thank Ken Rogers ofthe Bureau for making available to te, Is the only consistent seis carentdolla and corstantdollar Series which goes back to 189. Like mow other such seis, I suers from the defect of being clelated oo the assumption thatthe useful Iie of plant and equipment is independeat of economic fuctuations, even when they area eatatamie as the Great Depression, “The basic data for gos value added and production worker wages comes from the Censur of Manufacures, 1982, Table 1, sap mented by subsequent Censuses for I983-85 data. Gross profit was ‘alalated ar gross valve added minus production-worker wages, 25 fn approvimation of surplus vale realved in manufecturing. This makes it incasve of nonpeodacton worker wags, corporate oficer slates, od depreciation eharges.Allsuch datas available annually 1949-1986, onc in 147, in wo yea intervals from 1919-39, and in five-year intervals fom 1899-1919. The mising years in our series from 1899-1019 were interpolated hetwoen avaiable benchmarks ting a cris for curent- dolar aggregate national product. This {GNP serie is avalale for 1929-87 i the National Income and Product Account ofthe United Sates, 1929-82 (NIPA, 1929-82) and in subsequent Surveys of Curzet Business (SCB), fr 1909-28 itis available in Romer'sre-estimates (Romer, 1987, Table 7, Apes fod for 1899-1008 frm Mitral Staines ofthe US'(HS, 1973), teres FL. The interpolations were made according to the general procedure described above. This technique was also applied fo ext mate prsdction-worker wages inthe samme musing yeas, 2. Capacity wisation The electric motor tion index for 189-1963 1 adoped the basic procedures developed by Christensen and Jorge som (1969), Jorgenson and Grilches (1967), and Foss (1963), and teed them in conjnetion with he Rogers BIE capital stock estimates for reilgroes stock in manufacturing equipment (KREQ), census ‘benchmark data on istaled capacity of eleire motors (HPBNCH) ftom the Censes of Manufactures, and annual data on elecicity ‘consumed by ther motors (ELCONS) from the Survey of Manufac: tres and from my own estimates, The deta areas flows, IP. Benchmark yess evimates (HPBNCH) of the capacity horse- power of clears motors used to drive manufacturing equipment Meee ee Anwar Shaikh 1 swore taken ffom Historical Statistics ofthe U.S. (1S, 1975), Seis 70, forthe years 1895, 1904, 1909, 1914, 1919, 1925, 197, 1929, 1938, 1984, 1962 (the lst avilable yea), converted io billions of Kiwshrs a a Foss (1963) and interpolated between Benchmark Yeats Using an pubes BIE serie on resl equipment stocks in mane facturing (KREQ) fom 189-1954, EMOTORS The electric power consumed (ELCONS) by manufac: ‘uring available in various manufacturing censuses from 1939-8. Data fortis interval was taka fom 118 (1975) stot consumption of elect poner (Series S124) minus power consumed for nuclear ‘energy (Seles 5125) This same source also lists data ia eater yeas, ven though Census dat for 1929 incomplete and wo Census data ‘wae gathered forthe years prior 101929 1954 Census of Manufar: tres, pp. 208-20), The Historical Statics ofthe US, (191) sees. doesnot Hist any documentation fr its soures or methods forthe seats prio to 1939. Call 10 thers revealed that no further nfo ‘Gon wns avaiable, Inthe light ofthis, fk ft pradent to re-xtimate this series forthe years pir to 1939. Fos (1963) estimates the 1929 ‘lus by astming tht motors driven hy generated elects were ‘tlied a the sare ate as those deen by purchased electricity, a8 ‘oughly tru inthe previously avaiable benchmark year of 1939. But 1939 was severe recession yea whereas 1929 was neat peak year Inthe other neat peak benchmark yeas of 1984 and 1962, the proportions inthe two utlsation rates were systematically dierent from 1999. I therelore wed the 1954-82 average propoctionsiestead Data hetween 1999 and 1939 benchmarks wat interpolated wag a8 index forthe portion of manfactoring oaipat which comes (ro Plants using electric motors to deve machinery (MAN). This fave series was eeated by splicing together the estimates for total ‘anufactring ouput 159-1938 in Long Term Economie Growth 1340-1970, Series AID, wih corresponding estimates for 1939-1985 ln The Economic Report of the President 1967, Table BAS, Tota Manafscrring, and muleplying the ret by the proportion of clectie motor hpi relation to tal mechanical hp (Seburr and NNetchert, 1960, Table 62, p. 187 for benchmark years trom 1889-1954; HS, 1975, Seis PHOPES, p 81, for 162; and linearly ‘interpolated for years in between benchmarks). The rssiting writ for ELCONS trom 1925-62 was extended backovarde to 1399 sing ‘QMAN® and the tend of ELCONS/OMAN* between 1929-39. The final step as to multiply the else power consumed in manuf: turing ELCONS by extimates of the proportion of manufacturing192 The Fang Roe of Prof asthe Cause of Long Waves leet consumption which esto run electric motos (EMPROP), twocreate the estimated elect consumption of equipment motos in manufacturing (EMOTORS = ELCONS x EPROP). The pro portion EMPROP is avilable for 1929, 199, 1988 (Foss, 163,11) [ad 1962 (Christensen and Jorgenson, 1965), Sine it varcs only lightly, the proportion inthe intervening years wae estimated by linear interpolation between benchmarks, and the trend between 1829-39 wat used to extrapolate back 1 189, UE The relative wilson of manafectarng equipment (UE) was ‘then calculated asthe ati of elect power cousuned by equipment ‘motors (EMOTORS) to the aormal capacity horsepower of these ‘motors (HPN) corespondng othe norma level of shiftwork. In his ‘rginal study, Foss (1963) calculates a standard (40-bou) weekly Str measure of eapselty ap by multiplying te incalled capacity hp (rich corresponds tothe peak mechunieal cape) by the ato ot ‘one sift (40 hours) to continous meckly operation (168 how). Bat later, Foss estimate (Fos, 1984) thatthe normal level of shiftwork rose between 1929 and 1976, which means that pormal availabe ‘opacity itself aio rose. Normal expacty was therefore calculated by ‘mulilying standard one shit capiy by the shiftwork iadex Fos, 194s, Table 1, pp. for 1929-76; the 1976 value was wed for 1977284, since this pesod of relative stagnation; the 1929-39 trend wa extrapolated hick to 1919 since the 1919-29 peiod was one of growth; andthe 1919 valve used for 1899-1918, for lack of better senatves) For 1947-65, McGraw-Hill survey data on capacity ations and ‘on the proportion of gross investment devoted t expansion invest ‘cht was used to cteatea completely diferent capacity ulation index. Evitence indiates that ts survey data zefes 0 gross ad tions to caaity (Res, 980), s0 that the ansual net adn Yo ‘capacity can be eximated by muliplyng the gross adaons bythe “xpnsion investment ross ivextment proportions in each year. The net additions can then be culated wo get an index of capacity and thie divided into the Federal Reser Board index of indus production to create an index of capacity listion. The resulng Inde behave very much ike he elec motor wlan index over the period 1947-2, which they verapThe procedare described in more detain Shieh (19876) Appendix B. The final sep was to spice together the previous two eres on capaci tiation so aso create one overall sere from 1899-198, Anwar Shaikh 193 ‘The resulting series represents a considerable improvement overall previous capacity utilisation seis, and isthe only one to cove £0 foag a peed NoTEs 1. Inthe noe san of pet compet malted Scttchaee eey trctas t SSupior wpaatnne be pe ere we Spee le teteens tse Sfkaa seg ihs SE canes Nance mens ines tone fence moro ay een wg (O lO tet Sia is mast tt epee ot i te ‘fg ne ae prec rtng ben hn he ae pate SoEi Shoat mee eager Re sin WS). Now ate Ouest ehh hs Set Te ence of te genre prt en tnt Spel lh ie ae nad bya ers oop SP ae te to) 2. AeSior ene rum peso wha Marea ‘is opal cup toto aloe tl se Be ne Bin eels te iro Saat neh Sisal iadent ena oe he me 2 Ajtest vin capechy echt i te dhenetilly sppoprine ‘Scie for idenisng the base ene Of prof. Fiterag metho scr requ ara Bab eee we pe oponie theytend eck ety Gor emp Hr ern Chay me + Teme gg fon nf te Exraposet of te ate Sf prot sad the srl (eo) Sepa Sat help wlathn rn eh ot ie ae Selon etary ays a1 me yaad ow pokes rant oo na ren 1 i eae pret 5 er lated tp rin of ee a Impose onthe gol vara. = es pon wich ost REFERENCES (Cyne LR and, WSrpnsn (1968) The Measurement of US Re ‘Cpl np 19061957, Ree of ncane and Wea 8.204 eee aelaaes194 The Faling Rate of Profi asthe Caute of Long Waves Folds, M. nd DK Foot (97) Te Other Hal of Gr vere Tepaconce ud otcanon apes Reon of Econ ood Salers a a Font. {I5 “The Usintion of Capital Egipment: Postwar Com Pate th Pema Save of Caren aa pp. iG Chg io ed Capa A tcl Lang Term “Gn wate OC: Aner Ex nt) cee AL) tok Fora Ae By Yeu. Sune of ‘acon, BF 8) ‘66 Dion of US Pate Test Has ben Ma Anetewr Ecowmn Rover, el 3 (an S8 bn of Usenet’ Ha Bere Mili Rep, Anwcan Economie Reson vk AG ‘A Rar vets Sue of Chr in, Femaerg er aban ren Ge) ine Van ‘Titans Capac 00-79 Suny of Cre se orp DW ind? Cres (1) he gota aty rage Rev of Beno Sede 0 Mande (5) Le Captain on New Lf Book). wba Ine Sco Sp Cann New Le Be Si Lie Ws pak Bev (age Uae NITE) (OR De Bow of Cpl aeons A Rago o ane G88) Wage Labo nd Copal Mare Engel lected Works be Vatone lv Yrs ferent Spond to those portions of Supls value which capitalist enterprises feisn as profit, Since Marts argument fora fling rate of prot located a the most general lve, and nota the level of ineeasing administrative cost, sales cos, or taxes, it was import fo asess the empirical evidences the theoretically appropriate level. Only in this way ist posse to distinguish between the proposition that in reused costs craton merely exacerbate the downward rend ot the basi rte of pot, fom the proposition that they ae the cause of 2 fang (Concrete) rate of profit. {hold to the former, and Tho imply espouses the later" “There are tro areas of disagreement, also theoretical considerations. My capacity uation measure is the ratio of actual production to normal economic expat, the lter being defined by {he normal length and sstesity of the Working week (measured By the normal number of weekly shits). The normal length of the ‘working week isa social and historical variable which varies over time, a Mare long ago emphasised It changes slowly, and peehaps scontinuousy, as new norms are established. Foss (184) finds it ‘ses between pre-and postsecond World Wa petods by about 25 per cent, probaly because am increasing capitabintcnsity of pro- ‘ction i el am incentive for higher level of sit work (Winston Anwar Sait om 1974, p. 1307) In any case, the effective economic capacity so defines sos the centre of gravity fr actual ouput over the fed capital jel, other things (sich as depresions and wars) being equal. Thus, ‘only when economic capaci s propery defined would one expect ‘the messre of capacity ulisaton tobe evold of 3 lng-run send — tsitin fac, inmy Figure 73. Yet this prcily what Tso object to. He wishes to remove the adjustment for normal levels of shift work, and then, nding thatthe emaning index would rise substan tly during te observed period’, recs my measure completly. tn offect, Tho wishes to subttte an engineering measure of capacity (oae-it capaci, or perhaps 24-hour capac) for an economic ‘measute oft Bu his ssinply a ector. While engineering capacity Imig be tefl a8 an historical benchmark, i isnot the capacity ‘ound which prodaction end investment decison ae geared Only fan economic measure of capacity will ufice for an anal ofthe ‘economies of accumulation “Thin alo argues that my ana of the long-run trend in the rate ‘of profit andthe capita-output aio doesnot conform tothe ress ‘fibers such ss Poletayer in this volume, or Weiskopt (1979, Dumenil, Glick, and Rangel (1987), nd Maddison (1982) (sce Thi, page 198), Th fs most cuious argument. Having himself empha od the importance of expacty lization a the analyse of the rate fof prof, and having conceded that conventional capacity utilisation ‘measures may be biased, he then fll Dack om empiial studies hich either we thee same conventional capacity utisaton ‘measures to adj the profit rate (Weiskopt o which ul adustit ‘tal (Madson, Poletajev, and Dumenil era). Since these defects fate the very one wish Tec, Ten hardy be blamed for ang {ove up to them Again and agai, Tio returns to the pont thatthe observed rate of profit doesnot fll over the log run. But hoi bit hasty here. ven a cursory glance at Figure 7.6 indicates that in the pre- Depresion period trom 1895-1929, the actual rate of profit ras prise as strong 2 doward trend ae normal rate of prot. But fn the ensuing debsclen ofthe Great Depresion, of the Second ‘World War, ofthe subsequent sharp reession as the war ended, and ofthe quick succession of ist the Korean War ad then the Vietnam ‘War, any tendin the US rae of proft wae bound to be buried wader the virally eoatingous turbulence. ICs ot until the mi-1965 that the shocks from these event ded Out. sit then any wonder that only ‘Mier 1945 can one “esd the tend ofthe normal rate of pro OmSeer Cerne om Rejonder that ofthe observed rte? I that a dfiency in the theory? I would argue not. On the conta, itisonly by distinguishing between major ‘njunctral event and tbe basic underlying “curve of capitalist ‘evelopment that we can hope to make sense of capitals soy. To the extent that Tio and I disagree on this, the diference is essen tally theoretical and methodologies, nt emp 1. My data shows that he share of prodacon worker wage fling, ‘dence by sng prociton po share a Figue 77. To tft Sande tale of lager an reo abla lca oe ape fle snd aden perso sing, T tle at thea ees tht of et sins come, alg sll) nts os wsng share ection and aman eo se ‘ore, he rpc tht he epta-oas rt snows no ee Tht be Cooctt at of pro fle feat ing hae of noon Soe inely epee the apument nt aS ene Sian (556) ‘ho so nuggets thot se rein the capuiy vltion measre te i ek ye es of ngewe iRet sed tet more expen godin wee Bat Si ors hea ton Scr nt Ree (0, ‘Table 2p. 8). lecteaieven egestas Somat he ‘sats coxtpsg 82 per cet of tol use hp manual ip) racy wisn eases fy a nor wer ‘Won Wr, And de pes cope pace rs ‘recpontwar jmp in it wk ou oy Fos (58), Refers ‘Gita, 51958) The Fling Ro Profit, Mar’ Law ad Ta Sricance ip Tein Cray Capon (hen Wn Camco Rocca) ‘ison 6: (970) Te Theory Capel Utsstes sd tenes Journal ‘of Bono Linas, v0 13, 84 (Seenbt 4) pl