Massimo Pivetti on Interest Rates and Gross Profit Margins In Recent Experience of Advanced Capitalism

From a paper prepared for the colloquium “What have we learnt on Classical economy since Sraffa?” Paris, October 2014

According to the monetary explanation of distribution, as elaborated over the past 25 years on the basis of a well known suggestion by Sraffa, the normal rate of profit would be arrived at in each sphere of production by adding up two autonomous components: the rate of interest on long-term riskless financial assets, plus a normal rate of profit of enterprise, viewed as a component of normal production costs and reflecting objective (or widely perceived as objective) elements of risk attached to each different productive employment of capital. Since the normal margins for profit, given production techniques, depend on normal profit rates, the same two variables, the rate of interest and the rate of the profit of enterprise, would govern also the course of net normal profit margins in the different production spheres. For any given set of profits of enterprise, the long-term rate of interest would thus act in the economy as the regulator of the ratio of prices to money wages. Once the normal profit of enterprise in each sphere of production is taken as given, in that it is determined separately from both the rate of interest and the rate of profit, attention is focused in this approach on the rate of interest.

Read rest here.

In Memoriam of Angelo Reati: "A Note on Some Misunderstandings of Sraffa's System"

From Review of Radical Political Economics:

Author Angelo Reati, an independent scholar and former United Nations economist based in Brussels, was killed in a cycling accident in July 2013. Angelo was a meticulous and open-minded scholar who believed deeply that economists have a responsibility to work towards the achievement of a more humane and more just society. His death is a great loss to the community of progressive economists. The editors wish to express their respect and affection for this true gentleman, true scholar, and true friend of humanity.

Reati's last paper, titled "A Note on Some Misunderstandings of Sraffa's System", can be seen here (subscription required).

Iren Levina: A Puzzling Rise in Financial Profits and the Role of Capital Gain-Like Revenues

New PERI working paper by my friend & colleague Iren Levina - From the abstract:

The paper provides an explanation for the puzzling decoupling between the rate of growth of financial profits and GDP in the 2000s. Drawing on the insights from Keynes, Minsky, and Hilferding, the paper identifies a peculiar type of profit – capital gain-like revenues that take the form of profits from underwriting, mergers and acquisitions, securitization, and trade in financial assets. These capital gain-like revenues come from the redistribution of monetary assets and lack a counterpart in current GDP. They can be thought of as wealth transfers. Based on an empirical analysis of revenues of U.S. bank holding companies, these capital gain-like revenues are shown to have contributed significantly to the decoupling between the rate of growth of financial profits and GDP. The paper identifies characteristics of these revenues that explain the puzzles around this decoupling – its very possibility, sustainability over long time, and lack of losses sufficient to offset the pre-crisis financial gains. These characteristics of capital gain-like revenues also allow one to reconcile two seemingly incompatible approaches to a rise in financial profits – as transfers (rent) and as an illusion (mirage). 

Read rest here. 

Lars P. Syll: Piketty and the Cambridge capital controversy

 

By Lars P. Syll

Piketty wants to provide a theory relevant to growth, which requires physical capital as its input. And yet he deploys an empirical measure that is unrelated to productive physical capital and whose dollar value depends, in part, on the return on capital. Where does the rate of return come from? Piketty never says. He merely asserts that the return on capital has usually averaged a certain value, say 5 percent on land in the nineteenth century, and higher in the twentieth.  The basic neoclassical theory holds that the rate of return on capital depends on its (marginal) productivity. In that case, we must be thinking of physical capital—and this (again) appears to be Piketty’s view. But the effort to build a theory of physical capital with a technological rate-of-return collapsed long ago, under a withering challenge from critics based in Cambridge, England in the 1950s and 1960s, notably Joan Robinson, Piero Sraffa, and Luigi Pasinetti.

Read rest here.

Marx on Absolute and Relative Wages and the Modern Theory of Distribution

Given recent reconsiderations of the Marxian 'falling rate of profit' hypothesis, I reckon it be of readers' interest to consider this article by Enrico Sergio Levrero (see here).

From the abstract:

"This paper aims at clarifying some aspects of Marx’s analysis of the determinants of wages and of the peculiarity of labour as a commodity, focusing on three related issues. The first is that of Marx’s notion of the subsistence (or natural) wage rate: the subsistence wage will be shown to stem, according to Marx, from socially determined conditions of reproduction of an efficient labouring class. The second issue refers to the distinction between the natural and the market wage rate that can be found in Marx, and his critique of Ricardo’s analysis of the determinants of the price of labour. Here the ‘law of population peculiar to the capitalist mode of production’ (that is, Marx’s industrial reserve army mechanism) will be considered both with respect to cyclical fluctuations of wages and to their trend over time. Moreover, a classification of the social and institutional factors affecting the average wage rate will be advanced. Finally, the last issue concerns Marx’s analysis of the effects of technical progress on both absolute and relative wages (that is, the wage share). It will also be discussed by relating it back to the longstanding debate on the Marxian law of the falling rate of profit, and addressing some possible scenarios of the trend of wages and distribution."

Technology, distribution and the rate of profit in the US economy: understanding the current crisis

New paper by Deepankar Basu and Ramaa Vasudevan - published by CJE (see here - subscription required)

From the Abstract:

"This paper offers a synoptic account of the state of the debate among Marxist scholars regarding the current structural crisis of capitalism, identifies two broad streams within the literature dealing, in turn, with aggregate demand and profitability problems, and proceeds to concentrate on an analysis of issues surrounding the profitability problem in two steps. First, evidence on profitability trends for the non-farm non-financial corporate business, the non-financial corporate business and the corporate business sectors in post-war USA are summarised. A broad range of profit rate measures are covered and data from both the US Bureau of Economic Analysis (NIPA and Fixed Assets Tables) and the Federal Reserve (Flow of Funds Account) are used. Second, the underlying drivers of profitability, in terms of technology and distribution, are investigated. The profitability analysis is used to offer some hypotheses about the current structural crisis."