A Theory of Profits fifty years on

Adrian Wood

Cambridge Journal of Economics, 2025, vol. 49, issue 5, 1073-1103

Abstract: This paper updates the explanation of the share of profits in national income in my 1975 book, A Theory of Profits. The theory relates the profit margins of firms to their needs to generate internal finance for investment. Changes in business motives and the financial system have altered this relationship, especially for firms with monopoly power, requiring the theory to be updated. The updated theory could explain the widespread recent increase in the profit share and decrease in the wage share, though with some modification of its policy implications. The paper includes a detailed account of how the 1975 book was shaped by an outstanding past generation of Cambridge economists.

Keywords: Share of profits; Company profit margins; Income distribution; Financialisation; Cambridge economics (search for similar items in EconPapers)
Date: 2025
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