The Rate of Profit and the Organic Composition of Capital in West German Industry from 1960 to 1981

Angelo Reati

Review of Radical Political Economics, 1986, vol. 18, issue 1-2, 56-86

Abstract: The purpose of this article is to ascertain empirically whether the "law" of the tendential fall of the rate of profit, considered as an element of long wave theory, can explain the present economic stagnation in German industry. The results are negative for the explanatory power of the "law": the rate of profit is declining in the long run, but the organic composition, instead of increasing, decreases or remains stationary - the opposite of the predicted change. This evolution of the organic composition of capital is essentially due to: 1) the net effects of technical change (i.e. the technical composition of capital and its results in terms of productivity); 2) the income distribution changes. In fact, generally productivity grew more than technical composition, so exerting a downward pressure on the organic composition (and a positive effect on the rate of profit). The noticeable increase in the wage share had a double effect; it amplified the downward pressure on organic composition and contributed to the decline in profitability.

Date: 1986
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