Explaining the Historic Rise in Financial Profits in the U.S. Economy JEL Classification: E11, E44, G20

Ivan Mendieta-Muñoz

Working Paper Series, Department of Economics, University of Utah from University of Utah, Department of Economics

Abstract: The ratio of financial to non-financial profits in the US economy has increased sharply since the 1970s, the period that is often called the financialisation of capitalism. By developing a two-sector theoretical model the ratio of financial to non-financial profits is shown to depend positively on the net interest margin and the non-interest income of banks, while it depends negatively on the general rate of profit, the non-interest expenses of banks, and the ratio of the capital stock to interest-earning assets. The model was estimated empirically for the post-war period and the results indicate that the ratio has varied mainly with respect to the net interest margin, although non-interest income has also played a significant role. The results confirm that in the course of financialisation the US financial sector has been able to extract rising profits through interest differentials and non-interest income, while the general rate of profit has remained broadly constant.

Pages: 45
Date: 2017
New Economics Papers: this item is included in nep-ban and nep-cta
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Persistent link: https://EconPapers.repec.org/RePEc:uta:papers:2017_06

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