Measuring a world rate of profit -again
Back in 2012, I made an initial attempt to go beyond measuring the rate of profit on capital in any one country and calculate a world rate of profit. Then, I argued that it was important to test Marx’s law of the tendency for the rate of profit to fall on a world level. As capitalism had spread its tentacles to all parts of the world through the 20th century, it was necessary to find better empirical support for the law by calculating a world rate because capitalism is only a ‘closed economy’ at a global level. The rate of profit in just one country or a few would not be accurate as it would not account for profits made from trade and investments abroad and each country’s rate of profit could have different trends.
In 2020, I updated and improved my measure for global profitability significantly. Then, my calculations were made for the average rate of profit on capital of top 19 economies (ie G20). My data source was the Penn World Tables 10.0 series. My results confirmed Marx’s law that there was a long-term tendency for profitability to fall. This was important because it led to the conclusion that capitalist expansion was transient and also subject to regular and recurring crises of production and investment. Indeed, crises were necessary to ‘cleanse’ the system of old capital and lay the basis for a period of upswing in what I called the ‘profit cycle’. The world rate of profit did not fall in a straight line, as the long-term tendency to fall was interspersed with periods when profitability rose, usually after a significant slump. This was what my graph of 2020 looked like.

In 2020, I divided the graph into four sections: the periods 1950-66, the so-called Golden Age after WW2 when profitability was high and even rose; the profitability crisis of 1966-82 when profitability globally slumped; the neo-liberal period 1982-97 when there was a (limited) recovery in the profit rate; and finally the period that I call the Long Depression from 1997, where the profit rate fell back, leading to the Great Recession of 2008-9, followed by stagnation in the rate up to 2019, just before COVID pandemic.
Then in early 2022, I published another post entitled A world rate of profit: important new evidence. That post highlighted a new study of the global rate of profit on the stock of capital invested as calculated by Deepankur Basu and colleagues at the University of Massachusetts Amherst. Their data are contained on their website here.Basu et al used a different database (the Extended Penn World Tables 7.0 series) and they calculated an average global rate of profit for 25 countries. Their results supported my 2020 measurement.
Now in a new study, Pooyah Karambakhsh of Sydney University has published a comprehensive update on the measurement of a world rate of profit. Karambakhsh explains that, while “the analysis of an individual country’s profit rate is invaluable in assessing national economic growth and crisis, I argue that assessment of the LTRFP should be done at the global level. Capitalism is in essence a global system with an intrinsic tendency toward the world market.” As Karambakhsh says, “Whatever the mechanism of value transfer, its existence indicates the possibility of discrepancies between surplus value produced and realized in each nation. A global perspective, with a “global pool of surplus value,” circumvents these discrepancies.”
Karambakhsh’ study applies multiple measures of the profit rate, including those based on the Marxian concept of productive labour. Using a sample of 32 countries, Karam also finds a downward trend in the world rate of profit between 1952 and 2019. Most important, he shows that this decline is due to Marx’s law of profitability, namely that a rising ‘organic composition of capital’, (more investment in technology over labour) exerts a downward force on profitability over time, while a rising rate of surplus value acts as a countertendency (but only dominates in the neo-liberal recovery period 1982-97). Moreover, his data show that this falling tendency has been common among nearly all developed and developing countries.
Karambakhsh correctly reckons that the Marxian rate of profit should incorporate the concept of productive labour. Marxian theory argues that new value and surplus value is created only in the productive sectors of the economy (eg. manufacturing, construction, transport and communications); not in unproductive sectors such as real estate, finance or government. The latter sectors merely redistribute surplus value created in productive sectors.
So Karambakhsh tries to delineate global profitability, using four different measures: one using a detailed breakdown of productive actvities; one using a simplified measure of productive sectors; and one as an overall average of profitability including unproductive sectors; and finally one that removes the impact of depeciation (which has become an issue of controversy) and so uses gross capital stock, not net of depreciation.This measure is used by Shaikh and Tsoulfidis and Tsaliki – but only for the US, not globally. Karambakhsh weights each country’s capital stock to reach a global average profitability.
Unfortunately, data measuring the rate of profit on productive sectors has a much shorter time series and fewer countries. So in the end, Karambakhsh looks at the global average rate of profit that includes unproductive sectors. He finds that this falls over the period 1950-2019 from a peak of 11% in 1966 to 7% in 2019 – see the black line in the graph below (Figure 1a). Moreover, he finds the same turning points in the rate as I did in my 2020 measure: 1950-66; 1966-82; 1982-97; 1997-19 (Figure 1b). But he shows that the other measures based on productive sectors only also match closely the overall average rate (Figure 1b). That tells me that, using the overall ‘whole economy’ measure (as I call it) of the average rate of profit is still a very good proxy for the rate a la Marx.
Figure 1. (a) Four estimates of the world rates of profit (WRP) by four definitions and (b) their normalized magnitude indexed to the year 2000.

In decomposing the components driving the rate of profit (RP), Karambakhsh finds more or less the same results as I did in 2020. He finds that the organic composition of capital (VCC), as defined by the ratio of the stock of fixed assets to the consumption of employees, rose over the period, while the rate of surplus value (RSV) varies. From 1952–1965, the world profit rate rises, and so do the rate of surplus value and the organic composition of capital. Both work toward raising the RP. In the second period, 1965–1982, the VCC rises strongly and, supported by the fall in the RSV, lowers the RP. From 1982–1997, the neoliberal era, the RSV rises and the VCC falls slightly. As a result, the RP rises, but not enough to fully compensate for the fall of the previous period of falling profitability. In the last period 1997–2019, the RP falls, mainly driven by rising VCC, but also supported by a fall of the RSV. By 2019, the RP loses all its gains from the neoliberal period. I found similar results in my 2020 calculations. What does this tell you? It confirms Marx’s explanation of why the rate of profit moves. When the organic composition of capital rises faster (or falls less) than any rise (or fall) in the rate of surplus value, the rate of profit will fall and vice versa.
Karambakhsh also shows that, although the world profit rate is a weighted average of individual countries’ profit rates, most of the countries within his sample had the same overall trend and driver as the global rate. He concludes that “Although the studied period may not be long enough for a definitive statement about cycles, the sequence of rises and falls suggests cyclical behavior with cycles of 30–35 years.” And he interprets Marx’s LTFRP as a “theory of the rate of profit cycle.” Indeed,this is something that I noted and argued since I first looked at the profitability of capital (only US capital then) back as early as 2005-6 (see my book, The Great Recession) and supported by my calculations since for the world rate of profit in 2012 and 2020.
Karambakhsh uses the Penn World Tables 10.0 series, which takes his calculations only up to 2019. We now have available the 11.0 series; this takes data up to 2023. My own calculations from the latest series show that the global rate of profit has only slightly recovered since the pandemic slump of 2020, so far. Moreover, in my new calculations, I aggregate individual country surplus value, the stock of fixed assets and employee compensation to come up with proper global figures for Marx’s rate of profit formula, doing away with the need to weight individual country capital stocks. (I shall publish these calculations in a future paper.)

Here is my own calculation for the ‘whole economy’ US rate of profit up to 2023, using the latest Penn World Tables 11.0 series and, in my case, including variable capital in the denominator.

Karambakhsh interestingly brings our attention to other factors affecting the growth of profits, if not profitability. “From a Marxian perspective, productive hours are the direct producers of surplus value, and their fall indicates the decline of profitability.” He shows that the share of wages has consistently declined since 1952, while the operating surplus (profits) has remained almost constant. Why? Because the depreciation rate of the stock of fixed assets has increased over the decades. If more profit has to be used just to replace depreciated capital, it will reduce new net investment and GDP growth.

Another result from Karambakhsh’ paper is that the developing world had a higher profit rate during the period than the developed capitalist economies.


Like other authors, Karambakhsh measures the rate of profit against only fixed assets (machinery, plant, etc), and does not include in the denominator, variable capital ie employee compensation. Also he does not account for circulating capital (ie inventories of raw materials and components used). In my calculations, I often include variable capital. But as Karambakhsh and other authors say, if you don’t, it does not significantly change the results, only the level of profitability, not the direction or turning points. The same applies to circulating capital, in my view – but for a different take on this, see here.
But, he goes on: “Capitalism has strong adaptive capacities, with potential for technological and organizational shifts. In short, the evidence points to a prolonged period of constrained growth and heightened social and economic tensions, not an immediate or predetermined terminal crisis.” I think that is right. As I have suggested elsewhere, capitalism may yet get a new lease of life (after a slump) from the new AI technologies if they do indeed deliver higher surplus value at the expense of the shedding of labour.
