Profit rate dynamics in US manufacturing
File(s)
Published version
Author(s)
Joffe, Michael
Type
Journal Article
Abstract
The attributes and dynamics of the profit rate distribution provide indispensable information on how the economy works. Edith Penrose, in The theory of the growth of the firm¸ took agency, managerial capabilities, heterogeneity and open-endedness as characteristic of the economy. Schumpeter had a similar view. Neoclassical theory, in contrast, envisages convergence to a standard rate of return, invoking inter-industry capital flows and diminishing returns as the main mechanism. I analysed the data on US manufacturing, 1987–2015. There was evidence of convergence, attributable to loss of supra-normal profits in two industries. The features of the distribution confirm Penrose’s view. Neoclassical theory fares poorly: the data do not support ‘a standard rate of return’, and no plausible macro shock exists that could have produced the observed dispersion. The symmetry of the observed distribution indicates that neither market power nor intangible assets play major roles in determining the shape of the profit rate distribution; risk, however, is relevant if reformulated. Intersectoral capital flows were weak, and there was no evidence of diminishing returns. Penrose’s conception of heterogeneous managerial capacity refers to a concept of economic power distinct from market power, corresponding to differential ex ante strength; differential profit outcomes represent ex post strength.
Date Issued
2024-01-01
Date Acceptance
2022-11-28
Citation
International Review of Applied Economics, 2024, 38 (1-2), pp.194-223
ISSN
0269-2171
Publisher
Taylor and Francis Group
Start Page
194
End Page
223
Journal / Book Title
International Review of Applied Economics
Volume
38
Issue
1-2
Copyright Statement
© 2022 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group.
This is an Open Access article distributed under the terms of the Creative Commons Attribution-NonCommercial-NoDerivatives License (http://creativecommons.org/licenses/by-nc-nd/4.0/), which permits non-commercial re-use, distribution, and reproduction in any medium, provided the original work is properly cited, and is not altered, transformed, or built upon in any way.
This is an Open Access article distributed under the terms of the Creative Commons Attribution-NonCommercial-NoDerivatives License (http://creativecommons.org/licenses/by-nc-nd/4.0/), which permits non-commercial re-use, distribution, and reproduction in any medium, provided the original work is properly cited, and is not altered, transformed, or built upon in any way.
License URL
Identifier
https://www.webofscience.com/api/gateway?GWVersion=2&SrcApp=PARTNER_APP&SrcAuth=LinksAMR&KeyUT=WOS:000901369100001&DestLinkType=FullRecord&DestApp=ALL_WOS&UsrCustomerID=a2bf6146997ec60c407a63945d4e92bb
Subjects
Business & Economics
capital flows
convergence
DECLINE
diminishing returns
economic power
Economics
entrepreneurial profit
FIRMS
intangible assets
LONG-RUN
managerial capacity
market power
Penrose
PERSISTENCE
PRODUCTIVITY
profit rate
rate of return on capital
RETURN
Social Sciences
Publication Status
Published
Date Publish Online
2022-12-22