The Rate of Profit and Stagnation in the U.S. Economy

According to Marxian theory, the performance of capitalist economies depends above all else on the rate of profit. When the rate of profit is high, capitalism is relatively prosperous: business investment is high, unemployment is relatively low, and the living standards of workers generally rises. However, when the rate of profit is low, prosperity turns into stagnation and depression: investment is low or nonexistent, unemployment is high, and living standards decline. Marx of course argued that there is an inherent tendency for the rate of profit to eventually decline during periods of prosperity and expansion, thus turning periods of prosperity into periods of depression. In other words, recurring crises and depressions are inevitable in capitalist economies.