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Why Does Profitability Matter? Profitability and Stability in the U.S. Economy since the 1950s

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  • Gerard Duménil

    (CNRS, LAREA-CEDRA, University of Paris X-Nanterre)

  • Dominique Lévy

    (CNRS, CEPREMAP)

Abstract

This study empirically reveals a direct link between profitability and stability. To make the demonstration, we develop and then estimate a short-run dynamic disequilibrium model of a capitalist economy, with money, in which agents react to the observation of disequilibria. The condition for the stability of the general level of activity is expressed as a function of the reactions of economic agents. An increased reaction by quantities to disequilibria between supply and demand, on the part of firms, jeopardizes stability. It is demonstrated empirically that the variations of the profit rate influence this degree of reaction and, therefore, impact on stability.

Suggested Citation

  • Gerard Duménil & Dominique Lévy, 1993. "Why Does Profitability Matter? Profitability and Stability in the U.S. Economy since the 1950s," Review of Radical Political Economics, Union for Radical Political Economics, vol. 25(1), pages 27-61, March.
    • Handle: RePEc:sae:reorpe:v:25:y:1993:i:1:p:27-61
    DOI: 10.1177/048661349302500102
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    References listed on IDEAS

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