"Just Look At The Marginal Product Of Capital"

Friday's New York Times has an editorial by Casey Mulligan, a professor of economics at the University of Chicago. Mulligan says that the U.S. economy will keep on doing fine, as shown by "the profitability of non-financial capital, what economists call the marginal product of capital." Mulligan is, of course, incorrect. Economists do not call the rate of profits "the marginal product of capital". Even the proposition that, in equilibrium, the rate of profits and the marginal product of capital are equal is without any theoretical or empirical justification. Casey Mulligan is, at best, ignorant and incompetent.

Post Keynesians and others would also tend to be skeptical of other aspects of Mulligan’s editorial. It is a Post Keynesian belief that money is not a veil, neither in the long run nor the short run. Finance can cause the real economy to become discoordinated. Mulligan looks at trends in the rate of profits from before the Great Depression to now. One could assert that one aspect of such trends is a class struggle over the distribution of the surplus. Perhaps workers are sufficiently cowed today that, unlike in the 1970s, no danger exists of a profitability crisis. (Given the Okishio theorem, I do not think that a law of the tendency of the rate of profits to fall follows from Marx’s assumptions, at least in my favorite formalizations of Marx’s approach.) A realization crisis might still arise. When income distribution is so unequal, one might expect effective demand to be weak.