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Copyright © Cambridge Political Economy Society

research-article

What does determine the profit rate? The neoclassical theories presented in introductory textbooks

Michele I. Naples and Nahid Aslanbeigui

Trenton State College NJ USA
Monmouth University NJ USA

Abstract

The theory of the profit rate varies across introductory texts. Economic profits are caused by entrepreneurship, or not. Entrepreneurship is a kind of human capital, or not. Normal profits are determined in the money market, the market for loanable funds, or a hybrid market involving demand or supply of physical capital. The downward-sloping demand for capital reflects diminishing marginal productivity (the Cambridge controversy is forgotten), or rank-ordered investment projects. The supply is a physical capital stock, accumulated or current saving(s) (or wealth), or desired accumulation. We conclude that the inconsistencies and confusions in the textbooks reflect the state of high theory.

Manuscript received September 14, 1992; final version received December 8, 1993.


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