The Impact of Financialization on the Rate of Profit

This work investigates some channels through which financialization may impact the normal rate of profit by making use of the ‘integrated wage-commodity sector’ methodology. We analyse the effect of technical innovations in the financial sector, a higher financial sector’s share of profits and GDP, rising household indebtedness and socio-political factors that reduce workers’ bargaining power. We find that during the financialization era, the first factor did not impact normal profitability since it mostly regarded instruments such as derivatives. The second should in principle not affect the normal rate of profit although it may impact aggregate income shares. The third, as far as its effect on aggregate demand is concerned, does not have an impact on the normal rate of profit. The fourth turns out to be the main factor that drives the normal rate of profit upwards through its impact on functional income distribution.