Class Struggle and Economic Flactuations: VAR Analysis of the post-War U.S. Economy

Building on Marx’s insights in Chapter 25, Volume I of Capital, an augmented version of the cyclical profit squeeze (CPS) theory offers a plausible explanation of macroeconomic fluctuations under capitalism. The pattern of dynamic interactions that emerges from a 3-variable (profit share, unemployment rate and nonresidential fixed investment) vector autoregression estimated with quarterly data for the postwar U.S. economy is consistent with the CPS theory for the regulated (1949Q1–1975Q1) as well as for the neoliberal periods (starting in 1980 or in 1985). Hence, the CPS mechanism seems to be in operation even under neoliberalism. JEL Categories: B51; C22cyclical profit squeeze, vector autoregression