Marc Lavoie On The Shortcomings Of The Profit Inflation Theory

Marc Lavoie has an article, Some Controversies In The Causes Of The Post-Pandemic Inflation at the  blog, Monetary Policy Institute Blog.

From the article:

In the post-Keynesian tradition, firms usually operate in an area where marginal costs, or unit direct costs, are constant. Taking into account overhead labour costs and other fixed costs, unit costs are thus decreasing up to full capacity. This means that with a given markup rate over unit direct costs (or with a given markup rate over normal unit costs), profits will be rising for two reasons … First, as firms produce and sell more units, their unit cost drops, and hence their realized profit per unit gets bigger, and secondly since they sell more units, they will make more profits.

A lot of heterodox authors have endorsed the profit inflation theory and there are even research reports from the Wall Street claiming the same! But according to Marc Lavoie’s argument they just explain it in only some industries like the oil industry.

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