SOAS Research Online

Abstract

Motivated by classical political economy we detail a probabilistic, “statis- tical equilibrium” approach to explaining why even in equilibrium, the equalization of profit rates leads to a non-degenerate distribution. Based on this approach we investigate the empirical content of the profit rate distribution for previously unexamined annual firm level data comprising over 24,000 publicly listed North American firms for the period 1962-2014. We find strong evidence for a structural organization and equalization of profit rates on a relatively short time scale both at the economy wide and one- and two-digit SIC industry levels into a Laplace or double exponential distribution. We show that the statistical equilibrium approach is consistent with economic theorizing about profit rates and discuss research questions emerging from this novel look at profit rate distributions. We also highlight the applicability of the underlying principle of maximum entropy for inference in a wide range of economic topics.