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Sources of Change in Rates of Return on Capital: 1952-82

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This article reconsiders the problem of a declining rate of return on capital. The rate of return for non corporate businesses and corporations fell after 1965. A model designed to examine sources of the decline indicates that the major forces at work were inflationary distortions in the relative price of capital and falling capital productivity. Other contributors were a one-time-only price-cost distortion in the late 1960s and periodic cyclical weakness. None of these effects, perhaps excepting falling capital productivity, can be considered a permanent or long-term erosion in the profitability of capital.

Suggested citation: Hinderliter, Roger H. “Sources of Change in Rates of Return on Capital: 1952-82,” Federal Reserve Bank of Cleveland, Economic Review, vol. 20, no. 4, pp. 17-37, 12.01.1984.

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