FWIW, my little sketch and Fred's are not really in conflict. The Mattick tradition is talking about long-term trends in the organic composition of capital, depressing the rate of profit. My story was about a short period during which the OCC could be treated as constant.
how does fiscal policy affect the profit rate (r) directly? Folks like Tom Weisskopf break the mathematics of that rate into three variables: (1) the share of profits in total income corrected for cyclical fluctuations; (2) the rate of capacity utilization; and (3) the inverse of some measure of the OCC, calculated so that (1) times (2) times (3) equals r. Fiscal policy's direct effect is on the rate of utilization. an increased gov't defiicit raises it. The share of profit in income isn't directly effected by fiscal policy, since it (like the rate of surplus-value to which it is analogous) is determined by the state of the class struggle. However, the government could use its budget to fight against labor. also, in the longer run, it's possible that labor productivity could be boosted by fiscal policy by holding aggregate demand high for several years (Verdoorn's "Law"). Some people think this happened during the 1960s. If the rate of growth of wages doesn't rise in step or faster, this raises the profit share. The 1960s was the high point of the US welfare state (to the extent that we had one). This may have empowered labor in a way that prevented this Verdoorn effect from helping the profit rate. However, high military spending could hurt labor productivity growth, because it's so wasteful. On the other hand, Tony Cliff's buddy (whose name escapes me and I'm 3000 miles from my library) had a theory of the "permanent war economy" in which the government could take over a lot of the costs of constant capital, counteracting any trend of the OCC and maybe even boosting the profit rate. This list is not complete, but it's a start. -- Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own way and let people talk.) -- Karl, paraphrasing Dante.
