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The overarching thesis of this study is that profitability matters because it is a prominent determinant of stability. We define rational structural forms of behavior for a firm facing a demand function subject to random shocks and carrying disequilibrium costs. The optimal behavior of the firm is that of adjustment to disequilibrium. Using these behavioral assumptions, we built a dynamic model to study the overall stability of the production level in the economy. Such stability is conditional, where excessive reactions to disequilibrium are destabilizing. On this basis, we contend that low levels of profitability impact on the pattern of disequilibrium costs, and induce an historical transformation of management, which contributes to the violation of the stability condition. This thesis is tested with the example of U.S. manufacturing industries after World War II, with specific attention devoted to the decline in the profit rate since 1970, and the related new forms of instability in the U.S. economy.

G. Duménil, D. Lévy, "Profitability and Stability, pp. 295-316", 1992, in D.B. Papadimitriou, Profits, Deficits and Instability, Macmillan Academic and Professional : Houndmills, Basingstoke, Hampshire, London.

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