The business cycle of capitalism

In every business expansion the wage share declines because productivity rises faster than hourly wages. As a result, towards the end of expansion the limited wages and salaries cause an insufficient growth of consumer demand, which makes it difficult to realize profits. At the same time costs - including wage costs, material costs and interest costs - are rising, so it is difficult to produce at a profit. Therefore, at the peak of the cycle rising costs and insufficient demand squeeze profits as in a nutcracker, causing a fall in the expected rate of profit, which leads to a business contraction. In every business contraction the opposite trends tend to produce eventual recovery and a new expansion.