Capitalist Dynamics and Endogenous Innovation: A Complex-Systems Model with Multifractal Properties

This article advances on efforts to model capitalism as a complex system through a dialogue between Marx’s, Schumpeterian, and evolutionary insights. Its main modeling contribution is to endogenize the creation of new technologies, a crucial feature of capitalist dynamics. The starting point of our modeling exercise is Marx’s elaboration on the interaction between the tendencies and the countertendencies for the rate of profit to fall, proposing that falls in the rate of profit trigger innovations that reconfigure capitalism. This is done in three steps. After reviewing theoretical mechanisms that indicate a connection between falling profitability and innovation, we revisit previous debates on long waves and the history of US capitalism to investigate the role of crises in systemic shifts. We then develop a formal model, test its main results against empirical properties of the US profit rate, and analyze simulation results. One crucial finding is the discovery of multifractal properties, indicating that capitalism has different but articulated levels of self-organization across its scales.

JEL Classification: P160, O33, B510