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Article Excerpt
Introduction
In this paper, we examine Paul Samuelson's contribution to a very specific brand of post-Keynesian economics. One major aspect of post-Keynesian economics is to delineate mechanisms whereby monetary and fiscal policies affect the economy. In particular, post-Keynesians are concerned with showing how changes in thriftiness, propensity to consume, investment, government expenditures, and taxes channel to changes in GNP, money value of output, prices, and production even if the money supply remains constant.
Samuelson follows his dictum that states, "Post Keynes, ergo different from neoclassical macroeconomics." (1, 2) He classifies himself as a "post-Keynesian" (3) with Modigliani and others, and sometimes as just Keynesians, writing that "The Keynesians I admire--like Franco Modigliani, James Tobin, Robert Solow--are not the same in this decade as they were in the last, and the next decade they will be something else again." (4)
Others have taken a different view. Geoffrey Harcourt thinks that Nicholas Kaldor, Joan Robinson, Pierro Sraffa, Michael Kalecki, and Luigi Pasinetti are the "really seminal people among the post-Keynesians." (5) Edward Nell made the distinction that sets post-Keynesians apart from Modigliani and Samuelson: "Rather than adapt Keynes to neo-Classical microfoundations, post-Keynesians have sought to defend and develop Keynesian thinking." (6) According to Davidson, this line of reasoning would separate Samuelson from the post-Keynesian school, because "Samuelson (1947) asserts that the foundation of economics requires several classical axioms that were rejected in Keynes' General Theory." (7) Davidson also separates Pierro Sraffa from the post-Keynesian school because "Sraffians, reject Keynes's notion of the importance of uncertainty (i.e., nonergodicity) in determining the effective demand equilibrium solution." (8)
The approach we take in this chapter is to elaborate the thoughts of Samuelson on the dual Pasinetti theorem and raise them to a more general level without the weight of the post-Keynesian distinction. The generalization focuses on whether the propensity to save by both workers and capitalists is significant for the determination of the profits in income and on capital.
Pasinetti originally proposed his theorem, or paradox, in relation to Kaldor's theory on the distribution of income between capitalists and workers. In response, Samuelson and Modigliani pointed out that the result is more general, applying to any golden-age growth theory. While Pasinetti thought that the dual theory is an apology for neoclassical economics, Samuelson and Modigliani perceived the subject matter as a general theorem. They wrote that, "As is the case for duality relations, there is a complete symmetry between the Primal and Dual equilibria. Neither is more general than the other. This symmetry Dr. Pasinetti once more denies. He continues to regard his golden-age equilibrium as a more general one, being in some special sense relevant independently of marginal productivity assumption." (9)
Pasinetti's Theorem and Its Background
The Pasinetti theorem or paradox "gives a neat and modern content to the deep-rooted old Classical idea of a certain connection between distribution of income and capital accumulation." (10) The paradox is important because it is "regarded as a system of necessary relations to achieve full employment." (11) Its methodology is based on classical rather than on neoclassical economics. Its practitioners claim that it is more in line with pure Keynesian thought than with those thoughts that are layered with a classical overview. The theorem that Pasinetti advanced and proved is as follows:
The equilibrium rate of profit is determined by the natural rate of growth divided by the capitalists' propensity to save; independently of anything else in the model. (12)
Pasinetti's theorem can be traced to concerns with the distribution of income between wages and profits. Once capital and labor produce goods and services jointly, the problem of how each is rewarded for their efforts must be solved. The most popular solution is to treat profits as a residual, meaning that the capitalists take what is left over, if any, after rewarding labor. According to C. Ferguson, "the first of the modern 'alternative' theories of distribution is Kalecki's." (13) Here, the word alternative is used in the sense of a theory based on demand and grounded in Keynesian thought. Ignoring foreign trade, government expenditures, taxes, and workers' savings, Kalecki wrote that "Gross profits = Gross investment + Capitalists' consumption." (14) To show how this equation is derived, Kalecki borrowed from the Keynesian demand side concepts, which allows National income = Gross profit (P) + Wages (W). National income is also equal to Total consumption (C) + Gross investment (I). (15) Total consumption, = Capitalists' Consumption ([C.sub.c]) + Workers' Consumption ([C.sub.w]). Kalecki assumed that workers consume all their income or wages, [C.sub.w] = W. Collecting the terms, we have: P + W = I + [C.sub.c] + [C.sub.w] = I + [C.sub.c] + W. Solving for P yields the desired expression for gross profits that Kalecki noted.
We turn now to how Kalecki determined the value of output, and the share of output that goes to labor and capital. To value output, he used a price mark-up on prime costs, k > 1, which he applied to wage, W, and material costs, M. Gross profits then yields: P = k(W + M) - (W + M) = (k - 1)(W + M) Similarly, National Income = P + W = (k - 1)(W + M) + W. We can now express workers' share of national income as: w...
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