British Post-Keynesians

The general statements that embody the concepts underlying most post-Keynes-ian analysis have not proved particularly problematical, but the specifics drawn from them have. The British post-Keynesians (sometimes called neo-Ricardians) believe that the correct approach is to go back to the Ricardian theory of production and supplement it with a Kalecki class theory of business cycles. Following the work of Piero Sraffa in Production of Commodities by Means of Commodities: Prelude to a Critique of Economic Theory (1960), they argue that the division of income between wages and profits is indeterminate and inde­pendent of total output. Hence, the distribution of income is determined not by marginal productivity but by other forces, which are macroeconomic in nature. In this view they follow a model similar to one presented by Michal Kalecki in 1933, which he summed up in the statement that workers spend what they get and capitalists get what they spend.

Kalecki makes three central assumptions in his model. First, he assumes that firms use a cost-plus method of pricing. Capitalists determine the profit rate and the wage rate but not the total profit or the total level of wages, because those are determined by the total level of output. Second, no saving is translated into spending, so the total level of output is determined by the level of total demand in a type of Keynesian multiplier fashion. Third, workers spend 100 percent of their income, so their marginal propensity to consume is 100 percent.

Capitalists' spending on investment tends to be arbitrary and unrelated to their level of profits (which constitute savings). If they spend all their profits, demand is sufficient to buy all the production, and total output and profits will be high. If capitalists become pessimistic and do not spend but save their profits, aggregate demand and total output will be low, profits will be low (though the profit rate will remain the same), and unemployment will follow. Thus, the distribution of income between wages and profits is determined by macro-economic forces, not marginal productivity. Most of the assumptions in this simple model can be modified, making the results somewhat more ambiguous, without invalidating the general insight that the macroeconomic level of activity is a determinant of the distribution of income.