Joan Robinson's books and articles on the theory of accumulation constitute the bulk of her work in the 1950s and early 1960s. Her objective was to incorporate Keynes' principle of effective demand into long-run growth theory. The generalisation of Keynes' theory to the long-run was first attempted by Harrod (1948) but Joan Robinson's book (1956) was not only more rounded and richer in suggestions but also contained a version of principle of effective demand that originated with Kalecki rather than Keynes.
Though Joan Robinson has always acknowledged her debt to Kalecki and has recognised Kalecki's independent discovery of the principle of effective demand and his priority of publication, her identification with Keynes and even her own claim of being a Keynesian has confused readers reared on the dominant, 'Keynesian' interpretation of Keynes's theory.
For this reason, it will be useful to look in some detail at the short-run theory she employs in her work. But before we do this, let us very briefly examine the sense in which Joan Robinson is truly a disciple of Keynes.
There is no doubt that Keynes and the collective work of the Cambridge circus in the 1930s was a major influence on her thought. But despite the fact that she wrote an introductory book (Robinson, 1937) to explain and popularise Keynes' ideas, she soon took a distance from Keynes' specific analytical formulations. As Keynes himself was habitually quick to revise or even to completely abandon his own analytical formulations, this did not mean for her that she stopped being a follower of Keynes. At a deeper level the lessons of the years of her association with Keynes have never been forgotten and have been always present in her work.
What are these lessons ? They concern methodological orientation in economic theorising. First of all, economic theory must be about actual, observed phenomena and it must be of relevance to problems in the real world. This may sound obvious but if taken seriously it disqualifies a large part of economic theory. The second, and most characteristic lesson that Joan Robinson draws from Keynes, is the importance, on the one hand, of uncertainty and expectations about the future and, on the other hand, of the frequent irreversibility of past decisions. Indeed, it is this, as we have seen, that makes history an indispensable dimension of economic theorising and which constitutes the main Keynesian attribute in economic modelling. Her opposition to neoclassical theory is, like that of Keynes, a direct consequence of this. Equally, the importance attached to the short-run and to the principle of effective demand is another major consequence of this lesson. The third lesson is the need for inclusion in economic theorising of relevant institutional detail. This has been again pursued by Joan Robinson, like the previous one, to its logical conclusion. She has emphasised the importance of institutional characteristics such as property relations in the operation of an economic system and she has gone further than Keynes by systematically including in her theorising the specification of the social relations of production. The central role that both this and history have in her approach to economic theory constitutes the bridge on which she brings together Keynes and Marx. Though, in her case, first taught by Keynes, these are lessons that have been confirmed and carried further by her study of Marx.
Let us now close this digression and return to Kalecki's version of the principle of effective demand that Joan Robinson employs in her work on accumulation. We will present this by means of a simple diagram that was first used in a somewhat different context in Joan Robinson (1953) but was used again in a recent assessment of Kalecki's work (Robinson, 1977).
But first let us set out the assumptions we make concerning, on the one hand, the technical conditions of production and, on the other, the social relations of production. As regards the former, we assume that productive capacity is given and does not change significantly in the period under discussion. There are two types of output: consumption goods and investment goods. These are produced by given techniques that combine labour with productive capacity in fixed proportions.
The social relations of production are typically capitalist and are characterised by the presence of three types of agents. Firms organise production in the pursuit of profit. Rentiers are the legal owners of the firms but have no direct control over the production process, all effective decisions being taken by hired managers. The rentiers' income consists of the dividends paid by the firms, the magnitude of which is determined by management. Workers sell their labour time to the firms for a wage.
Wages are to a large extent spent on consumption goods while a smaller proportion of profits is spent. The reason for this is not only that rentiers tend to have larger incomes and therefore can afford to save a larger proportion of them but also, and more importantly, a considerable amount of profits is retained by the firms. Firms retain profits for a variety of reasons and it is an empirical fact that in many advanced capitalist economies these constitute the bulk of savings. The firms' retention ratio is treated as an exogenous variable but total profits and the share of profits in income are endogenous variables.
The money wage rate is another exogenous variable determined by bargaining between workers and firms. Demand conditions in the labour market, the inflationary trend in the price of consumption goods as well as the degree of organisation of the workers and the behaviour of their trade unions are all factors that may influence the determination of the bargaining outcome and ought to be considered in a theory of the money wage rate. The price level emerges from the pricing decisions of individual firms. Firms mark up average variable costs according to the competition they face. Factors such as the degree of concentration, barriers to entry and product differentiation may enter into the determination of the size of the mark-ups. Markups, therefore, reflect the 'degree of monopoly'. In our aggregate model, the 'degree of monopoly' and the average mark-ups in the two sectors are taken as exogenous variables.
Average variable costs are constant and equal to marginal costs until capacity is reached, at which point they increase sharply. Average cost, on the other hand, falls with output up to full capacity because of the existence of overhead costs. Given that the mark-up is based on average variable or marginal cost, a higher degree of plant utilisation and employment implies a higher profit per unit of output for the individual firm and a larger share of profit in national income for the economy as a whole. In our aggregate model (Figure 3), since we consider a closed economy, all costs are labour costs. Imported raw materials or intermediate products that are part of the cost of domestic production need not be considered as long as we abstract from foreign trade.
Given the labour cost per unit of output, which is itself dependent on the exogenous money wage rate and the technique in use, the average mark-up in each sector determines the prices of the consumption and investment goods. Given the price in the consumption goods sector and the money wage rate, the real wage emerges.
The final variable to be considered is the value of investment. Joan Robinson does not feel that there is any point in specifying an investment function since, as is evidenced by empirical observation and econometric studies, investment tends to be erratic and it cannot be reliably and systematically related to any quantifiable variable. The determinants of the propensity to accumulate need to be sought in the 'historical, political and psychological characteristics of an economy' (1962b p. 37) which shape firms' expectations of future profit, willingness to take risks and drive for growth. For this reason, investment is treated as an exogenous variable dominated by the 'animal spirits' of the business community.
Having described the assumptions that Joan Robinson makes regarding the variables which are included in her version of Kalecki's model, let us now take a look at a diagram that demonstrates clearly the basic theoretical mechanism of her model (Figure 4).
On the _v-axis we measure money values and on the x-axis both employment and consumption goods' output. It is possible to use the x-axis for both by choosing the labour unit so as to equal the labour time required for the production of one unit of consumption goods. Since the technique in use is given and unchanging,
this presents no problem in the absence of overhead labour. In the case that there is overhead labour, the technique is specified in terms of variable rather than total labour and the labour unit is defined to equal the variable labour time required for the production of one unit of consumption goods. The use of a single technique in the production of consumption goods rules out the possibility of plants operating with varying efficiency. If we want to allow for this possibility, then we need to assume that the shares of different plants in total output are constant in the short-run. With this assumption, we can again define a single technique as the weighted average of the techniques in use and we can therefore again specify the labour unit so as to be able to measure both employment and consumption goods output on the same axis.
OC is employment and output in the consumption sector, DI is employment in the investment sector. We will take employment and output in the consumption sector as given provisionally. On the other hand, DI is determined by the exogenously given value of investment and the mark-up in the investment-goods sector. The output of the investment-goods sector can be determined from the employment magnitude, DI, and the technique in use in that sector. CD denotes the amount of employment that could be provided if idle productivity capacity was all put into use.
Given the money wage, the wage cost per unit of output is O W, the wages bill in the consumption sector is OW - OC and in the investment sector OW*DI. The total demand for consumption goods is equal to the spending out of all wages and profits. Let us temporarily assume that there is no saving out of wages and no spending out of profits. Then the total demand for consumption goods is equal to the wages-bill in the consumption sector OW*OC plus the wages-bill in the investment sector OW*DI. Placing this total demand over the output of consumption goods, OC, we form the rectangle OP*OC in which the sub-area WP*OC is equal to the wages bill on the investment sector, OWOI. OP is then the price per unit of consumption-goods output that will clear the market and PW is the gross profit per unit of output. P W*OC is the volume of gross profits made in the production of consumer goods if the price is such as to equate the total demand to the supply of consumer goods. It is evident then that gross profits in the consumption-goods sector are equal to the wage bill in the investment-goods sector. This is a most important result and will hold as long as, on the one hand, there is no saving out of wages and no spending out of profits and, on the other, the price of consumer goods is not set below the market clearing level.
It is also possible to determine the volume of total gross profits in both sectors though this is not shown in the diagram. Gross profits in the investment-goods sector are equal to the difference between the market value of investment goods and the wage-bill in that sector. Since the latter equals gross profits in the consumption-goods sector, it follows that total gross profits in both sectors equals the value of investment.
Net profits can also be determined if depreciation values are known. The latter depend on the production life of the different types of plant, the accounting conventions in use and the price of investment goods. The first two require additional exogenous information while the last one is dependent on the 'degree of monopoly' in the investment-goods sector and the associated mark-up which is an exogenous variable that we have already made use of in determining the level of employment in the investment-goods sector.
So far we have been assuming no saving out of wages and no spending out of profits. If we remove the less realistic part of this simplifying assumption and recognise that profits are at least partly spent on consumption goods, then it is clear that total demand for these goods is correspondingly increased and so is gross profit. Our results so far can be summarised by Kalecki's famous saying: 'Workers spend what they get, and capitalists get what they spend'. On the reasonable assumption that workers' savings are insignificant, capitalists' spending, whether on consumption goods in their capacity as rentier households or on investment goods in their capacity as business managers, comes back to them as profits and determines the volume and even the existence of profits.
If, in the interests of exactitude, we withdraw the assumption that all wages are spent since there are always some savings however insignificant, the qualitative change in our results is quite obvious. Saving out of wages reduces total demand for consumer goods and therefore it correspondingly reduces gross profit. Nevertheless, the diagram is not easy to use when this assumption is dropped and an algebraic analysis becomes preferable (for such an example, see Skouras, 1979).
A final endogenous variable shown in the diagram is the real wage which is equal to OW/OP. It should be noted that the level of the real wage, as well as the relative shares of wages and profits, and even the level of employment and outputs all crucially depend on the firms' pricing policy. Mark-ups are set according to the market circumstances facing each firm. If these are treated as exogenous, then the level of employment and output become endogenous variables. We have already treated the investment-goods sector in this way; let us now examine in more detail what an exogenous mark-up in the consumption-goods sector implies for employment and output in this sector.
The importance that pricing policy and the degree of monopoly have, not only on the real wage, but also on the determination of employment and output as well as on relative shares is illustrated in Figure 5. We will consider two possible mark-ups, the one implying price OP and the other price OP'. When the mark-up is relatively high resulting in price OP, then the given demand arising from the investment-goods sector allows for the sale of OC goods. If firms produce more than this, they will not be able to sell all their output at the profit margins implied by price OP.
A lower mark-up allows a higher level of sales without affecting the volume of gross profits. Since gross profits in the consumption goods sector are equal to the given wage-bill in the investment goods sector (we use here the simplifying assumption of all wages spent, all profits saved), the mark-up can only affect sales and the levels of employment and output. The given volume of gross profits as determined by the investment-goods' wage-bill is in this instance OC-PW but it could equally well be, depending on the mark-up, any rectangular area under the rectangular hyperbola HH. For instance, the relatively lower mark-up resulting in price OP' makes possible a volume of sales sufficient to warrant full employment of the available productive capacity and generates the same volume of gross profits (OF- P' W being equal to OC*PW).
The model above integrates the theory of the firm, and in particular firms' pricing and output decisions, within the theory of effective demand. It shows clearly the way in which macro variables are affected by micro decisions and in this way it builds a bridge between macro-economic and micro-economic theory. It is instructive in this respect to consider the effects of a change in investment that the standard textbook treatment subsumes under the concept and analysis of the 'multiplier'. It can be immediately seen, by means of the present model, that an increase in investment will give rise to increased profits but the effect on employment and output will depend on the reaction of the corporate sector to the increase in demand. The standard multiplier is based on the assumption that firms, when faced with an increase in demand, expand production without altering their prices; another possible response, under quite plausible assumptions regarding firm behaviour, is that both output and prices will go up. The value of the multiplier thus is also clearly shown to depend on microeconomic behaviour and, in particular, on firms reactions to changes in the state of demand.
This model is used by Joan Robinson to generate a variety of growth paths given, on the one hand, the desire of firms to grow (resulting from their 'animal spirits') and, on the other hand, the feasible rate of growth under the ruling conditions of the growth of population and technical knowledge. The analytical typology that she thereby produces is extremely rich and goes under such colourful names as: golden age, limping golden age, leaden age, restrained golden age, galloping platinum age, creeping platinum age, bastard golden age, bastard platinum age. The growth path that neoclassical growth theory is concerned with, that is full-employment steady growth, is only the special case of 'a golden age', dubbed so 'to indicate its mythical nature'. In contrast to this, Joan Robinson's typology emphasises the checks to growth, the inevitable imbalances, and the inherent instability of the system, and analyses their consequences. This analysis, which cannot be briefly summarised and will not be pursued here, abounds in interesting insights and contains all the important results of neoclassical growth theory transposed to a Keynesian or Kaleckian theoretical setting that is firmly based on the principle of effective demand. As a consequence, not only does it put such results in their proper perspective but it also makes a stab at an out-of-equilibrium, more realistic (Joan Robinson would call it 'historical') analysis that never loses sight of the Keynesian principle that capitalist enterprise 'cannot be relied on, unassisted, either to achieve stability in the short run or to maintain an adequate rate of growth in the long run' (Robinson, 1962b, p. 87).
The foregoing account of Joan Robinson's work concentrated only on certain central aspects of her approach to economic theory. But her contributions to both economic as well as social theory (Robinson, 1970) are numerous and wide-ranging. In Samuelson's words (Samuelson, 1975), 'economics owes much to Joan Robinson for her many contributions across the whole spectrum of the subject: imperfect competition, Keynesian macroeconomics, international trade, Marxian-analysis contributions and critiques, growth theory, economic philosophy, and much more'.
Joan Robinson has two unique distinctions in the economics profession. She is the only great economist that has ever lived who is not a man. She is also the only great living economist who has not been awarded the Nobel prize. These two are the great scandals of the economics profession.