A Macroeconomic Analysis of Profit by Carrera Andrea;

Author:Carrera, Andrea;
Language: eng
Format: epub
Publisher: Taylor & Francis (CAM)
Published: 2019-03-28T16:00:00+00:00

Kaldor: profit as a type of income

The most notable of the early works developed in the wake of Keynes is Nicholas Kaldor’s 1956 paper on ‘alternative theories of distribution’, where he investigated the relation between profit, output, wages, and the saving rates out of wages, sw, and out of profits, sp. His intention was to improve economic analysis, which was based on what he was later to define the ‘[c]osy world of Harrod, Domar and Solow, where there is only a single saving propensity applicable to the economy – where in other words, sY = swY’ (Kaldor 1966: 311). The model at hand took several years to develop, albeit some features of Kaldor’s famous 1956 article were already to be found in a text which was authored by him in 1951 (see King 2009: 62). In this article, Kaldor proposed an economic model which drew on Keynes’s definition of total income. Starting from Keynes’s (1936 [1964]: 23) definition of total income as the sum of the ‘factor cost’ and profit, Kaldor (1956) analytically defined national output, Y, as the sum of wages, W, and profit, P (namely, Y = P + W). Further, investment, I, and savings, S, were supposed to be equal (I = S).

Kaldor believed that entrepreneurs’ savings were to be added to those of households and that their combined sum determined the amount of investment. It was Keynes who had advanced the hypothesis that investment was determined by the total for households’ savings and savings from profits. Therefore, being that investment was defined as the sum of saving from wages and saving from profit, Kaldor developed the following equation of investment:

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