A FRAMEWORK FOR MACRO-DISTRIBUTION ANALYSIS

Abstract

SUMMARY The behavioural interpretation which Kaldor places on his famous identity between the investment-income ratio and the profit share, and which he attempts to justify by the erroneous claim that the investment-income ratio is an independent variable in the Keynesian system, rests crucially on a model of the firm's pricing behaviour. If an alternative pattern of pricing behaviour is postulated the direction of causation is reversed with the aggregate savings propensity, and hence aggregate demand, being dependent upon the distribution of income, and subsequently to Kaldor Cartter published a model in which both savings and investment are dependent upon the distribution of income. Both models centre upon the aggregate demand—income distribution relationship, but Cartter fails to incorporate any analysis of factor share determination and he does not show how a determinate level of income is achieved, whilst Kaldor's mechanism can only function in a full employment situation. In this paper the influences of marginal productivity and Kalecki's‘degree of monopoly’ are combined with Kaldor/Cartter-type propensities relating savings and investment to the distribution of income, thereby producing a model in which the level of income and the distribution of income are interdependent and involve the determination of a position of simultaneous equilibrium. It is argued that, by retaining the influence of marginal productivity and not being reliant on a full employment situation, the model is in fact more ‘Keynesian’ than Kaldor's so-called ‘Keynesian’ model.