The Economic Consequences of Weintraub's Consumption Coefficient

Abstract

In Michal Kalecki's work, aggregate profits are shown to be the sum of gross investment, the government budget deficit, the export surplus, and the difference between capitalist consumption and worker savings. In his 1979 paper, Weintraub suggested that the consumption coefficient, the ratio of total consumption to worker income, be used to generalize Kalecki's profit function by allowing the difference between capitalist consumption and worker savings to be expressed as a function of worker income. This generalization allows some post Keynesian assumptions (such as capitalist consumption equals worker savings and workers do not save and/or capitalists do not consume) to be dropped. Mair, Laramie, and Toporowski show that while use of the consumption coefficient simplifies and adds analytical precision to Kalecki's analysis, it does so at the cost of a loss of eliminating one of the dynamic channels of Kalecki's analysis, namely, the relationship between aggregate profits and capitalist marginal propensity to consume. They show the costs and benefits of using the consumption coefficient by outlining Kalecki's original model and including the consumption coefficient in order to analyze the effect of Weintraub's contribution to Kalecki's post Keynesian framework.