Cardoso & Crespo - Some Critical Appraisals on the Profit-led Models Of

7/28/2019 Cardoso & Crespo - Some Critical Appraisals on the Profit-led Models Of

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Agenda:

Profits, investment and autonomous demand;

The Neo-Marxist Investment Function;

The impact of the introduction of other autonomous expenditures onThe Neo-Marxist Model (investment is considered autonomous);

A model where the effective rate of profit is not considered ; and

Some conclusions.


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Profits, investment and autonomous demand (1)

D M D => the typical process of capital accumulation;

Example:

-Suppose a capitalist advances 20 monetary unities:- 10 are used to consume means of production produced in the previous period (CC);- 10 are used to pay salaries (VC);- Suppose also that the production is sold by 30 monetary unities;

- 10 is generated as surplus value.

In this case, if the capitalist advanced only 20 monetary unities, where does the extra10 monetary unities come from to guarantee the realization of production?

how can production be increased in the absence of some form of autonomous expen-diture ?

Conclusion: even (Neo) Marxist models of growth depend on some form of autonomousexpenditure (investment) otherwise they can not explain systems of amplified reproduction(only systems of simple reproduction);

Current income can not finance its own expansion (corn economy x monetary economy)


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The Neo-Marxist Investment Function (2)

Solving the specification problem and reestablishing the inverse relation(XXXXXXX) Case 2:

- Growth becomes wage-led!

Solving the specification problem and reestablishing the inverse relation(XXXXXXX) Case 3: Non Linear Investment Function:

- Ambiguous result: if >1 => profit -led (investment compensates consumption);if wage -led.

What is the economic rationally to assume a non-linear investment function !?


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The impact of the introduction of other autonomous expenditures onThe Neo-Marxist Model (investment is considered autonomous) (1)

Some problems of the (Neo) Marxist investment function from an heterodox approach:

1 - Why capitalists would necessarily decide to increase investments when salariesare being reduced, once the resulting aggregate demand almost certainly isnot growing at the same rate of the augmented capacity ?

This completely ignores that investment crates productive capacity and that it must beutilized, i.e., there must be effective demand to use the additional investment.

The normal rate of profit is a floor to investment (however there is no direct link withInvestment decisions).

2 The rate of capacity utilization becomes the adjusting variable.

There is no tendency for the rate of capacity utilization to be equal to the desired orNormal level even in equilibrium and in the long or medium run.


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What happens to the rate of capacity utilization when other autonomous investment

Component is introduced (other than the investment):

-Suppose that = = = 1/3.

- Also that gz = 3%, gc = 3,5% e gi = 4%.

- The rate of capacity utilization diverges from the normal!!! (syndrome of the stubbornunderutilization of capacity);

-Another curious result: the other components of demand tend to disappear andthe growth of demand is sustained by investment only! The rate of capacity utilizationwould s t ab i l i z e at an abnormal level.


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What if the gi = gz = gc ? (Lima e Carvalho, 2006 e Blecker, 2002)

-Suppose that = = = 1/3.

- Also that gz = 3%, gc = 3,5% e gi = 4%.

- The rate of capacity utilization continuously diverges !!! (syndrome of the stubbornunderutilization of capacity);

-Another curious result: the other components of demand tend to disappear andthe growth of demand is sustained by investment only ! The rate of capacity utilizationwould stabilize at an abnormal level.

- A possible solution? Z/Y (Lima e Carvalho, 2006 e Blecker, 2002) Autonomous expenditure ?


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A model where the rate of capacity utilization is not a determinant to investment (2)

So if there are free capitalist riders:

When the productive capacity of the whole industry is underutilized, the individualcapitalist will get a higher mass of profits and a higher effective rate of profits thanthe average or representative capitalist when he adjusts his investments decisionsin order to obtain a normal rate of capacity utilization, contrary to the profit-ledmodels predictions.

b) When the productive capacity of the whole industry is overused, the individualcapitalist will get a higher mass of profits but a minor effective rate of profit thanthe average or representative capitalist when he adjusts his investments decisionsin order to obtain a normal rate of capacity utilization, contrary to the profit-ledmodels predictions.


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A model where the rate of capacity utilization is not a determinant to investment (3)


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Conclusions (1):

The Neo Marxist models of growth tries to justify some sort of mechanismby which the normal rate of profit positively influences investment. However, itIs not possible. So, aggregate investment is in fact financed in this model by anex nihilo credit;

No matter how big is the normal rate of profit-elasticity of investment, the level of income is notEither profit or wage led in the (Neo) Marxist investment function;

In general, the level of income is neither profit nor wage led in (Neo) Marxistinvestment function. The only possible result could be in an non-linear investmentFunction. However, who cares ?!

B&M investment function ignores that that investment creates productive capacityand that it must be utilized, which is even more dramatic when salaries are beendepressed (= when the normal rate of profit is been increased);

In the capitalist system there is always a minimum rate of profit belowwhich capitalists would not be willing to invest. However, from this latter proposition, one should not conclude that there is a functional relation,direct or indirect, between the normal rate of profit and the capitalists decision to invest.


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Conclusions (2):

The insertion of other components of autonomous demand in the NM models: the rate of capacity utilization diverges from the normal one or not (in the curious Kaleckian case);

Capitalists do many things as a class, but they certainly do not invest as a class;

The free rider capitalist breaks the results of the NM model, even in its most beneficial case.

Grazie !!!

Cardoso & Crespo - Some Critical Appraisals on the Profit-led Models Of

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