Janus Ante Portas

Abstract

Distribution, one of the main concerns of classical political economists, is virtually a non-factor when it comes to modern neoclassical economics. The importance and influence of competition between different classes on the factor markets was understood to be a constant feature of capitalism in classical political economy. I have been able to translate this classical conflicting-claims approach in a consistent stock-flow model, with a working banking system, two classes, capitalists and workers, and a vertically integrated firm sector. National income is divided between workers and two sets of capitalist interests: industrial and financial. Results of the model reinforce the intuition of Kalecki’s 1943 essay on Political Aspects of Full Employment. The output of capitalist economies, as well as profits of capitalists, could be higher, with policies of low interest rates and a high worker income share. However, as the paper shows, these hypothetical results are not tenable under a capitalist regime, with long-run changes in the power structure endangering the current social order. Finally the disconnect between the community and capitalists becomes even clearer when we see that a high profit rate implies a lower national income.