A Macroeconomic Analysis Of Profit

195 Pages·2019·1.296 MB·English

by  Carrera, Andrea

A Macroeconomic Analysis
of Profit
Based on the observation of economic reality, this book provides for the
foundations of a new structure of national payment systems. Specifically,
to this end, a rigorous accounting for money transactions, savings, and
invested profit is suggested, with a major aim to settle sustainable lending
levels.
Profit lies at the heart of economic activities. Indeed, companies, from
small to large, seek net gains to remunerate shareholders and to increase
their assets. Yet, economists are far from sharing a common theory of profit.
Using mathematical tools and a discursive approach, this book contributes
to the debates in such regard, in the attempt to provide new answers to old
economic issues. What is macroeconomic profit? Is there any relationship
between wages, lending, and profit?
This book is an accessible resource for economists and financial experts
as well as global economics students, researchers, academics, and historians
alike. It will challenge policy-makers and professionals and lead them on a
thought-provoking journey through the realm of macroeconomics.
Andrea Carrera is Professor of Economics at Schiller International University,
Madrid campus, Spain. He has gained academic and business experience
in both Europe and North America. He has lectured on and authored a
number of scientific articles in economics, and he has worked for large and
medium-sized companies. Andrea holds a PhD (Switzerland) and an MPhil
(Spain) in economics. He loves 20th-century history, languages, food, and
hiking with good friends.
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A Macroeconomic Analysis of Profit
Andrea Carrera
For more information about this series, please visit: www.routledge.com/
books/series/SE0345
A Macroeconomic Analysis
of Profit
Andrea Carrera
First published 2019
by Routledge
2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN
and by Routledge
52 Vanderbilt Avenue, New York, NY 10017
Routledge is an imprint of the Taylor & Francis Group, an informa business
© 2019 Andrea Carrera
The right of Andrea Carrera to be identified as author of this
work has been asserted by him in accordance with sections 77
and 78 of the Copyright, Designs and Patents Act 1988.
All rights reserved. No part of this book may be reprinted
or reproduced or utilised in any form or by any electronic,
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including photocopying and recording, or in any information
storage or retrieval system, without permission in writing from
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Trademark notice: Product or corporate names may be trademarks
or registered trademarks, and are used only for identification and
explanation without intent to infringe.
British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging-in-Publication Data
Names: Carrera, Andrea, 1986– author.
Title: A macroeconomic analysis of profit/Andrea Carrera.
Description: 1 Edition. | New York, NY : Routledge, 2019. |
Includes bibliographical references and index.
Identifiers: LCCN 2018058380 (print) | LCCN 2018060582
(ebook) | ISBN 9781351213356 (eBook) | ISBN 9780815380351
(hardback : alk. paper) | ISBN 9781351213356 (ebk)
Subjects: LCSH: Profit. | Wages. | Loans. | Banks and banking.
Classification: LCC HB601 (ebook) | LCC HB601. C327 2019
(print) | DDC 338.5/16—dc23
LC record available at https://lccn.loc.gov/2018058380
ISBN: 978-0-8153-8035-1 (hbk)
ISBN: 978-1-351-21335-6 (ebk)
Typeset in Sabon
by Apex CoVantage, LLC
Contents
List of figures vii
List of tables viii
Foreword ix
ALVARO CENCINI AND SERGIO ROSSI
Foreword and acknowledgments xv
ANDREA CARRERA
Introduction 1
1 Money, production, and profit 9
Bank money and the real economy 9
Banks since the industrial revolution 18
Interbank payments and the central bank 28
What room for profit? 37
2 Classical and neoclassical theories of profit 41
The old quest for the surplus 42
Profit at the outset of the neoclassical theory 50
Profit and contemporary neoclassical models 54
The neoclassical theory of distribution 60
3 Keynes and Keynesian theories of profit 64
At first, they were windfalls 65
The importance of profit expectations 70
‘Orthodox’ versions of The General Theory 73
Post-Keynesian theories 76
4 New directions in the theory of profit 87
Wages and profit allocation 87
Wages and invested profit 93
vi Contents
Value of total output 98
Profit and interest 101
Profit and capital growth 104
5 Profit, lending, and banking reforms 108
The bugbear of a new financial crisis 108
The fragility of regional regulations 111
Challenges to Basel III 119
A reform of the system of national payments 125
Conclusion 135
Bibliography 143
Name index 166
Subject index 171
Figures
1.1 Bank deposits 17
4.1 Deposits growth (per month, in dollars): an upward limit 107
Tables
1.1 The stylized balance sheet of commercial banks 11
1.2 Wage payment and consumption 13
1.3 Interbank payments in absence of the central bank 30
1.4 Interbank payments and the central bank 31
1.5 The stylized balance sheet of central banks 34
1.6 Payment instruments in the United States 37
4.1 Wages and profit 88
4.2 Profit and unsalable output 89
4.3 Dividends, taxes, and interests 89
4.4 A way to investment 90
4.5 Wages in a multi-company economy (in millions of dollars) 91
4.6 Wages, prices, and profit in a multi-company economy (in
millions of dollars) 92
4.7 Investment or distribution (1) 94
4.8 Investment or distribution (2) 95
4.9 Investment and distribution (1) 98
4.10 Investment and distribution (2) 98
4.11 The infinite horizon 105
4.12 Deposits growth (per month, in dollars): an upward limit 106
5.1 Consumer lending and inflation 126
5.2 Income and consumption (1) 128
5.3 Income and consumption (2) 129
5.4 Dividends, taxes, and interests 130
5.5 Investment 133
5.6 Department balances 134
Foreword
The existence of profits is a fact nobody can deny. Yet, economists’ search
for a satisfactory theory of profits has been going on for a long time, and it is
only recently that a full explanation of their formation and expenditure has
been provided. The Classics, confronted with the law of exchange establish-
ing the necessary equivalence between the terms of any relative exchange,
could not explain the formation of positive profits in a way consistent with
their labor theory of value. If the exchange value of goods is determined by
the labor necessary for their production, and if the payment of wages cor-
responds to the purchase of labor, no difference can ever occur between the
amount firms pay to workers as wages and the amount firms earn through
the sale of produced output. For the Classics, the law of exchange takes the
form of the necessary equality between values and prices, and if the payment
of labor is identified with the purchase of produced output by firms, it is
immediately clear that firms cannot derive any positive profit from the sale
of this same output to consumers. Purchased by firms at a price equal to its
value expressed in labor terms, products can be sold to consumers only at
the same price: profit is necessarily nil both for any single firm and for the
set of firms.
Marx’s attempt to avoid this result by introducing a distinction between
labor and labor power fails, because profit (surplus value), formed as the
difference between the value of labor’s output and the value of labor power,
takes the form of a stock of goods that is doomed to remain unsold. The
only income available in Marx’s system being equal to the value of labor
power, namely to what we would call today the value of wage-goods, profit-
goods, which are obtained at zero cost by firms thanks to surplus labor,
are unsalable. The logical impossibility to explain the monetary realization
of surplus value calls thus for the rejection of Marx’s ingenious attempt to
explain profit as a surplus value and confirms the difficulty of reconciling
the law of exchange with the existence of profit.
The law of exchange is also at the center of Walras’s general equilibrium
analysis, which is logically incompatible with the existence of firms’ profits.