Modern Theories of Income Distribution

208 Pages·1979·26.069 MB·English

by  M. C. Howard (auth.)

MODERN THEORIES
OF INCOME DISTRIBUTION
MACMILLAN NEW STUDIES IN ECONOMICS
Published
Brian Burkitt and David Bowers
TRADE UNIONS AND THE ECONOMY
Keith Cuthbertson
MACROECONOMIC POLICY: THE NEW CAMBRIDGE, KEYNESIAN
AND MONETARIST CONTROVERSIES
M. C. Howard
MODERN THEORIES OF INCOME DISTRIBUTION
Homa Katouzian
IDEOLOGY AND METHOD IN ECONOMICS
In preparation
Sanjaya Lall
TRANSNATIONALS AND THE LESS DEVELOPED COUNTRIES
MODERN THEORIES
OF INCOME
DISTRIBUTION
M. c. Howard
Lecturer in Economics, University of Leicester
M
©M. C. Howard 1979
All rights reserved. No part of this publication may be
reproduced or transmitted, in any form or by any means,
without permission.
First published 1979 by
THE MACMILLAN PRESS LTD
London and Basingstoke
Associated companies in Delhi Dublin
Hong Kong Johannesburg Lagos Melbourne
New York Singapore and Tokyo
Typeset by
PREFACE LTD
Salisbury, Wilts
British Library Cataloguing in Publication Data
Howard, Michael Charles
Modern theories of income distribution. -
(Macmillan new studies in economics).
1. Income distribution 2. Economics - History'
- 20th century
I. Title
339.2'09'04 HB601
ISBN 978-0-333-19460-7 ISBN 978-1-349-16194-2 (eBook)
DOI 10.1007/978-1-349-16194-2
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The paperback edition of this book is sold subject to the condition that it
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Contents
Preface and Acknowledgements vii
1 Introduction 1
The problems considered 1
Neoclassical theory 2
Equilibrium 7
General- and partial-equilibrium analysis 9
Causation and determination 11
2 Neoclassical General-Equilibrium Theory 15
Area of concern and methods employed 15
The problems of general-equilibrium theory 19
The structure of the model: commodities, agents and
prices 28
Aggregation, homogeneity, normalisation and Walras's
Law 32
Debreu's analysis of existence 36
Interpretations of general-equilibrium theory 50
Uniqueness, stability and comparative statics 54
Criticisms and new developments 63
3 Distributional Characteristics of General Equilibrium 69
Introduction 69
Marginal relationships inherent in equilibrium 69
Comparative statics 74
Interest 75
Profit 80
Temporary equilibrium 86
Conclusion 89
4 Accumulation and Distribution: a Neoclassical Theory 90
Introduction 90
vi Contents
An outline of early neoclassical ideas on the relationship 92
of accumulation and distribution
A one-commodity model: the aggregate production 95
function
The specification of more general models 103
Reswitching and capital reversal 106
The marginal product of capital and the rate of interest 115
Conclusion 119
5 The Neo-Ricardians: Supply, Demand and Equilibrium 122
Introduction 122
Supply and demand 122
An 'alternative' theory 127
Equilibrium 129
Conclusion 134
6 The Neo-Keynesian Analysis of Income Distribution 135
Introduction 135
The characteristics of Robinson's system 135
A simple Kaleckian model of distribution 141
Robinson's theory of distribution: the short period 143
Robinson's theory of distribution: the long period 148
Pasinetti's extension of neo-Keynesian theory: the
influence of workers' savings in the long period 155
An assessment of neo-Keynesian theory 157
7 Conclusion 168
Notes and References 174
Bibliography 187
Author Index 195
Subject Index 197
Preface
This book is concerned with modern economic theories of income
distribution. The reference to 'modern' means that the concern is
mainly with theory that has developed since the 1930s and more
particularly since the 1950s. The term 'economic' indicates that
the subject-matter is the work of social theorists who would desig
nate themselves as economists rather than, for example, sociolog
ists or historians. Indeed these latter groups would probably regard
the type of analysis dealt with here as displaying much of what they
consider 'wrong' with economics. It is highly abstract, assumptions
are often used which are outrageous representations of reality and
controversies rage over what could be considered simply esoteric
matters. Indeed, many non-economists might regard economic
theorists as engaged in intellectual games rather serious social
analysis. Applied economists often seem to share this disposition.
Consequently, there is some attempt to defend the theoretical
problems considered, and this is also done in ways which other
social scientists might best appreciate. Such justifications may of
course be unconvincing. Nevertheless they should be considered
before criticism of economic theory is made.
It would be wrong to pretend that the subject-matter of this
book is simple. Modern economic theory may have many defects,
but by and large viewing economies as social structures that are
easily understandable is not one of them. I have attempted to keep
the treatment as elementary as is possible, though it was not feas
ible to write for readers who have no previous knowledge of
economics. Someone who has taken a first-year university course in
economics, or its equivalent, should not find the going difficult. No
chapter assumes a knowledge of economic theory greater than that
found in the main theoretical sections of good introductory text
books like Lipsey (1975), or Samuelson (1976). A major part of
the book is concerned with general-equilibrium theory. It has been
viii Preface
assumed that readers are unfamiliar with this. Consequently, there
is an outline of the basic ideas involved, especially in Chapters 2
and 3. These may also prove of some use to readers who are not
particularly interested in distribution theory but plan to learn some
advanced microeconomics.
So far as mathematical prerequisites are concerned I have
assumed only that the reader is familiar with elementary algebra
and the basics of differential calculus. On the latter requirement
essentially all that is needed is an intuitive understanding of the
notions of a derivative, a partial derivative and a total differential.
Those totally ignorant of these concepts would be advised to con
sider a mathematical economics text such as AlIen (1938), Chiang
(1974) or Archibald and Lipsey (1978).
I would like to thank the following for comments and criticisms;
John Bonner, Ian Bradley, Martin Hoskins, Peter Jackson, John
King, Ronald Meek, Lionel Needleman and David Pyle. Thanks are
also due to Jean Cretney, Pat Gretorex, Heather Hopper, Mavis
Johnson, Joan Raby and Penny Winspur for secretarial assistance.
October 1978 M. C. H.
ACKNOWLEDGEMENTS
The author and publishers wish to thank Professor P. Garegnani
and the publishers of Review of Economic Studies, who have given
permission for the use of copyright material: Table 4.1 (p. 114) and
Figures 4.10, 4.11, 4.12, and 4.14 (pp. 113-16).
1
Introduction
THE PROBLEMS CONSIDERED
The type of distribution analysis considered in this book is
conventionally called 'functional distribution' theory. This seeks to
explain the prices which are paid to factors of production, i.e. the
various kinds of labour, natural resources and produced means of
production. It also covers the problem of accounting for the shares
which these factors have in national income. It is not directly
concerned with the distribution of income between persons.
However, the link between 'functional' distribution and 'personal'
distribution problems is a close one. Once factor prices are
determined then knowledge of the distribution of ownership of
these factors suffices to account for the personal distribution of
income and wealth. And if certain types of factors are
predominantly owned by certain groups, knowledge of factor
shares explains in great part the shares of these groups.
Furthermore, the questions considered here are highly abstract.
For example, we will not be directly concerned with such questions
as why the average wage rate of miners is usually higher than that
of nurses or why the share of labour in the United Kingdom or the
United States has risen in recent years. Our concern is with much
more general questions such as whether or not such phenomena
can be explained in terms of an equilibrium of demand and supply.
In order to appreciate the strengths and weaknesses of less
abstract theory these matters need to be considered. It is also the
case that such abstract questions have been in the forefront of
controversies over distribution theory since at least the early
nineteenth century and have re-emerged strongly in the intense
debates of recent years. Marx, following Ricardo, was rarely more
scornful of alternative analyses to his own than when he discusses
those deemed to be theories of 'supply and demand'. The modern