II.1. Critique of MPT/MDT
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Transcript II.1. Critique of MPT/MDT
Postkeynesian (PK) theory of production
and distribution – selected problems
I. Keynesianism, neo-Keynesianism, postKeynesianism
1. Nature of the so called Keynesian revolution in
economics
Keynes: rejection of neo-classical equlibrium concept
Main research area: short-term unequlibrium and adjustment
processes ( a difference with regard to monetarists)
Rejection of economic liberalism (model of anti-cyclical state
interventionism)
Missing component: original (own) microeconomic theory (generally,
the acceptance of neo-classical MPT and MDT)
2. Grand neo-classical synthesis (Samuelson): combination (fusion) of
Keynesian macroeconomics (demand oriented theory of aggregate
income) with essental theorems of neo-classical microoeconomics
(production and distribution theory in particular) a new (eclectic)
model of state interventionism
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PK production and distribution theory
3. Neo-Keynesianism (new Keynesian macroeconomics)
Genesis: incapability of Keynesian equlibrium theory to
explain some phenomena related to general unequlibrium
(in particular: simultaneous occurrence of high
unemployment and inflation rate Philip’s curve ;
critique by both monetarists and representatives of New
Classical Macroeconomisc (NEC theory of general
equlibrium under the assumption of rational expectations)
Nature of neo-Keynesian economics: theory of short-term
equlibrium under the circumstances of price rigidity
(sticky prices of goods and wages) > market clearing
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through quantities and not through prices
PK production and distribution theory
4. Postkeynesianism: general profile
Most radical critique of NCE within the mainstream
economics
Continuation of Keynesian macroeconomics, with overall
rejection of neo-classical microeconomics, and MPT/MDT
in particular
Numerous references to classical economy (classical
political economy) in the way of interpreting the
mechanism of performance of capitalist (market)
economyneo-Ricardianism
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PK production and distribution theory
4. Postkeynesianism: general profile - cont.
1.
2.
3.
Opposite (with respect to NCE) interpretation of all
essential categories related to production and distribution
theory (capital, profit, rate of interest, labor and wage)
Methodological differences in relation to NCE:
Rejection of NCE equlibrium concept
Historism vs. Neoclassical unhistorism
Undertaking of the analysis of social and institutional
conditions of economic phenomena and processes
Non homogenous nature of Postkeynesian economics
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PK production and distribution theory
II. Main research areas within PK economics
1.
Critique of MPT/MDT
Relevance of essential categories and statements of
MPT/MDT with respect to the economic reality and
capabilities of empirical identification (with reference to
postulates of methodological individualism and critical
rationalism)
Internal consistence (conformity) of MPT/MDT (main area of
controverses about the capital theory)
(interdependence of two above mentioned directions of PK
critique of NCE)
2.
Functional distribution in the approach of PKE
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PK production and distribution theory
II.1. Critique of MPT/MDT
Generally: rejection of the possibility of constructing
(existence) the aggregate (macroeconomic)
production function as a foundation for explaining the
proportions of functional distribution of social product
1.
2.
3.
Incapability of aggregation of capital in technical or natural
units (due to heterogenous character of capital as the
production factor)
The above mentioned aggregation is, conditionally, if at all,
possible at the level of enterprise (microeconomic production
function) or – with respect to time –ex ante (never ex post)
In economic reality, capital can be aggregated when prices of
physically heterogenous capital goods are known (it requires
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that prior to this aggregation we know the rates of profit
II.1. Critique of MPT/MDT – cont.
1.
2.
In the NEC MPT/MDT we have to do with conscious
identification (or confusion) of two notions:
Capital as the resource of financial means (assets)
Capital as resource of physical means (assets)
Conclusion: the amount of capital (in the macro scale)
ever depends on the of interest rate (as the unit reward of
capital) and wage rate (as the unit reward of labor) it
is theoretically described be the so called Wicksell’s
price effects
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II.1. Critique of MPT/MDT–Wicksell’s
price effects
y rk w
y w wmax w
k
r
r
wmax w1
k1 tg1
r1
k2 tg 2
wmax w2
r2
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II.1. Critique of MPT/MDT–Wicksell’s
price effects
Value of k does not depend
on prices of production factors
only if the relation w/r is
constant (rectlinear
w-r curve)
Accordingly with MPT/MDT,
the constancy of w/r relation
must denote the constancy of
K/L relation
If K/L=const, then the
substitution between K and L
is impossible, which means
the NEC macro production
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function does not exist
II.1. Critique of MPT/MDT
In the real economic world, one can not speak of
continous substitution between production factors.
but of discrete (discontinous, step) substitution
(Leontieff production funkction). The respond of
NCE on this critique was the concept of the so
called surrogate production function by Samuelson
In the real world, we have frequently to do with
cases that the transition towards more capital
intensive technologies is accompanied by the
increase in interest/profit rate (which contradicts the
MPT/MDT)
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II.1. Critique of MPT/MDT
It is in practice not feasible to separate
(1) the increase in product brought about by the
substitution of labor for capital, from
(2) that increase which is caused by disembodied
technological change/progress (as it results from
the concept of macroeconomic NCE production
function) PK concept of the technological
progress function by Kaldor
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II.2. Essential PK categories and theorems
concerning the functional distribution
Adoption of the assumption about the existence of class
structure of the society (in accordance with the tradition of
classical economy)
Functional distribution of social product (GDP, NI) is
mostly institutionally determined; first of all, results from
the bargaining power of social classes collective
bargaining theory
Historically determined level of living (maintenance) costs
of workers is the main factor shaping the proportions of
functional distribution
Profits and natural rents are residual revenues (rejection of
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MPT statements also with respect to labor and wages)
II.2. Essential PK categories and theorems
concerning the functional distribution
1.
2.
Labor as the only real production factor (reference to the
classical economy, neoricardianism)
Concept of the so called real capital (as the critique of NCE
approach towards the capital )
Capital which exists at a given point of time is the (physical)
embodiment of time of labor of past periods
Capital represents this part of labor resource (in terms of labor
time) being currently available to the society (economy) which
can be used in the future
The value of capital ever depends on unit rewards (prices) of
capital (r) and labor (w) Wicksell’s price effects
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II.2. Essential PK categories and theorems
concerning the functional distribution
Wages are not determined by marginal productivity of
labor) (critique of MPT)
Market (current) level of wages is a magnitude which is
secondary with respect to the rate of profit and results from
the following (theoretical) reasoning:
1. There exists a historically determined rate of profit
2. From this rate of profit results a given value of capital
3. Wages have to reach a level that by this value of capital the
above mentioned rate of profit is attained
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II.2. Essential PK categories and theorems
concerning the functional distribution
In real economy, the rate of profit (of interest)
depends merely on investment decisions (here
consisting in increasing the amount of physical
capital) and propensity to saving of entrepreneurs.
It is so even when there occur savings of workers
(workers as owners of the part of existing capital)
the so called Passinetti’s paradox
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