Friday, April 8, 2016

A Brief Sketch of the Classical-Keynesian Perspective

By David Fields

From a Classical-Keynesian perspective (Bortis, 1997, 2003), rates of interest regulate rates of profits (Panico, 1980, 1985), and, thus, real wages are endogenously determined. The presence of financial instruments, which represent titles to future flows of income, makes it so that the actual center of distributive conflict in capitalism lies not in the technical conditions of production, but is rather governed by the real rate of interest, which is a conventionally-determined exogenous variable that reflects the relative powers of finance capitalists vis-à-vis industrial capitalists & labour (Pivetti, 1985, 1991, 2001).
The rate of profit, as a ratio, has a significance, which is independent of any prices, and can well be ‘given’ before the prices are fixed. It is accordingly susceptible of being determined from outside the system of production, in particular by the level of money rates of interest. (Sraffa, 1960: 33)
In this sense, high real rates of interests induce industrial capitalists to prefer short-term speculative financial investment, instead of long-term productive real investment, since access to credit is expensive. Consequentially, industrial capitalists center attention on the pursuit of immediate surplus value realization, via speculation, in order to handle the burden of costly interest payments—the social cost being nominal wage suppression, which, by implication, exhibits an enlargement of the reserve army of labour.
[…] the credit system, which has its focus in the so-called national banks and the big money-lenders and usurers surrounding them, constitutes enormous centralisation, and gives this class of parasites the fabulous power, not only to periodically despoil industrial capitalists, but also to interfere in actual production in a most dangerous manner— and this gang knows nothing about production and has nothing to do with it. (Marx 1894: 544-45)
Along these lines, heterodox growth and distribution models have been put forward (cf. Hein, 2008), highlighting the need for a redistribution of income from finance/industrial capitalists to labour (Lavoie and Seccareccia, 1999) and making unemployment the primary policy target (Smithin, 2004). Underpinning these models are works that incorporate Keynes’ principle of effective demand and Sraffian price theory in a long-period analysis of capital accumulation (Park, n.d.; Cesaratto et al. 2003). These studies pay considerable attention to the extent to which the Hicksian supermultiplier concept effectively explicates the degree to which induced consumption and investment, via the accelerator, determine average levels of total output (Serrano, 1995) and, thus, normal capacity utilization (Amadeo, 1986; Trezzini, 1998), with the richness of a framework inspired by Kaldor and Pasinetti (Docherty, 2012) that meticulously constitutes the palpability of Kalecki’s famous aphorism that ‘capitalists get what they spend…workers spend what they get’.

Originally published in the URPE blog.


Amadeo, Edward J. 1986. “Notes on Capacity Utilisation, Distribution and Accumulation.” Contributions to Political Economy 5(1):83–94.

Bortis, Heinrich. 1997. Institutions, Behaviour and Economic Theory: A Contribution to Classical-Keynesian Political Economy. Cambridge: Cambridge University Press.

Bortis, Heinrich. 2003. “Keynes and the Classics: Notes on the Monetary Theory of Production.” In Modern Theories of Money: The Nature and Role of Money in Capitalist Economies, (eds.) Louis-Philippe Rochon and Sergio Rossi. Cheltenham, UK: Edward Elgar.

Cesaratto, Sergio, Franklin Serrano, and Antonella Stirati. 2003. “Technical Change, Effective Demand and Employment.” Review of Political Economy 15(1):33.

Docherty, Peter. 2012. “Long Period Interest Rate Rules in a Demand-Led Kaldor-Pasinetti-Sraffa-Keynes Growth Model.” Journal of Post Keynesian Economics 34(3):521–46.

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Panico, Carlo. 1985. “Market Forces and the Relation between the Rates of Interest and Profits.” Contributions to Political Economy 4(1):37–60.

Park, Man-Seop. n.d. “Towards a ‘Classical-Keynesian’ analysis of Effective Demand in the Long Period.” Retrieved May 8, 2014.

Pasinetti, Luigi L. 1962. “Rate of Profit and Income Distribution in Relation to the Rate of Economic Growth.” The Review of Economic Studies 29(4):267–79.

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Pivetti, Massimo. 2001. “Money Endogeneity and Monetary Non-Neutrality: A Sraffian Perspective.” In Credit, Interest Rates and the Open Economy, (eds.) Louis-Philippe Rochon and Matias Vernengo. Cheltenham, U.K: Edward Elgar.

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1 comment:

  1. "high real rates of interests induce industrial capitalists to prefer short-term speculative financial investment, instead of long-term productive real investment"
    There is a problem here, interest rates are certainly one of the main outcomes of distributive conflict. However, following a classical-keynesian line (or at least the classical part) one cannot make this kind of claim. If there is free mobility of capital, rate of returns tend to move side by side. This means that if the rate of interest can change permanently, the rate of return of "long term productive investment" will follow it. So your claim is unfounded.


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