Income Distribution and Effective Demand

Abstract

In neo-Keynesian theory the distribution of income between labour and capital is explained in terms of two distinct though interrelated sets of forces. The first, usually attributed to Kalecki, is the ‘degree of monopoly’ of producers, or the relationship between the power of producers to control prices in the goods market and the power of labour to control wages in the labour market. The second — aggregate demand — is associated mainly with Kaldor’s theory that in the region of full employment distributive shares are determined, for given propensities to save out of wages and profits, by the level of investment. Kalecki had no particular interest in the hypothesis of full employment, and although aggregate demand does have a role in his analysis, he never adopted the Kaldorian theory. Kaldor, having as his main concern the analysis of full-employment growth, rejected Kalecki’s theory for this purpose and proposed his own as a substitute. Nevertheless the two may be regarded as complementary constituents of neo-Keynesian theory, and Robinson uses them both.