tag:blogger.com,1999:blog-3634628224045926034.post3819285593012239942..comments2023-08-29T01:27:13.772-07:00Comments on Magpie's Asymmetric Warfare: The Paradoxical Kalecki (and part iii)Magpiehttp://www.blogger.com/profile/07528637318288802178noreply@blogger.comBlogger17125tag:blogger.com,1999:blog-3634628224045926034.post-68370640328830618912020-12-19T04:18:37.287-08:002020-12-19T04:18:37.287-08:00"Profit is by definition the difference betwe..."Profit is by definition the difference between the amount of money one puts into a business and the amount of money one obtains from that business."<br />You are saying P=I-DIV. Ok, I agree BUT this is not happening at the same period. I appear at t0 and you earn P at end of t0, DIV are distributed the next period (or still at the end of t0 if you prefer. It should only be a little analytical difference)<br />That's why my point (3) appears as inverted causation, but it's cause doesn't happen at the same period of time.<br />AND.. that's capitalists or firms profits? We will return later.<br /><br />As we've seen, this is what capitalists put into this business: I + Cp + Cw. And this is the revenue they got from the business: P + W (W = Cw).<br />Here it's not clear. Your first equation IS firm revenues (not capitalist costs). And second? It's not capitalists revenues (only P) nor firm costs (only W) [which, for firms, makes by the way P=[Cw+Cp+I]-W=Cp+I as Kalecki said].<br />Capitalists have spent I+Cw and get Pshared=P(cause by assumption all profit distributed) [=I+Cw cause equation 1 row above] So they earn what they have spent.<br />The fact is that costs of one sector usually are revenues of another sector (so Firms rev=costs other sectors and Firms costs=revenues other sectors), hope it makes more clear why our results differ.<br /><br />You may object that by that measure of profit (revenues minus costs) then profit should be P - I. You can see right there the problem with Kalecki's notion of profit, right? Kalecki's profit is profit minus investment (and, on top, as if things weren't confusing enough, we are to add dividends!).<br />Kalecki profit is profit, what you saying is still more a firm cash flow (which I agree to be zero if doesn't enter another source of money in the circuit-which usually indebt itself to buy consumption goods at a price which permits firms cash flow >0)<br /><br />I would point more generally a thing: in your scheme capitalists and workers are one sector, firms another one.<br />But in many your comments you seems to instead merge capitalists and firms in one sector, and workers alone.<br />The best approach would be separate all of them in 3 sectors, so you would find profit of firms[R-C=(I+Cp+Cw)-W (still, I repeat, Pshared isn't a cost in accounting principle for firms)], capitalists [Pshared-I-Cp] and workers [W-Cw=0]<br /><br />If you think my last line is correct than our problem was a different sectoral composition, if you don't agree point out the exact error in that 3 equations and how you would rewrite them. Maybe doing so we can circumscribe the matter.Ehttps://www.blogger.com/profile/11127130708645766076noreply@blogger.comtag:blogger.com,1999:blog-3634628224045926034.post-18209239495350511462020-12-18T15:39:57.921-08:002020-12-18T15:39:57.921-08:00(from the previous comment)
Let's look at thi...(from the previous comment)<br /><br />Let's look at this from a slightly different perspective. Capitalists invest money to have more money. You, for example, put money in a savings account to have more money at the end, no? Although that kind of financial investment is not what economists refer as "investment", the idea still illustrates my point. <br /><br />So it's critical to know what profit is. Profit is by definition the difference between the amount of money one puts into a business and the amount of money one obtains from that business. <br /><br />As we've seen, this is what capitalists put into this business: I + Cp + Cw. And this is the revenue they got from the business: P + W (W = Cw).<br /><br />Ah, but by that measure capitalists had no profit at all! (See equation [A]). They may not be losing money, but they aren't getting any richer either. The money they had at the beginning is the money they have at the end. <br /><br />So, where are the <b>increased</b> profits you mention in (2)?<br /><br />(Let's leave (3) out of the picture, because frankly, I can't see it making much sense: it reverses the relationship between spending and earning in (1)).<br /><br />You may object that by that measure of profit (revenues minus costs) then profit should be P - I. You can see right there the problem with Kalecki's notion of profit, right? Kalecki's <b>profit</b> is <b>profit</b> minus investment (and, on top, as if things weren't confusing enough, we are to add dividends!).<br /><br />But never mind that, because from equation [A]: P - I = Cp. That means that capitalists are consuming all their profits without having to work for their own consumption. That's rather reasonable.<br /><br />But I don't think that's good enough. Kalecki's capitalists may be accumulating physical assets, through investment (assuming, which I don't think it was assumed, that those assets are durable). But, what's the point? They, after all, are getting in each cycle the same amount of money they are putting in, no matter how much they have in assets!<br /><br />---------<br /><br />Now, maybe I'm misunderstanding Kalecki. Maybe in his writings he solves all the doubts I have. But, with due respect, those attempting to explain his theories aren't much help.<br /><br />* https://en.wikipedia.org/wiki/Micha%C5%82_Kalecki#Profit_equationMagpiehttps://www.blogger.com/profile/07528637318288802178noreply@blogger.comtag:blogger.com,1999:blog-3634628224045926034.post-69791015543338300682020-12-18T15:38:35.946-08:002020-12-18T15:38:35.946-08:00Hi E,
Sorry for the delay replying. For one, that...Hi E,<br /><br />Sorry for the delay replying. For one, that's because I've been giving your comment some thought.<br /><br />(Lately I've also been having a really hard time at work and haven't had much time to think about this.)<br /><br />I suppose the best way to proceed would be for you to indicate which exactly are those studies you are basing yourself on.<br /><br />----------<br /><br />Still, let me comment on this:<br /><br />"By the way the circuit logic is that capitalists invest, which increase profit, which (by assumption) is distributed and (by assumption) entirely consumed."<br /><br />Let's parse that for comments purposes.<br /><br />"By the way the circuit logic is that <br /><br />(1) capitalists invest, which increase profit, <br />(2) [increased profits] which (by assumption) is distributed and <br />(3) (by assumption) entirely consumed [money entirely spent by capitalists]."<br /><br />Kalecki meant (1) as his finding. A little later you offered the mathematical expression for that:<br /><br />[A'] P = I+Consumption of capitalists<br /><br />To adopt the notation in the post above (the same used in the Wikipedia entry*), let's rewrite that as:<br /><br />[A] P = I + Cp.<br /><br />Now let's think of this in terms, as you say, of the circuit logic: it flows from money spent (I + Cp) on the RHS, to money earned (P) on the LHS. In other words, RHS is first, LHS follows, yes?<br /><br />How much money capitalists had when they started? Easy: they had money to invest, money to pay for their own consumption and money to pay as wages so that their workers themselves pay for their own consumption. They had, then, I + Cp + Cw.<br /><br />How much money is there at the end of the cycle? Easy, too: P + W.<br /><br />The two amounts -- at the start and at the end of the cycle -- are equal: <br /><br />P + W = I + Cp + Cw.<br /><br />Now, as by assumption workers spend what they earn: W = Cw.<br /><br />So, P = I + Cp (which is equation [A]).<br /><br />(continues)Magpiehttps://www.blogger.com/profile/07528637318288802178noreply@blogger.comtag:blogger.com,1999:blog-3634628224045926034.post-50387406653058030622020-12-15T06:05:01.381-08:002020-12-15T06:05:01.381-08:00I assumed it cause that's the assumption of Ka...I assumed it cause that's the assumption of Kalecki profit equation.<br /><br /><br />If we integrate marginal propensity of capitalists and workers in the model we get a situation more kaldorian (capitalists saves more than workers)<br /><br />By the way the circuit logic is that capitalists invest, which increase profit, which (by assumption) is distributed and (by assumption) entirely consumed.<br /><br />If you want to delete the assumptions you get two corresponding leakage of money from the circular flow (firms retained earnings and capitalists savings)<br /><br />So less money (cash) in the flow but still P = I+Consumption of capitalists<br /><br />It's an accountability matter, cause dividends figure as previous profit shared and not costs, you don't have to subtract it to the revenues you get from I and Cc (which you have to do for Wages -> so Cw-W=0)<br /><br />That's profit source.<br />That's not cash flow source.<br />Kalecki was talking about generating a profit account, not generating net financial assets in the circuit<br />That's why real resources are not there (but they obviously limit the profitability of new I and influence consumption prices and quantities (Cc=const =p x Q where p and Q not constant) in the economy)<br /><br />Hope the comment is enough clear, not always easy I admit.<br /><br />PS that's the interpretation I come reading some works about this stuff. Can't guarantee it's Kalecki true understanding.<br />But seems consistent to meEhttps://www.blogger.com/profile/11127130708645766076noreply@blogger.comtag:blogger.com,1999:blog-3634628224045926034.post-50802042561908893782020-12-14T18:36:16.469-08:002020-12-14T18:36:16.469-08:00Very well, E. Let's do a little role playing t...Very well, E. Let's do a little role playing to see how your argument works.<br /><br />You are the CEO of ACME, the only firm in our economy. I am the only shareholder in ACME. You decide to distribute $100 in dividends. {Incidentally, CEOs cannot emit currency, they are not the Central Bank. But let's leave that aside; let's assume that you can.]<br /><br />As I am the only shareholder, the $100 go straight into my pocket, yes?<br /><br />Now, you say that "capitalists spends all their income <b>by assumption"</b> (my emphasis).<br /><br />But, try as I might, I don't remember having ever signed a document forcing me to spend all my money. Like other capitalists, I, too can fall prey to ((Animal Spirits)). So, I decide not to spend the $100. I decide to spend less. Maybe I choose to spend $0, maybe $99.99. The precise amount doesn't really matter. What matters is that I spend less than $100.<br /><br />Well, Kalecki's equation failed. You distributed more money than you had to distribute. You are in trouble.<br /><br />Note that my situation as a capitalist is substantially different to the situation of the workers under your direction. They earn little and have by assumption no margin of maneuver, so to speak. To put it simply: they are living from hand to mouth. That may not be literally true, but at least one can say it may approach reality.<br /><br />Now, are you sure you want to argue Kalecki's equation by <b>assuming</b> that capitalists are also living from hand to mouth? <br /><br />----------<br /><br />Kalecki's aphorism[*], E, is this:<br /><br />"The workers spend what they get, and capitalists get what they spend" <br /><br />Two sentences [(1) "the workers spend what they get" (2) "the capitalists get what they spend"] joined by a conjunction (and), right? Moreover, they are very similar in their constructions, yes?<br /><br />Similar as they are, the two sentences come from very different places. "The workers spend what they get" is an assumption. "The capitalists get what they spend" is the conclusion, is Kalecki's finding.<br /><br />So, to <b>demonstrate</b> that Kalecki is correct ... you are asking us to <b>assume</b> that Kalecki is correct.<br /><br />You can see the problem there, can you not?<br /><br />[*] https://www.azquotes.com/author/58462-Michal_Kalecki<br /><br />----------<br /><br />Later on I might -- or I might not -- post some further comments, to draw attention to the circular flow of the economy. Unfortunately, it seems the fact that real resources exist was not appreciated.Magpiehttps://www.blogger.com/profile/07528637318288802178noreply@blogger.comtag:blogger.com,1999:blog-3634628224045926034.post-44808834728518573582020-12-14T18:11:39.639-08:002020-12-14T18:11:39.639-08:00This comment has been removed by the author.Magpiehttps://www.blogger.com/profile/07528637318288802178noreply@blogger.comtag:blogger.com,1999:blog-3634628224045926034.post-62297104199569752182020-12-13T10:04:49.627-08:002020-12-13T10:04:49.627-08:00Kalecki equation suppose all W is consumed by work...Kalecki equation suppose all W is consumed by workers and all P distributed by firms and consumed by capitalists.<br />So you shouldn't add a variable D to the equation but increase both P and Cp+I as Anonymous said in the comment.<br />your new equation is P (600) = Cp + I (600)<br />or with your nomenclature P+D (500+100) = Cp + I (600)<br /><br />so Y =1100 increased<br /><br />You pay a dividend with 100 cash (not thin air) and it returns to you again in cash with 100 new revenues (Cp or I) [cause capitalists spends all their income by assumption]<br />No change in financial assets but 100 more revenues, so 100 more profits (Revenues-Costs)Ehttps://www.blogger.com/profile/11127130708645766076noreply@blogger.comtag:blogger.com,1999:blog-3634628224045926034.post-39802066252825626382015-11-30T10:22:05.640-08:002015-11-30T10:22:05.640-08:00Given that P is a positive real number, there is o...Given that P is a positive real number, there is one way and only one way to make P + D = P.<br /><br />D = 0.<br /><br />The only way a dividend paid out of thin air can be possible is if it pays 0.<br /><br />In English: you cannot pay dividends (from the Latin dividendum: something to be divided) without something to divide. Thin air doesn't count.<br /><br />CheersMagpiehttps://www.blogger.com/profile/07528637318288802178noreply@blogger.comtag:blogger.com,1999:blog-3634628224045926034.post-38753056346637089332015-11-30T09:01:32.560-08:002015-11-30T09:01:32.560-08:00I’m not sure I understand what you mean. Clearly i...I’m not sure I understand what you mean. Clearly if the LHS is different, then the RHS must also be different (in contrast to what you conclude); this is just simple algebra, no? In other words, if you are trying to show that aggregate income (Y) equals the original sum of aggregate spending (Y from part ii), you have not accomplished that. The original Y by income (W + P) has clearly increased by D. So, one can no longer consider the term “Y”. Instead, it can only be considered something different: say, Y1. Now, clearly the “Y by spending” does not equal Y1 unless the pieces of “Y by spending” are increased by some equivalent amount as D. <br /><br />Pls clarify thanks!Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-3634628224045926034.post-2786647676724592562015-11-30T07:06:30.361-08:002015-11-30T07:06:30.361-08:00"D, now, is a dividend firms paid capitalists..."D, now, is a dividend firms paid capitalists" Therefore both P and Cp (which by the way is Ck in your tables) increase by D. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-3634628224045926034.post-16425731781724491332015-11-28T11:55:51.245-08:002015-11-28T11:55:51.245-08:00"To what degree are Cp and Cw autonomous vers...<i>"To what degree are Cp and Cw autonomous versus income-dependent? What are their respective marginal propensities to save?"</i><br /><br />Good questions Larry. Frankly, I'm not sure I have good answers.<br /><br /><i>"I think we all agree it's reasonable to assume Cw is wage-dependent: pay the workers less money in aggregate, and they will spend less in aggregate."</i><br /><br />The derivation of Kalecki's equation assumes that Cw = W. That means that there is no autonomous component and that worker's Marginal Propensity to Save = 0. That much is clear.<br /><br /><i>"But to what degree is Cp dependent on P?"</i><br /><br />That's the chicken and egg problem, isn't it? <br /><br />BTW, don't forget investment (I). Capitalists' spending is both, investment (including inventory formation) and personal consumption. Both are determined by different things: one by profit expectations and the other by income.<br /><br /><i>"If Cp is autonomous and prior to P, then King et al. are right: it is the autonomous increase in Cp that stabilizes Y; Cw and W are irrelevant."</i><br /><br />I'm afraid I disagree. That's one reason (not the only one) why they are wrong.<br /><br />When it comes to argue their conclusion (<i>"cutting payrolls will not directly increase corporate profits")</i>, the Levy team forgets all about W and Cw irrelevancy:<br /><br /><i>"However, for the whole business sector, cutting employee compensation reduces revenue as well as expenses. Less worker pay means less personal income and, therefore, less personal spending on the goods and services sold by businesses."</i><br /><br />Because it's such a glaring contradiction, that was, in fact, the first inconsistency I found in this kind of argument: W and Cw are both irrelevant and all-important for profits -- at the same time, sometimes within the same paragraph. Incidentally, others, besides the Levy guys, have argued in that exact same manner.<br /><br />----------<br /><br />Ultimately, Larry, we may spend years going back and forth on this without reaching any conclusion. Trust me, I've tried hard, on and off, since encountering that argument the first time.<br /><br />The bottom line is that their explanation for a wage fall requires a recession. The US has had some 50 years almost continuous fall in the wage share of GDP. Where is the recession explaining that?Magpiehttps://www.blogger.com/profile/07528637318288802178noreply@blogger.comtag:blogger.com,1999:blog-3634628224045926034.post-37054369147578983202015-11-28T07:18:08.501-08:002015-11-28T07:18:08.501-08:00To what degree are Cp and Cw autonomous versus inc...To what degree are Cp and Cw autonomous versus income-dependent? What are their respective marginal propensities to save?<br /><br />I think we all agree it's reasonable to assume Cw is wage-dependent: pay the workers less money in aggregate, and they will spend less in aggregate. But to what degree is Cp dependent on P? If Cp is autonomous and prior to P, then King et al. are right: it is the autonomous increase in Cp that stabilizes Y; Cw and W are irrelevant. <br /><br />If, however, Cp is dependent on the prior period's P, and Cw is dependent on the prior period's W, then you're right: it is necessary to cut W in period 1 to reallocate consumption from Cw to Cp via profits.<br /><br />Marginal propensity to save also comes into it. If we assume that MPS increases with household income, and if it happens that people hold money as savings rather than investment, so I != S, then concentrating monetary flows can cause Y to fall.Larry Hamelinhttps://www.blogger.com/profile/08788697573946266404noreply@blogger.comtag:blogger.com,1999:blog-3634628224045926034.post-71160299182857750322015-11-27T15:50:15.144-08:002015-11-27T15:50:15.144-08:00@Larry
Thanks!@Larry<br /><br />Thanks!Magpiehttps://www.blogger.com/profile/07528637318288802178noreply@blogger.comtag:blogger.com,1999:blog-3634628224045926034.post-76096311121845717602015-11-27T15:46:48.787-08:002015-11-27T15:46:48.787-08:00@Anonymous(es)
You are right. Apologies for the o...@Anonymous(es)<br /><br />You are right. Apologies for the omission. Let me fix that.<br /><br />We do like we did in post ii: exactly the way the Kalecki equation is derived. D, now, is a dividend firms paid capitalists, without a corresponding payroll cut. Firms paid those dividends out of thin air, so to speak.<br /><br />Y by income: Y = W + (P + D)<br /><br />Y by spending: Y = Cw + Cp + I<br /><br />Writing Y (by income) = Y (by spending)<br /><br />W + (P + D) = Cw + Cp + I<br /><br />Workers spend what they get (Cw = W) and subtracting from both sides:<br /><br />P + D = Cp + I<br /><br />Compare to equation (1) in post i. The RHS (Cp + I) are the same here and there, yes? But the LHS are not. In equation (1) it is P; above, P + D. <br /><br />What does that tell you about D? :-)<br /><br />Post i:<br />http://aussiemagpie.blogspot.com.au/2015/11/the-paradoxical-kalecki-part-i.htmlMagpiehttps://www.blogger.com/profile/07528637318288802178noreply@blogger.comtag:blogger.com,1999:blog-3634628224045926034.post-26521069349103277642015-11-27T13:47:09.009-08:002015-11-27T13:47:09.009-08:00OK. Good stuff. I could not have done nearly as we...OK. Good stuff. I could not have done nearly as well. Again, more thought is necessary for a proper response.Larry Hamelinhttps://www.blogger.com/profile/08788697573946266404noreply@blogger.comtag:blogger.com,1999:blog-3634628224045926034.post-40798325697049753912015-11-27T12:04:11.030-08:002015-11-27T12:04:11.030-08:00magpie you didn"t reply to,
Indeed, it is the...magpie you didn"t reply to,<br /><i>Indeed, it is the increase in dividends—a profit source—that creates additional profits, not the wage cut. This can be seen if you rerun your example with a raise in dividends without any wage cuts. Thus, all you prove is that increasing dividends increases profits.</i>Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-3634628224045926034.post-31861233852841146512015-11-27T11:49:53.188-08:002015-11-27T11:49:53.188-08:00not so fast magpie. how about this,
This can be se...not so fast magpie. how about this,<br /><i>This can be seen if you rerun your example with a raise in dividends without any wage cuts. Thus, all you prove is that increasing dividends increases profits.</i>Anonymousnoreply@blogger.com