vol. 57, no. 2 (January), 1991,
Macroeconomic Problems and Policies of Income Distribution:
Functional, Personal, and International
edited by Paul Davidson and Jan A. Kregel
Aldershot, England and Brookfield, VT: Edward Elgar Publishing Co.,
1989, pp. x, 292
Articles in this collection are loosely tied to one another by themes
that have come to be associated with the Post Keynesian tradition. The
book is an outgrowth of a conference on income distribution sponsored by
the College of Business Administration of the University of Tennessee and
the Journal of Post Keynesian Economics and organized by the book's
editors. Of the nearly forty papers presented in June 1988 in Gatlinburg,
TN, eighteen representing the work of twenty-one authors from eight countries
are included in the conference volume.
As in earlier collections of papers
with similar themes, Post Keynesianism comes across as an odd mix of ideas:
Marxist class conflict, classical production relationships, a dual market
structure consisting of competition and oligopoly, mark-up pricing as a
means of financing investment, and Keynesian demand failures. And as the
title suggests, concern about the distribution of income is what gives
relevance to these ideas.
In their introduction the editors
note that interest in the issues of income distribution waxes and wanes
with beliefs about whether or not price theory leaves any scope for distribution
theory. Walras's system of general equilibrium, oróas the editors preferóGustav
Cassel's similar system, accounts comprehensively for prices and quantities.
For those who adopt this analytical framework, there is simply no basis
for a separate theory of income distribution and no justification for policies
aimed at redistributing income. Alternatives to general equilibrium theory,
provided piecemeal by Sraffa, Robinson, Kalecki and Keynes, allow social
and economic forces that have direct and first-order effects on the distribution
of income to override the competitive forces that characterize a Walrasian
or Casselian general equilibrium. The mix of ideas listed above represents
alternative and sometimes complementary ways of dealing with the issues
of income distribution.
But Post Keynesian ideas do not,
by themselves, add up to an alternative theoretical framework. They are
put forth, in effect, as amendments to Keynesian and Pre-Keynesian theory.
Following Kalecki, several authors (Basil J.Moore is the most explicit)
maintain that the prices of final output are simply "marked up" so as to
finance planned investment. The reader is on his own, though, to guess
whether the market power of oligopolists is determining or merely enabling
and to wonder how investment expenditures get planned and how they might
(or might not) be related to planned consumption expenditures. Textbook
Keynesianism appears to be in play here: Aggregate supply is based on investment
plans of unspecified origins; aggregate demand that does not measure up
is taken to be demand failure.
Moore [p. 24] anchors his own
views in an aphorism he attributes to Kalecki: "Workers spend what they
get; Capitalists get what they spend." Allusions to this notion by several
others, e.g. Andrea Szeg [p. 182], Fernando J.Cardim de Carvalho [p. 202],
and A. Asimakopulos [p. 256], confirm its centrality in the Post Keynesian
vision. The equality of income to expenditures is applied separately to
workers, who passively spend all their wages on consumption goods, and
to capitalists, who spend part of their profits on investment goods. The
Post Keynesians pay little attention to the distinction between accounting
identities and equilibrium conditions and leave to the reader's imagination
the underlying behavioral relationships which might suggest how market
participants are reacting to one another. Moving directly from the income-expenditure
equality to the causal connections and taking their cue from Kalecki, they
pose the key question about the direction of causation: For the capitalists,
is it income that determines expenditures on consumption and investment,
or is it the other way around? According to Moore and the others and with
some amendments to accommodate time lags and to allow for different assumptions
about workers, corporate managers, and government policymakers, it is the
other way around. By making their investment and consumption decisions,
capitalists, in effect, determine their own income.
Some readers may be willing to
suspend disbelief in order to better understand those who subscribe to
the Post Keynesian vision and to see where their thinking leads them. But
those readers will also have to suppress the notions of consumption as
an end in itself and of capital as a means that helps to achieve that end.
In the lead essay, Kenneth Boulding provides aid to the sympathetic reader
by putting consumption in its place. Perceiving economists as having an
"obsession with consumption as a measure of economic well-being" [p. 10],
Boulding shifts attention away from the flow concepts of consumption and
income and towards the stock concepts of real capital and net worth. He
admits, in passing, that there is some difference between consumption in
the sense of eating dinner and consumption in the sense of capital depreciation
but then remarks that "For the most part, however, consumption is undesirable"
While most of the theorizing throughout
the book is in terms of functional distribution of income, most of the
concern is about personal distribution of income. Several of the articles
contain the characteristic sing-song recitation of the points along a Lorenz
curve: "The top (or bottom) X percent of the population receives Y percent
of the income." None of the authors actually suggests that X should equal
Y, but none identifies any other optimal or benchmark distribution by which
actual Lorenz curves might be judged.
Brian Nolan provides a refreshingly
candid discussion of the "increasingly complex" linkage between changes
in macroeconomic conditions and changes in the personal distribution of
income. Influences through factor shares, the unemployment rate, and the
inflation rate are all intertwined. With so many forces at work, the alternative
techniques using time series or panel data leave the researcher with the
challenge of teasing out the meaning of small annual changes in the personal
Difficulties in interpreting the
data translate almost imperceptibly into scope for misinterpreting. In
his study of income and family size, Timothy M. Smeeding reports cross-section
data as if they implied cause-and-effect relationships: "[T]he decision
to have two or more children exactly doubles the chances of poverty..."
[p. 108]. This and similar statements are based on his Table 6.3 showing
the "Income position of persons in various types of families ranked by
adjusted income." Data of this sort, however, cannot justify such statements.
Analogous data may show that there are three times as many horseshoe pitchers
below the poverty line as there are tennis players below the poverty line.
But it does not follow that, say, George Bush's decision to pitch horseshoes
rather than play tennis exactly triples his chances of poverty.
If it is fair to say, as Boulding
does, that economists are obsessed with consumption as a measure of economic
well-being, then it is fair to say that Post Keynesians are obsessed with
income distribution as a basis for comparing economies and as justification
for economic policy and political reform. Readers who share this obsession
may find these articles helpful in planning their own research agenda.
Others may find the book a convenient way of keeping abreast of developments
within the Post Keynesian tradition.
Roger W. Garrison