2 << EEN OPES US, UN UR UE! TA, Save ae ao a funds for accumulation. Landlords, however, use their a Spicuous consumption. Eatwell observed: “The distribution of income betwéen these classes was, therefore, seen as the causal antéce- dent to the dynamic behaviour of the economy”! It is the emphasis on classes which explains the inclusion in this chapter of Kalecki’s and neo- Keynesian theories of income distribution. Although distribution is impor- tant in Sraffa’s explanation of relative prices, he offers no hypothesis for the distribution of income and takes the rate of profit as exogenous to his system. 12.1 RICARDO’S THEORY OF DISTRIBUTION: DYNAMIC MODEL In Chapter 8, we discussed Ricardo’s theory of distribution. in the context of his theory of value, that is, Ricardo’s model of distribution in a static framework. We now turn to Ricardo’s dynamic analysis of distribu- tion, that is, we take explicit account of changes in population, fertility ofValue and Distribution: Classical brought under cultivation d produces smaller increases ‘rice of corn, renis in terms OF per jitehce, OF the Total nis As population iner faciradditional unit of labour employ datput af'com. With inereases in the real f AIL GF GaIpUL_of com, ¢ ‘orrespe wmdingly incre physical product curve net of rent will be concave. with reference 10 the labour-axis (Fig. 12.1). This.means that increases in the Labour force are associated with proportionately smaller increases #0 the total product net of 1 Firstly, there is ihe long-run femt. Ricardo Thad two concepts of wages. ° 7 Saaiural” or “subsistence” wage based on the Malthusian theory of popul tion, Secondly, there is the Tnerkei wage, whichis the wage which preva in the econom ai any point ai time. The market ‘Wage Is a Tunclion of the level of accumulation. The higher the rate of acc umulation of capital, the greater the competition of employers for workers, and, therefore, the hig the market wage. In the diagram, if we assume that the subsistence wage broadly constant over time, the wage bill in real terms will be represented by the straight line OE through the origin. ¥ € TOTAL WAGE AND TOTAL PRODUCT NET OF RENT oO = 2 LABOUR Fig. 12.1 Assume that the labour for i pha orce, Corresponding to a gi i meee . oa Oren an aed on the basis veh rani cet LW, ¢ rate of profi i No Gao inane: accumulation and the rit Merah cones 5 gape a teal nee ne to the subsistence wage will amo Bilis sobulathaxe vat Ny in labour supply, so that wages once again fall profits are now Q.W, an Faeries to the labour force ON. Total im madeline ie Of profit will be Q,W. N. Again, ak iS eee will take place, driving up the market wage leading Population. As this process continues, the size of425 Distribution the total profits, and with it the rate of profit, continues 10 fall. At Qs a are no profits even though wages are at the subsistence level, Al pepe wages absorb the total product net of rent. This is “the stationary ee Pos which both capital and population cease io grow since there is no MOUVE ad accumulation,“ Inthe above discussion, there is the implicit assumption ro the adjustments of population to increases in the market wage are fairly quick. This will obviously not be so. Thus, when wages have reached NO. an increase in population will take place only slowly, so that much before the labour force has increased to ON, and wages have fallen to the subsistence level, some profits will occur and investment and accumulation will take place. Market wages will, therefore, tend to remain high and the market wage curve will keep fairly close to the total product curve OF for some time before adjustments are completed The history of industrial countries has not corroborated the pessimis- tic conclusions of Ricardo.‘ In the first place, few people today accept the direct relation between growih of income and the growth of population Which is at the basis of the Ricardian theory. Pasinetti observed: “In general, economists now no longer think of population as a variable to be explained in economic terms; they prefer to accept it as exogenously given”.’ Sec- ondly, empirical evidence has shown that in the industrial economies, ihe effects of decreasing returns have been swamped by technical progress. Finally, in many fields of activity, the dominant factor in operation ts constant or increas: jurtis to scale, All these have served to undermine dhe Ricardian proposition of ie tendency ofthe Tate of profit to fall with the economic growth of counties. 12.2 MARX’S THEORY OF DISTRIBUTION. Marx considered the question of distribution under capitalism. Like Ricardo, he too was concerned with this since he believed that the determi- ion of relative prices cannot be effected without knowing the distribution of income. In aprimitive economic system, the artisans and farmers own the means of production. The retums they obtain are in proportion to the efforts they put in. In such a system, there are no profits; all income Originates from work. On the other hand, inacapitalist system, the means of production are by aminority group who then employ workers by paying wages. Thi: oon p appropriates to itself a part of the output as profits, In such a syst ‘ there isthe problem of distribution which is due not othe technical rye butito the ownership of the means of production Marx sought toexplain ihe ce of profits and its appropriation by the capitalisis, Fle follow, r and Ricardo in assuming thal labour is paid a subsistence wage. 7 acnar The supph Te eas Sie, Naweversaanese mS Body prince of ie reserve army of uneniployed waters, Aces eae OF the “oes — cumulation plays the mith