nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2007‒06‒30
five papers chosen by
Karl Petrick
University of the West Indies

  1. 'Financialisation' in Kaleckian/Post-Kaleckian models of distribution and growth By Eckhard Hein; Till van Treeck
  2. The Class Analysis of Households Extended: Children, Fathers, and Family Budgets By Stephen Resnick; Richard Wolff
  3. Debt-Ridden Equilibria - A Simple Theory of Great Depressions - By KOBAYASHI Keiichiro; INABA Masaru (RIETI)
  4. Macroeconomic implications of financialization By Peter Skott; Soon Ryoo
  5. The Fundamental Theory of Knowledge By Khumalo, Bhekuzulu

  1. By: Eckhard Hein (IMK at the Hans Boeckler Foundation); Till van Treeck (IMK at the Hans Boeckler Foundation)
    Abstract: The macroeconomic effects of ‘financialisation’ are assessed applying two different variants of a Kaleckian model of distribution and growth. The focus is on the effects of changes in distribution between shareholders/rentiers, firms and workers, as well as on the effects of increasing ‘shareholder value orientation’ of management’s investment decisions. An isolated increase in the ‘shareholder value orientation’ of management’s investment decisions has a uniquely negative effect on capacity utilisation, the profit rate and capital accumulation in both models. An associated rise in the dividend rate, however, has contradicting effects. In both Kaleckian models the ‘normal’ case of a negative effect throughout the endogenous variables, the ‘puzzling’ case of a positive effect throughout, and an ‘intermediate’ case with a positive effect on capacity utilisation and the profit rate and with a negative effect on capital accumulation may arise, depending on the parameter values in the investment and the saving function of the models. ‘Profits without investment’, the ‘intermediate’ case in both models, is a possible medium- or long-run accumulation regime. However, if a rising dividend rate is associated with a particularly strong increase in the mark-up and hence with pronounced redistribution at the expense of labour, the possibility of such a regime will be undermined, provided that unit profits do not have a strong effect on firms’ real investment. The long-run sustainability of such a regime will also be questioned by the adverse effects of low investment on capital stock and productivity growth.
    Keywords: Financialisation, Distribution, Growth, Kaleckian models
    JEL: E12 E21 E22 E25 E44
    Date: 2007
  2. By: Stephen Resnick (University of Massachusetts, Amherst); Richard Wolff (University of Massachusetts, Amherst)
    Abstract: The paper extends our previous class analysis of the household and family life to include children, interactions between class structures of households and enterprises, struggles over the family budget, and father’s household labor. Analysis show how the good and bad of family life are connected to class. JEL Categories:
    Keywords: class, class in households, children, feudal household
    Date: 2007–06
  3. By: KOBAYASHI Keiichiro; INABA Masaru (RIETI)
    Abstract: The US Great Depression and Japan's lost decade in the 1990s are both characterized as persistent stagnations of economies with debt-ridden corporate sectors subsequent to asset-price collapses. We propose a simple model, in which increases in corporate debt (and/or fluctuations in expectations about the future state of the economy) can account for these episodes. Key ingredients are the assumptions that firms are subject to collateral constraint on liquidity for financing the inputs, and that the firms can hold other firms' stocks as their assets and use them as the collateral. Collateral constraint on inputs interlinks the financial market inefficiency with the factor market inefficiencies; and that the corporate stocks are used as collateral generates an externality of self-reference in stock prices and production, that is, higher stock prices loosen the collateral constraint and lead to higher efficiencies in production, which in turn justify the higher stock prices. It is shown that there exists a continuum of steady-state equilibria indexed by the amount of debt that the firms owe to the consumers: A steady state with a larger debt can be called a debt-ridden equilibrium, since it has more inefficient factor markets, produces less output, and is characterized by lower stock prices. The model provides the policy implication that debt reduction in the corporate sector at the expense of consumers (or taxpayers) may be welfare-improving when the firms are debt-ridden.
    Date: 2007–06
  4. By: Peter Skott (University of Massachusetts, Amherst); Soon Ryoo (University of Massachusetts, Amherst)
    Abstract: A growing literature suggests that 'financialization' may weaken the performance of non-financial corporations and constrain the growth of ag- gregate demand. This paper evaluates (some of) the claims that have been made using two alternative approaches (one derived from Skott (1981, 1988, 1989) and one from Lavoie and Godley (2001-2002)) and two differ- ent settings (a labor-constrained setting and a dual-economy setting). All models pay explicit attention to financial stock-flow relations. The results are insensitive to the precise specification of household saving behavior but depend critically on the labor market assumptions (labor-constrained vs dual) and the specification of the investment function (Harrodian vs stagnationist). JEL Categories: E12, E21, E44
    Keywords: financialization, stock-flow consistency, retention rate, ex- ternal finance, new issues.
    Date: 2007–06
  5. By: Khumalo, Bhekuzulu
    Abstract: This paper summarizes the theory of knowledge from the book of the same title by the same author. The paper begins by asking, and answering, what knowledge is. In searching for precise definitions it rids itself of the ambiguous term of infinity. The seven main laws of knowledge are laid out and discussed. The theory is an economic theory and as such must mention how people choose to seek knowledge. Knowledge is treated like any other commodity or product such as an apple, copper or a television set. Choices must be made in order to acquire knowledge. The tool used is the same tool used for analyzing other commodities - marginal utility analysis. The paper moves on to develop a working function of knowledge. This function helps to give a clear picture of how knowledge gains and loses occur within a society. The function leads to an understanding of critical levels of knowledge as well as the term obsolete knowledge. The paper introduces the term ‘negative’ knowledge and demonstrates how time is lost and gained within the context of knowledge. The sum of knowledge is the last major issue discussed in this paper and it can be considered the ‘signature’ of the theory. The concept that two plus two is not always four differentiates the commodity knowledge from other commodities and products. Finally the implications of this unique property of the commodity knowledge are discussed with the aim of demonstrating how the world would end up as a better place for all with food, shelter, and security for all.
    Keywords: Knowledge; time; mthetho; konke; critical level; negative knowledge; sum of knowledge
    JEL: O1 A10 D83
    Date: 2006–12–01

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