Employment and fiscal policy in a Marxian model

Abstract

This article presents a simple formalization of Marx's circuit of capital framework, but with some modern additions: a public sector, an investment function that shifts over time in reaction to disequilibria, and a ‘wage curve’ linking income distribution to the size of the reserve army of labor. The dynamics can gravitate toward either a low‐employment trajectory in which public spending has expansionary long‐run effects, or a high‐employment trajectory characterized by a profit squeeze. The stability of the different trajectories depends on the investment function.