Profit Squeeze and Keynesian Theory

Abstract

This chapter explains the importance of the macroeconomic ‘climate’, especially the investment climate, in generating different economic regimes according to differences in the relationship between real wages and investment and hence employment. It examines the impact of wage change on economic growth and employment. It clarifies that wage reduction will lower consumption demand. In addition, a fall in wages always lowers aggregate demand through the effect on consumption; and stimulating investment raises aggregate demand. In the ‘stagnationist’ regime, higher real wages do not lead to higher unemployment and are necessary to promote a process of wage-led growth. On the other hand, in the ‘exhilarationist’ case, investment effects dominate, and higher real wages do lead to higher unemployment and interfere with investment-led growth, so that wage restraint becomes the preferred policy stance.

Policy, Politics and Poverty in South Africa

“…Demand-led growth is only sustainable if the benefits to capitalists of additional turnover exceed their 'losses' in higher wages and taxes (Marglin and Bhaduri, 1990). If supply bottlenecks or skilled labour shortages make it difficult for capitalists to expand production to meet increased demand, and demand outstrips domestic output, then the result is inflation, rising imports and balance of payments problems.…”

Marxist Crisis Theory and the Need to Explain Both Sides of Capitalism's Cyclicity

“…It is also, of course, possible that wage rises might have different implications in different 'stagnationist' and 'exhilarationist' periods (Jayawardena 1990;Marglin and Bhaduri 1990). This suggestion, sometimes explicitly couched in Keynesian rather than Marxist terms, seems to broadly parallel the work of Hicks and Hanson in showing the potentially varying effects of reflationary fiscal and monetary strategies (see Samuelson, Hancock, and Wallace 1975, 426Á 8).…”

Are Full Employment and Social Cohesion Possible Under Financialization?

“…Hein and van Treeck (2007) have attempted to formalize shareholder's effect on distribution and accumulation. They develop a model and integrate the financialization processes into an investment function in the spirit of Kalecki, and into a Post Kaleckian investment function in the spirit of Marglin and Bhaduri (1990) and assess the effects of an increase in the dividend rate on firms' profitability, capacity utilization and economic growth.…”