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On the Post Keynesian Theory of Growth and 'Institutional' Distribution

The neo-Pasinetti model proposed by Nicholas Kaldor in 1966 represents a significant theoretical departure from the canonical Post Keynesian approach to growth and distribution. The most incisive objection to this model, originally raised by Paul Davidson, questions Kaldor's 'valuation theorem', which assigns to the rate of interest the role of equilibrating the goods market. An alternative model is proposed here that reconciles the equilibrating role of income distribution with the traditional Post Keynesian approach to distribution. Two extensions of this model are discussed. The first supposes that financial capitalists and workers have different propensities to save out of dividends and capital gains. The second allows for international capital movements in the context of a two-country economy. It is shown that the equilibrium rate of profits and the long-run pattern of income distribution depend on firms' and households' portfolio and saving decisions, on the degree of financial market imperfection and on the corporate system of ownership and control in which shareholders happen to operate. A rationale for shareholders' indifference between consumption out of dividends and capital gains is also provided.