It may help to start with a fuller specification of the model. Suppose two sectors, C and I. Employment in C is N_c and employment in I is N_I; and N_c + N_I = N, for the economy.

Suppose the state of technique is such that: C/N_c = I/N_I = Y/N = 1. (and of course: Y = C + I).

Suppose the wage share over all sectors is set at W/Y = k = 0.6 so that the profit share P/Y = (1 - k) = 0.4 (Why pick k = 0.6? Because this parameter makes for simple manipulation. But if you want to make life more complicated pick the k that appeals to you and follow along; the same general conclusions will emerge in any event).

Y = W + P; and Y/Y = W/Y + P/Y ; or 1 = k + (1 - k); in the conventional way this amounts to saying $1.00 = $0.60 + $0.40.

Suppose also that workers spend (eat) all they get s_w = 0.

Suppose capitalists spend some part of their profit income on consumption (capitalists must also eat to live) and what they spend (eat) is a proportion e = P^e/P = 0.5. It follows that what they save out of the profits they extract is P^s/P = P/P - P^e/P = 1 - e.

Saving and investment are done by the same class of people, capitalists. So the 'animal spirits of capitalists' dictate that I is at some level or other, conventionally an autonomous level. It may be supposed that, in conventional jargon, the 'autonomous' level of  investment is I = 100.

Putting all this together C = kY + e(1 - k)Y = 0.6Y + .2Y; so that C = .8Y; and of course S = Y - C may also be shown as S = (1 - e)(1 - k) Y; so S = 0.2Y.

It follows that Y = C + I = .8Y + 100. so that Y = 1/.2(I) = 5(I) = 5(100) = 500. The level of overall output/income of 500 generates enough savings, S = 100, to finance I = 100.

Over the economy, 500 workers are employed, 400 producing C sector output, 100 producing I sector output. And workers are paid a wage rate of w = W/N = 300/500 = 0.60 (note it is because of the state of technique assumption that k = w); capitalists get total profits of 200, 100 of which they eat, P^e, and 100 of which they save, P^s, (and this, of course, is ultimately eaten but that is an interesting feature most fully seen by dressing out the sectoral accounts).

In the previous post to pkt it was supposed that, holding k = w = 0.6, that s went from s = 0.2 (with the multiplier m = 5 as immediately above) to s' = 0.1 (with, correspondingly, a different multiplier of m = 10). This implies that e changes from e = 0.5 to e' = 0.75. That is capitalists themselves choose to consume more and in effect 'retain' less as savings. The new higher e falls out of s' = (1 - k)(1 - e') because s' is imposed and k is given.

In this latter case, holding the I decision constant, capitalists made themselves work harder in the sense that (1 - e') = 0.25 is a lower profit retention ratio than (1 - e) = 0.50.
Beneficent results probably did not figure into their thinking. Nevertheless the results are of a beneficent sort for Y = 1000, C = 900 and I = 100.

Work has expanded for capitalists in the sense defined, and workers in total numbers employed have increased. For now there are 1000 workers employed (up from 500 when s = 0.2). Capitalists get exactly what they want to finance investment and more workers are employed so the system is better off and no one worse off!

In emphasis please note that the system is made better off when capitalists consume more and save less. Indeed when capitalists, or anyone else, saves more and consumes less the system will suffer from output and employment losses.

The usual sort of experiments can be run with this.

But, since the usual conventional experiments are not class based, consumption and savings are not rooted in the class distribution of income. The replacement of class analysis implicitly either assumes a just equality of status with respect to the means of existence or production for everyone or simply ignores or refuses to recognize the fact that the means of existence are owned by a few while the many must struggle for access to a capitalist owned job as the only means to acquire a wage income for the maintenance of their families. Unfortunately for the course of human progress this major fact amongst all the realities of social existence in capitalism is very often hidden and replaced by libertarian type babble to do with consumer sovereignty over and within the market (when in fact workers are all consumers who, scrimping by on insecure jobs and incomes, are increasingly dependent on whether or not capitalists will happen to choose to operate the means of existence they own and control at high enough activity levels to make jobs available to them, that is, to workers).

But class based experiments can be run. Suppose the wage rate is increased (decreased). The result, holding I constant, is that output and employment increase (decrease).

These are simple truths of the model.

More complicated, but providing the same sort of conclusions, is to suppose in a number of steps, the introduction of a government. First suppose a government that makes autonomous expenditures, G. If G = 50 = I, then I + G = 100, and the same levels of overall output and employment are generated as in the opening model with I = 100 and k = 0.6 and e = 0.5. It is just that now government hires workers and pays them a wage rate for the delivery of a socially desirable public service.

Now suppose the government decides to tax to finance its expenditures. Suppose we observe that T/Y = t = 0.1 is the proportion that falls out of the national accounts. This proportion is a structural control to accompany I + G = 100, k = 0.6 and e = 0.5.

What sort of government might we suppose we are dealing with?

Suppose Type A Government is an aggressive 'right wing to the hilt' government supportive of capitalist rather than democratic governance and is one that proves this by imposing taxes on workers alone.

Type B government is more progressive (socially concerned) and taxes profits alone.

Type C is ultra-progressive, socially concerned, and taxes savings alone!

Under Type A Government, while t = 0.1; the effective rate of taxes on workers is t* = tY/W = 0.1Y/0.6Y = 0.17.

Under Type B Government, while t = 0.1; the effective tax rate on the claimers of profit is t** = tY/P = 0.1Y/0.4Y = 0.25.

Under Type C Government, while t = 0.1; the effective tax rate on savers of profits is t*** = tY/P^s = 0.1Y/0.4(0.5)Y = 0.50.

As we run through these models s falls from 0.2 when taxes are on workers alone, to 0.15 when taxes are on profits alone to 0.1 when taxes are only on savings. In the basic model of capitalist governance income and employment was 500 (with I = S; and when I + G = S and t = 0 this is still the case).

When taxes are shifted onto those who are least able to pay them output and employment are at a low of Y = 333.3. This is the Type A Government, that imposes taxes on workers alone. There are private sector surpluses (S > I) and a public sector deficit (borrowing G >T).

As taxes are shifted to profits, (Type B Government) Y and N rise to Y = 400, the public deficit falls and a private sector surplus still emerges. (We do not have to deal with a Government betweenType A and Type B to make the important points).

Under Type C Government s falls to 0.1 (and s = t) under the taxation of the saving of profit alone. In this case Y = 500, I = S = 50, and G = T = 50. Alternatively with t*** = 0.5 then t***P^s = 50.

But my God! What is this? A "balanced budget" from socially concerned progressive taxation in a class sense?

The overall conclusion is that by deliberately making the world a better place for workers and, by implication the downtrodden generally, the system gets better off in material terms. Capitalists always got at least the savings they needed to cover I; government did not always get the taxes needed to cover G, but this was 'compensated' by borrowing from the private sector under the less and least progressive of policies.

Note that capitalist consumption is lower under Government Type B (at 60) than under Type A (at 66.6). This reduction comes from the placing of taxes on all profits, including, that is, both P^e and P^s.

Under the most progressive of governments, Type C, capitalist consumption is higher at 100 than under Type A and Type B. And this because consumption of capitalists, C_c, is relieved of taxes (of course this relief is also provided for the consumption of workers, C_w.

And more workers are employed as we go from Type A (most pro-capitalist aggressive) to Type B Government and to Type C Government (most progressive and socially concerned). In a technical sense this happens because of the change in the multiplier m, m = 1/(t + s). Under government of Type A (t + s) = 0.3; under Type B (t + s) = 0.25; and under Type C, (t + s) = 0.2.

Surely the overall conclusion upsets a lot of libertarian and neo-conservative thinking of the past few decades, about deficits, cutbacks, the victimization of the poor the importance of savings, etc., etc.

Looking at things in the class sense it is also interesting to note that the view is consistent with Adam Smith, that, of the working class :

"...though the interest of the labourer is strictly connected with that of society, he is incapable of comprehending that interest, or of understanding its connexion with his own. ...In the public deliberations, therefore, his voice is little heard and less regarded, except upon some particular occasions, when his clamour is animated, set on, and supported by his employers, not for his, but for their own particular purposes." [While, of the profits of the capitalist class, Smith said that profit] ... is naturally low in rich, and high in poor countries, and it is always highest in the countries which are going fastest to ruin. The interest of this third order, has not the same connexion with the general interest of society as that of the other two [workers and landlords or rentiers]. ...As their thoughts .... are commonly exercised rather about the interest of their own particular branch of business, than about that of the society, their judgment, even when given with the greatest candour (which it has not been upon every occasion), is much more to be depended upon with regard to the former of those two objects, than with regard to the latter. ...The proposal of any new law or regulation of commerce [or shift of taxes off the shoulders of the strongest in material and power-over-others terms, the capitalists and generally the rich and those who are able to save, and onto the shoulders of the worker, the oppressed, the unemployed and those who do not save] which comes from this order, ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never ex actly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occa sions, both deceived and oppressed it." A. Smith, An Inquiry into the Nature and the Causes of the Wealth of Nations, (New York: Modern Library, 1937), 248-250.

This is straight forward Keynes in class terms but the conclusions may be of surprise and of great annoyance to those of us who hold other less progressive 'truths'.

One might also note that this simple model implicitly contains money and interest and, therefore, a rentier element of the sort who are to be counted amongst those 'who like to reap where they have never sowed' [an order of capitalists, national and international finance capitalists, who are just as assuredly, if not more so, private sector monopoly controllers of the means of our existence as are national and international industrial capitalists], "whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it."

Money, banking and the finance system are perhaps the most powerful lever of private sector control and means of our dispossession. Small and medium sized businesses and workers are all pushed to subsistence nationally and internationally.

An analysis of money leads to at least one simple truth: money is a exactly like manure in the sense that the more you spread it around the more productive it is.

But to spread it around-and provide justice for society-demands social control of the major institutions dominating modern capitalism.

"This diversion of industry from its primary purpose of human service has either introduced or accentuated several major disorders in our organization. ... The passing of the ownership of the tools of production into the hands of those who do not use them compels the wage earner to rely, not on his ability and readiness to work, but on his ability to sell his labor to some one who has the capital without which production cannot continue. This leaves him dependent and insecure. ......our present organization of industry frequently depends on a surplus of labour [unemployment] ......lessens the bargaining power of labor. ......[private] ownership of the means of production [and finance] ... [carries with it] ...... the power to determine the proportions in which the output shall be distributed. ...[resulting in] .......fantastic inequality ...... bitterness and resentment. ......the wage earner ... must accept that which the owners of the plant have to offer. ... [system generated fear and insecurity results in] ... stunted minds and stultified characters ... there is a call for a well-ordered regulation and control within the nation to adjust the conflicting claims of groups, and for a well-grounded international structure which will avert the perils arising from international anarchy." Commission on Christianizing the Social Order, "Report of the Commission on Christianizing the Social Order," Records and Proceedings, (Toronto: United Church of Canada General Council, 1934), 240-242.

On workable progressive alternatives to neo- conservative budgets in Canada one may refer to:

Gonick C. and T. Scarth, "A People's Budget: The Story of the Alternative Federal Budget," Canadian Dimension, XXX:2(April 1996), 13-18.

The Council of Canadians, "Putting People First: The Alternative Federal Budget," Canadian Perspectives, (Ottawa: The Council of Canadians, Winter 1996), 12.

A Possible Helpful Clarification:

If in checking the figures given above anyone is confused and wonders how this horrible mess (from a neo-conservative point of view of Type C Government) and joyful world (from the view of the oppressed and down trodden of the same Type C Government) happened maybe the following technical stuff will help.

In the Type A aggressive pro-capitalist government case C = [kY - t*kY] + e(1-k) Y. The model generates Y = 333.3; with I + G = 100, then C = 233.3 so c = C/Y = 0.7, and with t = 0.1 then s = 0.2 ; (1 = c + s + t).

In the Type B more progressive government with taxes on profits and not wages. C = kY + [e(1 - k)Y -t**e(1 - k)Y]. The model generates Y = 400, with I + G = 100, then C = 300 so c = C/Y = 0.75 and with t = 0.1 then s = 0.15; (1 = c + s + t).

In the Type C Government, characterized by being community mindful towards society at large. C = kY + e(1 - k)Y. The model generates Y = 500, and with I + G = 100, then C = 400, so that c = C/Y = 0.8, and with t = 0.1, then s = 0.1; (1 = c + s + t).

My argument is and has been that a government that seeks a better world can easily contribute to that end and the cause of justice by shifting its policies in favour of those whom capitalism (aided and abetted by right-wing governments) has dispossessed.

"No man with or without intent, shall be made, to serve merely as an instrument of another man nor of any human institution; that employers shall not use their fellow men for the purposes of their private gain without regard for their human dignity, health and economic security, and should do their utmost to make possible for them the freedom and opportunity to live a worthy human life. Further the Church must condemn business or financial methods which, either in the interest of privilege, or as impersonal forces, promote the accumulation of wealth in the hands of the few and rob the many of a decent livelihood." "Report of the Commission on Christianizing the Social Order," Records and Proceedings, (United Church of Canada General Council, 1934), 246.

"It is time this farce was recognized for what it is. It's time for the victims of corporate rule to stop trying to influence the corporations' political henchmen and turn their protests against those who now wield the real political power-the country's political and financial elite. The Business Council on National Issues, the Boards of Trade, the Chambers of Commerce As long as their victims, the vast majority of Canadians, remain unaware that they now live under corporate rule, [the situation of impoverishment and dispossession by and for the few at the expense of the many will continue] Ed Finn, "Corporate Rule," The Canadian Forum, LKKIV: 847(March 1996), 5-6.

The argument of this article is quite straightforward a matter of basic macro economics. It is interesting to note that the organization known as Responsible Wealth, whose membership includes many of America's most wealthy agree.

W. Robert Needham
Director, Canadian Studies
St. Paul's United College
University of Waterloo
Waterloo, Ontario N2L 3G5

e-mail: rneedham@watserv1.uwaterloo.ca

>>>>No justice, no peace!>>>>
>>>When the people lead the leaders will eventually follow>>>