January 1, 2015

Kalecki's wrong definition of profit and income

Comment on 'Great Thinkers in Economics'

Blog-Reference

Thank you for the book-link. In the Section 'Kalecki’s Theory of Profits and Output' we read: “On the other hand, given that income (gross) is distributed between capitalists and the wage earners, we have: Y = P + W (A2.2).” (López und Assous, 2010, p. 36)

This definition is commonsensical, often applied, and wrong. The correct definition reads: total income is the sum of wage income and distributed profit (2014, p. 3, eq. (1)) and this gives the correct employment equation (p. 9, eq. (22)).

Profit and distributed profit are different things. Since more than 200 years neither orthodox nor heterodox economists have got the point. Unfortunately Kalecki is one of them. Clearly, when the profit theory is false the other parts of a comprehensive approach are open to doubt.

Heterodoxy can gain an immense advantage if it rectifies its foundational concepts faster than Orthodoxy. Clearly, there is no alternative to rectification.

Egmont Kakarot-Handtke


References
Kakarot-Handtke, E. (2014). The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL
López, J., and Assous, M. (2010). Michal Kalecki. Houndmills, Basingstoke: Palgrave Macmillan.