Pasinetti theorem

	Pasinetti theorem
Industry
Author
Publication Date

The Pasinetti theorem ( Pasinetti paradox) is a statement made in 1962 by the Italian economist Luigi Pasinetti : " Economic growth depends solely on the level of savings that capitalists make, and does not depend on whether representatives of the working class are inclined to make savings."

Content

History

The Italian economist Luigi Pasinetti, in his article “The rate of return and the distribution of income in terms of economic growth” ^[1] 1962, introduced a model according to which economic growth in the Caldor model depends solely on the level of savings that capitalists make and is completely independent of whether workers are inclined to make savings. This “self-raising” theorem, when capitalists are able to increase the profitability of their own capital by simply increasing their savings (savings), provoked an active discussion, which led to the conclusion that everything depends on a number of other circumstances, the influence of which cannot be determined ^[2] .

Assumptions

Pasinetti, expanding the Kaldor model, introduces a number of restrictions ^[3] :

reserve capacities are not limited;
no unemployed ( full-time );
There are two social classes: workers and capitalists;
workers' income consists of wages and profits earned as interest on loans issued to capitalists;
capitalists make only profit.

Model

The savings of workers and capitalists are determined by the following equations ^[3] :

S_{w}=s_{ww}W+s_{pw}P_{w}

{\ displaystyle S_ {w} = s_ {ww} W + s_ {pw} P_ {w}}

,

S_{c}=s_{c}P_{c}

{\ displaystyle S_ {c} = s_ {c} P_ {c}}

,

0<s_{ww}\leqslant s_{pw}<s_{c}<1

{\ displaystyle 0 <s_ {ww} \ leqslant s_ {pw} <s_ {c} <1}

,

Where

W

{\ displaystyle W}

- salary of workers,

P_{w}

{\ displaystyle P_ {w}}

- the profit of workers,

S_{w}

{\ displaystyle S_ {w}}

- the savings of workers,

S_{c}

{\ displaystyle S_ {c}}

- the savings of the capitalists,

P_{c}

{\ displaystyle P_ {c}}

- the profit of the capitalists.

The capital of workers and capitalists are growing at the same rate of growth $g$ ${\ displaystyle g}$ ^[3] :

s_{ww}W+s_{pw}P_{w}=gK_{w}

{\ displaystyle s_ {ww} W + s_ {pw} P_ {w} = gK_ {w}}

,

s_{c}P_{c}=gK_{c}

{\ displaystyle s_ {c} P_ {c} = gK_ {c}}

,

K_{w}+K_{c}=K

{\ displaystyle K_ {w} + K_ {c} = K}

,

Where

K_{w}

{\ displaystyle K_ {w}}

- the capital of the workers loaned to the capitalists,

K_{c}

{\ displaystyle K_ {c}}

- equity capitalists.

Since the interest rate and the rate of profit coincide, then $P_{c}=rK_{c}$ ${\ displaystyle P_ {c} = rK_ {c}}$ and $P_{w}=rK_{w}$ ${\ displaystyle P_ {w} = rK_ {w}}$ , $K_{c}>0$ ${\ displaystyle K_ {c}> 0}$ . Hence, the rate of return is ^[3] :

r=g/s_{c}

{\ displaystyle r = g / s_ {c}}

.

This Cambridge equation shows that an interest rate equal to the rate of return is completely independent of any assumption of workers' saving habits.

Links

Notes

↑ Pasinetti L. Rate of Profit and Income Distribution in Relation to the Rate of Economic Growth // The Review of Economic Studies , XXIX (4), October, 1962 - pp.267-279
↑ Blaug M. Pasinetti, Luigi L. // 100 great economists after Keynes . - SPb. : Economicus, 2009 .-- S. 228-231. - 384 p. - ISBN 978-5-903816-03-3 .
↑ ¹ ² ³ ⁴ Kurtz Kh.D., Salvodori N. Theory of production: long-term analysis. - M .: Finances and statistics, 2004. - S. 525-540. - 632 s. - ISBN 5-279-02603-4 .

[1] Pasinetti L. Rate of Profit and Income Distribution in Relation to the Rate of Economic Growth // The Review of Economic Studies , XXIX (4), October, 1962 - pp.267-279

[:"1"-2] Blaug M. Pasinetti, Luigi L. // 100 great economists after Keynes . - SPb. : Economicus, 2009 .-- S. 228-231. - 384 p. - ISBN 978-5-903816-03-3 .

[:"2"-3] ¹ ² ³ ⁴ Kurtz Kh.D., Salvodori N. Theory of production: long-term analysis. - M .: Finances and statistics, 2004. - S. 525-540. - 632 s. - ISBN 5-279-02603-4 .