Assessing the practicability of the condition used for dynamic equilibrium in Pasinetti theory of distribution

This paper assesses the practicability of the condition used for dynamic equilibrium in Pasinetti theory of distribution. The authors examine the condition \(K_w/K=S_w/S\) and its interpretation to Pasinetti's theory of distribution, which enforces the result \(s_w\rightarrow0\) as \(P_w\rightarrow 0\). This result describes the behavior of workers according to Pasinetti. However, the authors find that Pasinetti's claim that long-run worker propensity to save does not influence income distribution between profits and wages cannot be generalized. This claim is only valid when \(W>>P_w\) or \(P_w=0\) with \(W\ne0\). The practical implementation of Pasinetti's condition imposes a restriction on actual savings by one agent to a lower level compared to its full saving capacity. An implied relationship between propensities to save by workers and capitalists shows that the Passineti's condition can be practiced only through a contract for a constant value of \(R=s_w/s_c\), agreed upon between workers and capitalists. The authors demonstrate that this approach may lead to accumulation of unsaved income, reduce growth of capital, and is not warranted. They also present simple mathematical steps for deriving Pasinetti's final equation compared to those presented in \cite{pasinetti1962rate}. Overall, this paper provides an insightful assessment into the practicability of Pasinetti's theory of distribution and its implications on economic growth. It highlights potential limitations in implementing his conditions and suggests alternative approaches for achieving dynamic equilibrium in economic growth.

Pasinetti's Theory of Distribution and Its Practicability

The economic theories of Luigi Pasinetti have been widely discussed in the academic literature. In particular, his theory of distribution has been studied for its implications on economic growth. This paper assesses the practicability of the condition used for dynamic equilibrium in Pasinetti's theory of distribution.

Overview of Pasinetti's Theory

Pasinetti's theory is based on a model that assumes a closed economy with two classes: capitalists (C) and workers (W). The total income \(Y\) is divided between profits \(P_c\) and wages \(W\). The rate at which capital accumulates is determined by savings out of profits, denoted as \(s_c\), while workers save out of their wages, denoted as \(s_w\). According to Pasinetti, there exists an equilibrium condition where the ratio between capital stock per worker (K/N) and wage rate per unit labor input (W/L) remains constant over time. This condition can be expressed mathematically as follows:

$$ \frac{K}{N} = \frac{W}{L} $$

Furthermore, this equation implies that long-run worker propensity to save does not influence income distribution between profits and wages when \(\frac{K_w}{K}=\frac{S_w}{S}\). This result describes the behavior of workers according to Pasinetti.

Analysis Of Practicability Of Pasinettis Condition

However, this paper finds that this claim cannot be generalized. It is only valid when either \(\frac{W}{P_w}\gg1\) or \(\frac{P_w}{W}=0\) with W≠0 . The practical implementation of Pasinetti’s condition imposes a restriction on actual savings by one agent to a lower level compared to its full saving capacity. An implied relationship between propensities to save by workers and capitalists shows that Passineti’s condition can be practiced only through a contract for a constant value R=S w / S c , agreed upon between workers and capitalists .

This approach may lead to accumulation of unsaved income, reduce growth of capital, and is not warranted . To address these issues , authors present simple mathematical steps for deriving final equation compared to those presented in [1]. These steps allow us to derive an expression which does not require any prior agreement about saving rates among agents .

Conclusion

In conclusion , this paper provides an insightful assessment into the practicabilityof Passineti’s theoryof distributionandits implicationson economicgrowth . It highlights potential limitations in implementing his conditionsand suggests alternative approachesfor achievingdynamicequilibriumineconomicgrowth .