Profits, Deficits and Instability: A Policy Discussion

Some four score years ago Jerome Levy had the insight that the cyclical behaviour of a capitalist economy depends upon the course of profits through time, and that this course depends upon the structure of what we would now call aggregate demand. In particular Jerome Levy advanced the proposition that in a simple small government capitalist economy, with external trade mostly in balance, total profits equals investment. In the argument that follows upon this insight, investment is shown to be the independent variable and profits the dependent variable. This leads to a simple equation: Profits = Investment.1 In thinking about economics as he did, Jerome Levy anticipated the economics of Keynes and Kalecki.