8. Profits, Prices, Distribution and Demand

In this chapter, the author examines the mainstream theory of profit determination in an economy. It is shown that there is actually no coherent theory, yet profits are said to be one of the most important components of the macroeconomy. The actual determination of profits is then explored and the implications for the theory of income distribution. From here, simple macroeconomic models are developed that outline the workings of a closed macroeconomy. These models are demand-driven and take into consideration changes in aggregates prices together with the effects on distribution that arise from such changes. The chapter closes with a discussion on how optimal income distribution is effectively a moral question and cannot be examined with any ‘neutral’ economic theory.