7. Pasinetti on Post-Keynesian Income Distribution and Growth Theory: Further Developments

Some of these points were mentioned by James A. Mirrlees to the first author of this volume when he was writing his D.Phil. thesis at Oxford. Even if there was not a complete agreement on all issues tackled, Mirrlees’s supervision was, to say the least, superb and full of insights.

See, for instance, Baranzini (1991a, Chap. 7).

Among these works Faria and Araujo quote Pasinetti (1989b, c), Dalziel (1989), Denicolò and Matteuzzi (1990), as well as Araujo (1992).

According to Faria and Araujo, ‘Hu (1973) provides a description of the optimal programme of capital accumulation in the framework of the post-Keynesian two-class growth model. However, he considers a centrally planned economy, in which the central planner performs the dynamic optimisation. As a consequence, the propensities to save remain exogenous and are not necessarily the optimal ones’ (Faria and Araujo 2002, p. 4n).

In his Nobel Lecture Modigliani reports that the proportion of wealth held for bequests ‘rises with wealth, reaching 1/3 for the top class. Similar, though somewhat less extreme, results are reported in the Brookings study […]. Thus, the bequest motive seems to be limited to the highest economic classes. This hypothesis is supported by the findings of Menchik and David that for (and only for) the top 20 per cent, bequests rise proportionately faster than total resources, something which presumably cannot be explained by the precautionary motive. Furthermore, it is consistent, incidentally, with the observation that the decline in wealth with age tends to be more pronounced and systematic in terms of the median than of the mean. But, then the top fifth of the income distribution can be expected to account for substantially more than 1/5 of all bequests’ (Modigliani 1986, p. 310). Certainly this contrasts with Marshall’s statement ‘That men labour and save chiefly for the sake of their families and not for themselves, is shown by the fact that they seldom spend, after they have retired from work, more than the income that comes in from their savings, preferring to leave their stored up wealth intact for their families’ (Marshall 1890, iv, vii, p. 6; quoted in Phelps Brown 1988, p. 449). The evidence emerged since 1986 seems however to confirm that reality is about middle of the road of the two opposite positions, probably leaning more towards Modigliani’s position in North America and Australia and leaning more towards Marshall’s position in Western Europe.

As the one exposited above and considered in Baranzini (1991a, Sect. 5.9).

This seems to confirm the necessity of differentiating as much as possible the consumption- and bequest-discount rate among individuals, dynasties or socio-economic classes.

This may be due to various reasons. Firstly, rich classes have more financial means than other classes. Secondly, education carries with it prestige and strong earnings prospects. Finally, a specific education may be necessary for a dynastic transmission of a given profession.

This thesis has been recently reassessed by Mazumder (2005).

In 1958 in Great Britain 39% of girls married someone of the same class, 38% married up and the remaining 23% married down, that is, men who were less educated and worse paid than them. However, of the women born between 1976 and 1981, 56% married someone of the same class, 16% married up and 28% married down. Official figures in 2016 showed 52% of women aged 17–30 went into higher education compared with 42% of men. Still, a number of recent studies, at least for the United States, do not find a statistical difference in the number of women or men ‘marrying up’. See, for instance, Dalmia and Sicilian (2008).

We refer to the Robinsonian-Kaldorian argument according to which, if S > I, consumption will be lower than expected and profit margins will fall, leading to a redistribution of income from profits to wages. Since saving out of wages is lower at the margin than saving out of profits, such a process will continue until S = I and vice versa.

This proposition maintains that the undertaking of a public debt, or the imposition of taxes, ends up having the same effects on taxpayers. In its more stringent form, it became known as the ‘neutrality theorem’ (see Barro 1974).

Recent empirical work (Horioka and Watanabe 1997) on Japan has shown that the motives to be found behind total personal savings are many and, above all, they change along the life-cycle. Some of them are clearly associated with a strong willingness to endow the next generation (saving for housing, since Japanese parents in general leave their house to their eldest son; expenditure for their children’s education; a special dowry for the girl(s), and so on).

This is especially true for the United States, where the saving rates of households have been declining through most of the twentieth century and have been in certain cases negative at the beginning of the twenty-first century.

According to Al-Jarhi (1985, p. 25):

Zakah is one of the pillars of Islam. Denying it by a Muslim is tantamount to apostasy which is equivalent to treason in an Islamic State. It can be likened to what is known in modern terms as a redistributive wealth tax to which all assets, amwal, beyond a certain limit are subjected regardless of the age or status of their owners. It is a religious obligation on each Muslim. Nonetheless, the Islamic State can levy a similar tax on its non-Muslim subjects, to be used for the same purposes. The assets on which zakah is payable must fulfil the following conditions: 1. Growth, except for monetary balances; 2. Quantity owned exceeds a certain minimum level called nisab; 3. Quantity owned exceeds the necessary amount of assets whose income supplies the basic needs, hajat asliah, of their owners. Basic needs include: food, cloth, shelter, defence weapons, repayment of debt, tools of work, home furniture, and transportation of owner, his wife, children and those for whom he is financially responsible; 4. If the asset is either cattle or money, its ownership by the individual must continue uninterrupted for one year before zakah becomes due.

Al-Jarhi provides a list of the Zakatable assets: they include animal wealth (except working animals); gold, silver and monies, jewellery (beyond a reasonable amount); commodities and working capital; crops and fruits, rented land; honey and animal products; marine products; building and factories, wages and salaries (as they are received); and, finally, stocks and other financial assets. To which the editor of the Journal of Research in Islamic Economy adds:

According to the common practice based on the opinion of the majority of jurists the income from rented land, building and factories is subject to Zakat at an annual rate of 2.5% and wages and salaries are Zakatable not as they are received but, along with other wealth, at the end of the year. The writer has adopted the opinion of al-Qardawi who considers wages and salaries to be Zakatable as they are received and subjects the yield of rented land, buildings and factories, net of depreciation, to a rate of 10% (analogous to agricultural crops). [Editor]

The first author of this volume has suggested (Baranzini and Mirante 2013) that the Cambridge equation on income distribution may be called the Kaldor-Pasinetti-Harcourt equation, due to the leading role of Geoff Harcourt in discussing and making it popular through his numerous papers, volumes and lectures.

We are grateful to Mrs. Dorothy Hahn-Salter for kindly giving us permission to quote the letter and to reproduce the drawing at the end of it.

During these two terms, on leave from The Queen’s College, Oxford, he had the privilege to attend Frank Hahn’s lectures and seminars as well as Luigi Pasinetti’s lectures.

He is referring most probably to Meade (1963).