Micro to Macro: A Note on the Kahn Wage-Profit Multiplier

micro-macro-1

Just a quick added note on the Kahn wage-profit multiplier. As shown in the last piece, Kahn’s multiplier was concerned with the generation of employment by each extra man employed. Here once again is the complete multiplier relation (read the last post to decode the variables):

Multiplier Equation 1.5Here’s a thought though: what if we replaced the number of men employed due to the wage-profit multiplier, k, with aggregate income, Y. And what if we replaced the wage and the profit per man employed, W and P respectively, with aggregate wages and aggregate profits. Then, we replace the two multiplier terms, b and n, with average propensity to consume of out of wages and average propensity to consume out of profits respectively. Finally, we replace imports per extra man employed, M, with average propensity to consume out of imports which, to use the standard multiplier algebra, might be mY and hey presto we have a macro wage-profit multiplier ready to use!

As I said in the last post, Kahn derived the multiplier from Keynes’ equations in his Treatise on Money. The above shows not simply how close that work was to being a true work of macroeconomics, but also how close its framework was to that of Kalecki.

 

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About pilkingtonphil

Philip Pilkington is a London-based economist and member of the Political Economy Research Group (PERG) at Kingston University. You can follow him on Twitter at @pilkingtonphil.
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