Profit Squeeze and Keynesian Theory

This paper explores one aspect of the relationship between the system of production and the macroeconomic structure, namely the role of profitability in determining investment demand and the level of economic activity. Within the system of production, wages are a cost: the lower are profits per unit of production, the lower the stimulus to investment. In a Keynesian view of the macroeconomic structure, however, wages are a source of demand, hence a stimulus to profits and investment. In this view, aggregate demand provides the way out of the dilemma that high wages pose for the system of production. If demand is high enough, the level of capacity utilization will in turn be high enough to provide for the needs of both workers and capitalists. The rate of profit can be high even if the profit margin and the share of profit in output are low and the wage rate correspondingly high. These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.