Conditions of Existence of a Two Class Economy in the Kaldor and More General Models of Growth and Income Distribution

The Author considers the vexed question of whether it is meaningful, or logically consistent, to assume different savings propensities for profits and wages, independently of whether the savers are capitalists or workers. The Author claims, however, that the analytical issues must be clarified first of all. Therefore he explores the conditions of existence of a two-class (capitalists and workers) economy when the rate of interest i is lower than (or at most equal to) the rate of profit r, and the savings function is expressed by the general form: S=swwW + swc Pw + scPc. It is shown that, at one extreme, when swc = sc , the savings function reduces to the one originally used by Kaldor, and if also i = r, no equilibrium path exists. At the other extreme, when swc =sww , the savings function reduces to the one originally used by Pasinetti and the range of existence are defined in terms of inequalities involving the parameters of the system.