Interest, Profit and Wages-A Keynes-Ricardian Approach

According to a widely held view the rate of profit ought to be restored to its pre-1974 level for reviving the world economy which is in the grip of a prolonged general recession; and that requires a wage cut. This paper presents a model which displays the Ricardian stress on profit rate, the neoclassical factor substitution, the Keynesian effective demand, and the post-Keynesian concern for capacity utilisation. It is shown here that under certain conditions an underemployment equilibrium can be replaced by a full-employment-full-capacity equilibrium through raising the wage rate, rather than through wage cut. International aspects of the problem are briefly commented upon.