a steindlian account of the distribution of corporate ... · a stock-flow consistent macroeconomic...

A Steindlian account of the

distribution of corporate

profits and leverage:A stock-flow consistent macroeconomic model

with agent-based microfoundations

Jo Michell1

Presented at EAEPE Conference, Genoa, 17 September 2015

[email protected], Department of Accounting, Economics and Finance,

University of the West of England, Coldharbour Lane, Bristol, BS16 1QY.

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mailto:[email protected]

IntroductionI In Post Keynesian economics, distribution of income

between labour and capital determined by averagemark-up of prices over costs in non-competitivemarkets

I Contrasts with Steindl’s (1952) theory ofmonopolisation—prices play dual role:

I micro: distribute profits among firmsI macro: distribute income between capital and labour

I Important influence on Post Keynesian growth theory:capacity utilisation

I PK growth theory → stock-flow consistent modelsI No microeconomic distribution in SFCI Agent based microfoundations?I This paper: use Steindl to explore SFC-ABM synthesis

in monetary circuit model2 / 26

Income and profit distribution:

Kalecki

I Kalecki: distribution between wages and profitsdetermined by ‘average degree of monopoly’

I but ‘average degree of monopoly’ determined by degreeof monopoly in each industry and relative weight ofeach industry.

The average degree of monopoly for the wholeeconomy being a weighted mean is changed by ashift in output between industries. Thus it haslittle meaning to say that the distribution ofincome is ‘determined’ by the average degree ofmonopoly.

(Lange, 1941, p. p. 281)3 / 26


Kalecki

The changes in the degree of monopoly are notonly of decisive importance for the distribution ofincome between workers and capitalists, but insome instances for the distribution of incomewithin the capitalist class as well. Thus, the risein the degree of monopoly caused by the growth ofbig corporations results in a relative shift ofincome to industries dominated by suchcorporations from other industries. In this wayincome is distributed from small to big business

(Kalecki, 1954, p. 18)

4 / 26


Steindl (1952)

I Monpolisation leads to ‘maldistribution of profits’and ‘enforced indebtedness’ of small firms

I Distinguishes between ‘cartelised’ sector and fringe ofcompetitive firms

I Fall in aggregate demand:I Large firms cut outputI Small firms cut prices

I Firms operate with (intentional) excess capacity

I Excess capacity reduces incentive to invest

I Monoply capitalism distributes profits to firms leastlikely to use them productively

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��

��

��

��

��

��

��

Figure: US capacity utilisation: total industry, per cent ofcapacity

Source: Federal Reserve Bank of St Louis

6 / 26

year

perc

ent o

f GD

P

1950 1960 1970 1980 1990 2000 2010

−50

050

100

real assetsfinancial assetsdebt

Figure: Consolidated balance sheet of US non-financialcorporate sector

Source: Federal Reserve, own calculation

7 / 26

Shift vs share effects

Source: ILO (2010)8 / 26

Stock flow consistent

microfoundations

I Model construction on basis of macroeconomicaggregates excludes processes driven by transactionsbetween agents in the same sector (Michell &Toporowski 2012)

I Debt-financed asset inflation (household sector)I Mergers and aquisitions (firms sector)I Share buybacks (households/firms)I Personal income distribution (households)I Systemic fragility in banking

system—interconnectedness (banks)I Distribution of profits and leverage (firms)

I Solution: agent-based microfoundations? (Bezemer2011; Kinsella, 2011)

9 / 26

ABM-SFC Steindl Model

I Spirit of Steindl, not letter.

I ‘Wage-led’ investment function for individual firms(all firms have same parameters)

I Heterogeneous firms → balance sheets, price mark-up.

I Households modelled as single consumption function.

I Horizontalist banking sector.

I Distribution of demand among firms based on size andstochastic element.

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Macroeconomic balance sheet

Households Firms Banks Total

Fixed capital +K +KInventories +IV +IVDeposits +Dh +Df −DS 0Loans −LD +LS 0

Total (Net Worth) NWh NWf 0 +(K + IV )

Table: Macroeconomic balance sheet of the model.

11 / 26

Firms

gIi = γ0 + γrri(−1) + γuui(−1) (1)

I Investment decision based on previous periodutilisation and profit rate

I Production decision based on previous period sales

I Firms hold inventories of consumption goods—aproportion of expected sales

I Sales and expected sales generally not equal—faceproblem of profit realisation

I Firms hold deposits to cover unexpected shortfalls—aproportion of costs

12 / 26

Firms

τi =NkiK

T (2)

I Pricing decision determined on basis of market share

I Greater degree of monopoly → greater mark-up

I T is overall ‘capital strength’ – in general not equal to‘average degree of monopoly’

I Predict profits and liquidity on basis of previous periodsales and growth rate

I Demand for loans based on expected and desiredliquidity

13 / 26

Households

CD = α1Yh(−1) + α2Dh(−1) (3)

I Consumption decision based on previous income andwealth

I Income determined aggregate demand: C + I

I Change in bank deposits = saving is residual

14 / 26

Banks

I Pure ‘horizontalist’ bank sector

I Exogenous rate of interest on loans = rate on deposits

15 / 26

Aggregate demand

ei = ζkiK

+ (1− ζ)εi (4)

Where εi is a stochastic variable such that∑εi = 1.

I Demand distributed among firms on basis of size andstochastic variable

I Exogenous rate of interest on loans = rate on deposits

16 / 26

Bankrupcty

I If firm has implied negative money balance at end ofperiod → bankrupt

I Loans written off

I Household deposits reduced

I Capital stock remains – free lunch!

17 / 26

ζ = 0.5 ζ = 0.7 ζ = 0.9

0.0 0.5 1.0 1.5 2.0 2.50

20

40

60

80

100

120

140

0.0 0.5 1.0 1.5 2.00

10

20

30

40

50

60

70

80

90

0 1 2 3 4 5 6 7 8 90

50

100

150

200

250

300

350

1000 1050 1100 1150 1200 12500.785

0.790

0.795

0.800

0.805

0.810

0.815

0.820Wage share

1000 1050 1100 1150 1200 12500.795

0.800

0.805

0.810

0.815Wage share

1000 1050 1100 1150 1200 12500.66

0.68

0.70

0.72

0.74

0.76

0.78Wage share

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ζ = 0.5 ζ = 0.7 ζ = 0.9

1000 1050 1100 1150 1200 12500.02

0.03

0.04

0.05

0.06

0.07

Investment growthSaving growth

GDP growth

1000 1050 1100 1150 1200 12500.074

0.075

0.076

0.077

0.078

0.079

0.080

0.081

0.082


GDP growth

1000 1050 1100 1150 1200 12500.060

0.062

0.064

0.066

0.068

0.070

0.072

0.074

0.076


GDP growth

1000 1050 1100 1150 1200 12500.023

0.024

0.025

0.026

0.027

0.028

0.029

0.030

0.031Rate of profit

1000 1050 1100 1150 1200 12500.0545

0.0550

0.0555

0.0560

0.0565

0.0570

0.0575

0.0580

0.0585

0.0590Rate of profit

1000 1050 1100 1150 1200 12500.060

0.061

0.062

0.063

0.064

Rate of profit

1000 1050 1100 1150 1200 12500.48

0.50

0.52

0.54

0.56

0.58

0.60

0.62

0.64Capacity utilisation

1000 1050 1100 1150 1200 12501.10

1.12

1.14

1.16

1.18

1.20

1.22


1000 1050 1100 1150 1200 12500.75

0.80

0.85

0.90

0.95

1.00

1.05


19 / 26

ζ = 0.5 ζ = 0.7 ζ = 0.9

0.80 0.85 0.90 0.95 1.00 1.05 1.10 1.15 1.20 1.250.02

0.00

0.02

0.04

0.06

0.08

0.10

0.12Distribution of growth rates

0.7 0.8 0.9 1.0 1.1 1.2 1.3 1.4 1.50.05

0.00

0.05

0.10

0.15


0 1 2 3 4 5 6 7 8 90.00

0.02

0.04

0.06

0.08

0.10

0.12


0.80 0.85 0.90 0.95 1.00 1.05 1.10 1.15 1.20 1.250.3

0.2

0.1

0.0

0.1

0.2

0.3Distribution of profit rates

0.7 0.8 0.9 1.0 1.1 1.2 1.3 1.4 1.50.4

0.3

0.2

0.1

0.0

0.1

0.2

0.3

0.4


0 1 2 3 4 5 6 7 8 90.3

0.2

0.1

0.0

0.1

0.2


0.80 0.85 0.90 0.95 1.00 1.05 1.10 1.15 1.20 1.250.2

0.4

0.6

0.8

1.0

Distribution of utilisation rates

0.7 0.8 0.9 1.0 1.1 1.2 1.3 1.4 1.50.8

1.0

1.2

1.4

1.6

1.8Distribution of utilisation rates

0 1 2 3 4 5 6 7 8 90.6

0.7

0.8

0.9

1.0

1.1

1.2

1.3

1.4Distribution of utilisation rates

20 / 26

ζ = 0.5 ζ = 0.7 ζ = 0.9

0.80 0.85 0.90 0.95 1.00 1.05 1.10 1.15 1.20 1.250

50000

100000

150000

200000

250000

300000

350000

400000

450000Distribution of loans

0.7 0.8 0.9 1.0 1.1 1.2 1.3 1.4 1.50.60

0.65

0.70

0.75

0.80

0.85

0.90

0.95

1.00

1.051e9Distribution of loans

0 1 2 3 4 5 6 7 8 90.0

0.2

0.4

0.6

0.8

1.0

1.21e8Distribution of loans

0.80 0.85 0.90 0.95 1.00 1.05 1.10 1.15 1.20 1.250

10000

20000

30000

40000

50000Distribution of money among firms

0.7 0.8 0.9 1.0 1.1 1.2 1.3 1.4 1.50.0

0.5

1.0

1.5

2.0

2.5

3.0 1e8Distribution of money among firms

0 1 2 3 4 5 6 7 8 90.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5 1e8Distribution of money among firms

0.80 0.85 0.90 0.95 1.00 1.05 1.10 1.15 1.20 1.250.5

0.0

0.5

1.0

1.5

2.0

Loan distributionCash distribution

Net leverage among firms

0.7 0.8 0.9 1.0 1.1 1.2 1.3 1.4 1.50.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4



0 1 2 3 4 5 6 7 8 90.5

0.0

0.5

1.0

1.5

2.0

2.5



21 / 26

ζ = 0.5 ζ = 0.7 ζ = 0.9

1000 1050 1100 1150 1200 12500.185

0.190

0.195

0.200

0.205

0.210

0.215

0.220

0.225

0.230Household saving

1000 1050 1100 1150 1200 12500.136

0.138

0.140

0.142

0.144


1000 1050 1100 1150 1200 12500.095

0.100

0.105

0.110

0.115

0.120

0.125

0.130


1000 1050 1100 1150 1200 12500.30

0.35

0.40

0.45

0.50

0.55

0.60

0.65

0.70Investment % of GDP Consumption % of GDP

1000 1050 1100 1150 1200 12500.2

0.3

0.4

0.5

0.6

0.7


1000 1050 1100 1150 1200 12500.2

0.3

0.4

0.5

0.6

0.7


1000 1050 1100 1150 1200 12500

100

200

300

400

500

HedgeSpeculative

PonziBankruptcies

1000 1050 1100 1150 1200 12500

100

200

300

400

500

600

HedgeSpeculative

PonziBankruptcies

1000 1050 1100 1150 1200 12500

100

200

300

400

500

600

700

HedgeSpeculative

PonziBankruptcies

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1000 1050 1100 1150 1200 1250 1300 1350 1400 14500.045

0.050

0.055

0.060

0.065

0.070

0.075

0.080


GDP growth

1000 1050 1100 1150 1200 1250 1300 1350 1400 14500.4

0.5

0.6

0.7

0.8

0.9

1.0


1000 1050 1100 1150 1200 1250 1300 1350 1400 14500.057

0.058

0.059

0.060

0.061

0.062

0.063

0.064

0.065Rate of profit

0 1 2 3 4 5 6 7 8 90

50

100

150

200

250

300

350

0 5 10 15 20 25 30 350

100

200

300

400

500

600

700

800

0 5 10 15 20 25 30 351.0

0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0



1000 1050 1100 1150 1200 1250 1300 1350 1400 14500.06

0.07

0.08

0.09

0.10

0.11

0.12

0.13


1000 1050 1100 1150 1200 1250 1300 1350 1400 14500.2

0.3

0.4

0.5

0.6

0.7


1000 1050 1100 1150 1200 1250 1300 1350 1400 14500

100

200

300

400

500

600

700

HedgeSpeculative

PonziBankruptcies

ζ = 0.9, γr = 0.2, γu = 0.04

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1000 1050 1100 1150 1200 1250 1300 1350 1400 14500.020

0.025

0.030

0.035

0.040

0.045

0.050


GDP growth

1000 1050 1100 1150 1200 1250 1300 1350 1400 14500.2

0.3

0.4

0.5

0.6

0.7


1000 1050 1100 1150 1200 1250 1300 1350 1400 14500.038

0.040

0.042

0.044

0.046

0.048

0.050

0.052Rate of profit

0 5 10 15 20 25 300

100

200

300

400

500

600

700

800

900

0 5 10 15 20 25 305

0

5

10

15

20



1000 1050 1100 1150 1200 1250 1300 1350 1400 14500.03

0.04

0.05

0.06

0.07

0.08

0.09

0.10

0.11


1000 1050 1100 1150 1200 1250 1300 1350 1400 14500.2

0.3

0.4

0.5

0.6

0.7


1000 1050 1100 1150 1200 1250 1300 1350 1400 14500

100

200

300

400

500

600

700

800

HedgeSpeculative

PonziBankruptcies

ζ = 0.9, γr = 0.3, γu = 0.01

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1000 1050 1100 1150 1200 1250 1300 1350 1400 14500.030

0.035

0.040

0.045

0.050

0.055

0.060

0.065

0.070

0.075


GDP growth

1000 1050 1100 1150 1200 1250 1300 1350 1400 14500.2

0.3

0.4

0.5

0.6

0.7


1000 1050 1100 1150 1200 1250 1300 1350 1400 14500.042

0.044

0.046

0.048

0.050

0.052

0.054

0.056

0.058

0.060Rate of profit

0 5 10 15 20 25 30 350

100

200

300

400

500

600

700

800

900

0 5 10 15 20 25 30 3520000

0

20000

40000

60000

80000

100000

120000



1000 1050 1100 1150 1200 1250 1300 1350 1400 14500.04

0.05

0.06

0.07

0.08

0.09

0.10

0.11


1000 1050 1100 1150 1200 1250 1300 1350 1400 14500.2

0.3

0.4

0.5

0.6

0.7


1000 1050 1100 1150 1200 1250 1300 1350 1400 14500

200

400

600

800

1000

HedgeSpeculative

PonziBankruptcies

ζ = 0.9, γr = 0.3, γu = 0.01 r̄ = 0.06 at 1100

25 / 26

Concluding remarks

I Post Keynesian economics overlooks role of prices indistributing profits and role of market structure indistributing wages

I Steindl’s insights still relevant

I ABM provides a way to incorporate Steindl into SFC

I Demonstrates potential of method

I Plenty more possibilities!

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a steindlian account of the distribution of corporate ... · a stock-flow consistent macroeconomic...

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