Keynesian model

Capitalists in Department 2 use this multiplier to anticipate how much consumption goods they need to produce in order to respond to the investment decisions of Department 1. Hartwig (2004) provides a particular interpretation of the methodology employed by Keynes, in which entrepreneurs use the multiplier to plan their outputs at the start of each production period. A key advantage of this multiplier, in comparison to a one-good Keynesian model, is that it embodies the requirement of proportionality between departments of production. 

The main problem with this decomposition of the multiplier is that it is restricted to a one-good model. A contribution which relates the Keynesian multiplier to a two-good model, along the lines of Marx s reproduction schema, has been provided by Hartwig (2004). As a starting point, net income in the two departments is captured by the identities... 

This demonstrates that the scalar Keynesian multiplier relationship can in principle be derived from a two-sector model. As it stands, however, since (2.14) is defined using net income, no account is taken of the constituent role of constant capital in the production process.9 In embracing Keynes to model aggregate demand, a Marxian response is required to the charge that the scalar multiplier falls prey to Smith s dogma. 

The role of Marx s category of surplus value can therefore be identified in a macro scalar multiplier without the restrictive assumption of a one-good model. This scalar multiplier captures the inter-departmental structure of the reproduction schema without constant capital being assumed away. A formal model of aggregate demand in the reproduction schema is developed, which retains the simplicity of the Keynesian multiplier together with Marx s value categories. 

A marked degree of clarity and accessibility is therefore offered by this application of the simple Keynesian multiplier to the circulation of money in a macro economy. In addition, Appendix 4 shows that the interindustry foundations of this model are consistent with Marx s value categories and his definition of investment. As a basis for future research, this macro monetary model is offered as a way of potentially improving communication between the Franco-Italian circuit school and the Marxian and Post Keynesian traditions. 

It should be noted, however, that our application of the new interpretation does not imply that the traditional labour embodied definition of value should be completely abandoned. Foley (2000 30) is open to the possibility that there may be a role for both the new and traditional interpretations of the value of labour power. As Appendix 4 shows, the labour embodied definition of the value of labour power is nested in the input-output model of the circulation of money between departments of production, regardless of how prices are defined. The deviation of prices from values does not modify the constituent role of the labour embodied measure in the interindustry monetary circuit. It is only when a macroeconomic aggregation is developed under price-value deviations, and in the derivation of the scalar Keynesian multiplier, that a switch to the value-form definition is required. 

Schmitt (1996 123) also argues against the narrow Keynesian specification of the multiplier as a model of impacts between the investment sector and the consumption sector . This is the approach taken by Nell (2004). Following Marx s definition of investment as increments in constant and variable capital, the multiplier in equation (4.23) is exempt from this criticism, locating increments in both sectors. 

The world of the model is a closed economy where the production of final goods is considered as the aim of the activities of all production factors (in accordance with the Keynesian concept that inflation is a consumption-market phenomenon). 

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