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Crowding out Capitalism – Graphics On this page we present diagrams of the time paths of different variables comparing the scenarios of: 1.) The Golden Rule Path 2.) The simple capitalistic model 3.) The Pasinetti model 4.) The Crowding out Capitalism model 4A) The Crowding out Capitalism model with unchanging savings assumptions 4B) The Crowding out Capitalism model with optimal savings assumptions assuring the development along the Golden Rule path. The Production Function The production function is assumed to be Q = Aka The natural rate of growth of the labour force is
A = 2623,28 a = 0,25 n = 0,03
The Savings Assumptions In the Golden Rule scenario all profits are saved, all wages are consumed. In the Capitalist scenario 0,6 of the profits are saved and reinvested, all wages are consumed. In the Pasinetti scenario capitalists save 0,6 out of their profits and workers save 0,1 out of their earnings from wages and profits. In the Crowding out scenario A the capitalists save as in the Pasinetti scenario but the workers save all their profits and in addition 0,1 out of their wages. In the Crowding out scenario B the capitalists behave as before but the workers save as in scenario A up to the point when worker's consumption is equal to the Golden Rule. Then workers save out of their wages to assure the capital accumulation is equal to the Golden Rule Path.
The Time Paths of Economic Variables 1. The Capital-Labour Ratio k k Golden Rule Capitalism Pasinetti Crowding out Capitalism A Crowding out Capitalism B
Time Path of the Capital-Labour Ratio k (Crowding out Capitalism B overlaps the Golden Rule Path) 1 000 000 900 000 Capital-Labour Ratio k
800 000 700 000 600 000 500 000 400 000 300 000 200 000 100 000 0 0
100
200
300 Years
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2. The Rate of Profit r r Golden Rule Capitalism Pasinetti Crowding out Capitalism A Crowding out Capitalism B
Time Path of the Rate of Profit r (Crowding out Capitalism B overlaps the Golden Rule Path) 9,00% 8,00% 7,00%
Rate of Profit r
6,00% 5,00% 4,00% 3,00% 2,00% 1,00% 0,00% 0
100
200
300
400
500
600
Years
3. Consumption per Capita C/Persons Golden Rule Capitalism Pasinetti Crowding out Capitalism A Crowding out Capitalism B
Time Path of Consumption per Capita 52 000 50 000
Also in this diagram the optimal Crowding out Capitalism scenario B overlaps the Golden Rule Path very early.
Consumption per Capita
48 000 46 000 44 000 42 000 40 000 38 000 36 000 34 000 32 000 30 000 0
100
200
300
400
500
600
Years
4. Consumption per Worker C/Worker Golden Rule Capitalism Pasinetti Crowding out Capitalism A Crowding out Capitalism B
Time Path of Consumption per Worker 58 000 56 000 54 000 Consumption per Worker
52 000
Here one can see worker's strategy in the Crowding out Capitalism B scenario to reach the Golden Rule path.
50 000 48 000 46 000 44 000 42 000 40 000 38 000 36 000 34 000 32 000 30 000 0
20
40
60 Years
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5. Share of Worker's Capital as % of Capitalist's Capital Under the Golden Rule all Capital has to be considered as being socialised. There is no capitalist's capital. Under Capitalism all capital is considered being capitalist's capital. There is no worker's capital. Kw/Kc Pasinetti Crowding out Capitalism B
Relative Shares of Worker's versus Capitalist's Capital
Relative Shares of Capital Kw/Kc
Kw / Kc 250,00%
200,00%
150,00%
100,00%
50,00%
0,00% 0
10
20
30
40
50
60
100
120
Years
6. The Revolutionary Character of Crowding out Capitalism – Capitalists Consumption In the models is assumed that the capitalists are always 10% of the worker's population. As capitalists do not receive wages they have to live on profits. As the rate of profit as well as their share of profits declines their consumption declines also. Under the Golden Rule there are no capitalists.
Cc per Capitalist Capitalism Pasinetti Crowding out Capitalism A Crowding out Capitalism B Worker's Consumption
The Revolutionary Character of Crowding out Capitalism Consumption per Capitalist
Consumption per Capitalist
70 000 60 000 50 000 40 000 30 000 20 000 10 000 0 0
20
40
60 Years
Already after 13 years worker's consumption exceeds capitalist's consumption per head. This is clearly the end of capitalism if a counter-revolution can be avoided.
Copyright © 2011 Klaus Hagendorf, Paris. All Rights Reserved.
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