CHAPTER 26
CONSUMPTION AND ACCUMULATION IN THE LONG RUN

THE most important modification to be made in our analysis, to allow for rentier consumption, is that profits are equal to net investment plus rentier expenditure (net of any second- hand purchases by one rentier from another).

Since profits exceed net investment it is not the case that the rate of profit on capital, in tranquil conditions, is equal to the growth ratio of the economy. In general it is considerably greater.1 In any given situation total real wages are equal to the output of consumption goods minus purchases by rentiers. The excess of receipts in the consumption sector over the wages bill is equal to the wages bill of the investment sector plus the outlay of rentiers. The capitalists (combining their aspect as entrepreneurs and as rentiers) employ a certain number of workers to maintain and expand the stock of capital goods, a certain number of workers to provide for consumption, and whatever further number of workers is required to provide for the consumption of these workers and their own.2 The prices of consumption goods exceed their wages costs to a sufficient extent to permit of capitalists' consumption, as well as investment.

Consumption out of profits eats into the resources available

____________________
1
For instance when the following annual ratios obtain:
Value of
Capital
Net
Income
Wages Net
Profits
Net
Investment
Year 1 400 100 40 60 12
Year 2 412 103 41.2 61.8 12.36

the growth ratio is 3 per cent per annum and the rate of profit 15 per cent. Consumption out of profit is 48 per cent of total income and 80 per cent of net profit.

2
Cf. above, p. 75.

-255-

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