"To start with, P + W = C + I is a combination of the two identities above, since both equal Y, they must also therefore be equal to each other. So the sum of profits and wages is equal to the sum of consumption and investment.
Renowned economist Mikhal Kalecki isolated profit from this identify by breaking down consumption into consumption by capital and consumption by workers, resulting in P + W = Cp + Cw + I. Reasoning that workers, as a class, spend all the income they make, Kalecki equated W and Cw, resulting in P = Cp + I. Meaning Profit is equal to the sum of capitalist consumption plus investment. This means that wages are essentially meaningless when it comes to profits when wages eventually return to capitalists by way of worker’s consumption.
Yet, the assumption the workers consume everything they earn as a class is based on wages being determined by an efficient labour market. Workers can, as a class, use their social power to work against the workings of the labour market.
In one of his later papers, “Class Struggle and the Distribution of the National Income”, Kalecki reasons that through non-market processes like collective bargaining, workers can negotiate wage increases that do not entirely flow back to Capital in the form of profits. Collective political action, can likewise push to enact laws and lobby for benefits that move aggregate wages above class subsistence levels, and thus enable workers to earn more than they spend, and therefore allow workers to invest, breaking the monopoly on investment enjoyed by capital.
Kalecki wrote in 1960, “According to [my] first theory, the absolute level of profits is determined by capitalist consumption and investment. According to [my] second theory, the relative share of profits in national income is determine by degree of monopoly.”
The degree of monopoly is determined by class struggle, and the relative share of profits in the national income is the result.
Roughly following Kalecki, lets expand both consumption and investment to add a class dimension, lets say P + W = Cw + Cp + Iw + Ip. Now, to isolate relative profits (R) from absolute profits, we could use R = C + Ip. In other words relative profits are equal to all consumption of capitalist goods plus investment derived from capitalist profit. The social capacity of workers to invest (Iw) reflects a part of the national income that is not being consumed, and, more importantly, not flowing through to capitalist profit.
We can now introduce a new equation to express wealth concentration (X) as X = C + Ip – Iw. This wealth concentration equation quantifies Kalecki’s concept of the “Degree of Monopoly.” This equation is macro-economically consistent, since Y = X + Iw.
If we understand that the neoliberal agenda is to maximize X, not Y, we clearly see that X can rise even if Y falls, so long as workers’ capacity to invest, meaning the amount of their income workers can sustainably divert from consumption, falls more.
Thus, the macroeconomy of class struggle boils down to this, any action that decreases X is revolutionary and any action that increases X is reactionary. Just as the concentration equation reveals the logic of neoliberal policy, this also serves to guide the objectives of all who oppose it. Understanding that the goal of neoliberalism is to make X as close to Y as possible, we know that the goal of building a fairer society requires us to increase worker’s capacity to invest as much as possible, thus reducing X as far below Y as possible."
