The orthodox view made the division of the product a law of production: each factor earns its margin, and labor's share is fixed by technology at some natural and stable figure. Michal Kalecki — a Polish economist who arrived at the theory of effective demand independently of Keynes, and from the political left — proposed a wholly different account, one in which the split is set not by productivity but by power. The labor share, in his theory, is governed by what he called the degree of monopoly: the market power that lets firms charge above their costs. Where the production function found a technological constant, Kalecki found a contest. The challenge to the productivity answer begins here, with the claim that the division of the product is, at its root, a question of power.
Kalecki began from a fact the competitive model sets aside: real firms are not helpless price-takers selling at marginal cost. Most firms have some market power — from sheer size, from established brands, from barriers that keep rivals out, from the concentration of their industry into a few hands — and they set their prices as a markup over their costs, charging more for a unit of output than the wages and materials that unit required. The size of that markup is not arbitrary. It reflects the firm's power in its market: where competition is fierce and rivals are plentiful, the markup is thin and price hugs cost; where a few firms dominate, or products are sharply differentiated, or entry is difficult, the markup is fat and price stands well above cost. Kalecki called the average size of this markup across the economy the degree of monopoly — a measure of how much pricing power capital, taken collectively, is able to command against its customers and its competitors alike.1
From the markup follows the distribution, by a logic both simple and powerful. A unit of output sells for a price; of that price, part covers the wage cost and part is the markup, which becomes profit. The larger the markup, the larger the slice of each dollar of revenue that goes to profit, and the smaller the slice that remains for wages. So the labor share of income is governed, roughly, by the inverse of the markup: a low degree of monopoly, with thin markups, yields a high labor share; a high degree of monopoly, with fat markups, yields a low one. The split between labor and capital is thus set by the degree of monopoly — by the market power of firms — and not, as the orthodox theory held, by the marginal products that technology dictates. Two economies with identical workers, identical machines, and identical techniques can divide their product quite differently, if one is more monopolized than the other. The same productivity, paired with different power, yields a different share.2
This is the heart of the matter, and the sharpest statement the volume has yet reached of the power answer. In the marginal-productivity theory, the share reflects contribution: labor receives what labor adds, capital what capital adds, and the division is the impartial verdict of technology. In Kalecki's theory, the share reflects power: labor receives what is left after capital takes its markup, and the size of that markup measures capital's strength — relative to its workers, who would press for more, and relative to its competitors, who would compete the markup away. Distribution is not a law of production but an outcome of the structure and the struggle of power in the economy: how concentrated the industries, how vigorous the competition, how organized the labor on the other side of the bargain. The naturalness the orthodox view claimed dissolves, for there is nothing natural about a markup, which is simply what a firm's power permits it to extract. Beneath the elegant arithmetic of marginal products, the division of the product turns out to be political.3
Kalecki's theory makes predictions the orthodox one cannot. If the labor share is set by the degree of monopoly, then anything that raises firms' market power — a wave of mergers, the dulling of competition, the rise of a few dominant firms in industry after industry, the decline of the unions that once pushed back against the markup — will lower labor's share, with no change in technology or productivity required at all. Conversely, stronger competition, more vigorous antitrust, or more powerful labor will raise it. The share becomes a barometer of the balance of power: between capital and labor, and between firms and their rivals. This is a strikingly modern prediction, for it points directly at the forces the later plates examine — rising concentration, the growth of superstar firms, the long retreat of organized labor — as the drivers of a falling labor share, and it frames that fall not as the impersonal working-out of technology but as a shift of power toward capital, achieved through the structure of markets rather than the march of machines.4
Kalecki's theory was long treated as heterodox — a view from the left, outside the neoclassical mainstream that the production function commanded, and easy to set aside as ideology dressed in algebra. But its central mechanism, the markup, has returned to the very center of economics, for the markup is measurable, and the measurements show markups rising over recent decades — exactly the movement a falling labor share would require. The degree of monopoly, dismissed for a generation, looks increasingly like a key to the modern distribution. Yet Kalecki's picture, like the orthodox one it opposed, is in a sense static: it gives a level of the markup yielding a level of the share, a snapshot rather than a story in motion. The next plate sets distribution moving, showing the labor share not as a number fixed by power but as a variable that perpetually rises and falls, as labor and capital struggle over it through the swings of employment. The next plate is the pendulum.5
Against the orthodox law of production, Kalecki set a theory of power. Real firms do not sell at cost but mark their prices up, and the size of the markup — the degree of monopoly — measures the market power that capital commands. From the markup the distribution follows: the fatter the markup, the larger the profit share and the smaller labor's, so the split is governed by power, not by the marginal products of technology. Two economies alike in every technical respect divide their product differently if one is more monopolized, and the naturalness the orthodox theory claimed dissolves into the contingency of power. The theory predicts what the production function cannot — that rising concentration and weakening labor will lower the labor share with no change in productivity at all. Long heterodox, the markup has returned to the center, for markups have risen as labor's share has fallen. The next plate is the pendulum.