Widow’s Cruse Research Paper

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The term widow’s cruse was first used in economics by John Maynard Keynes (1930, p. 139) in the presentation of his fundamental equations. Keynes argued that enterprise macroeconomic profits, as he defined them there, or what we would now call “business retained earnings,” moved up one-to-one with increases in investment and increases in consumption out of profits. Thus, Keynes argued that “however much of their profits entrepreneurs spend on consumption, the increment of wealth belonging to entrepreneurs remains the same as before. Thus profits, as a source of capital increment for entrepreneurs, are a widow’s cruse which remains undepleted however much of them may be devoted to riotous living” (p. 139). Keynes was then making a reference to the Old Testament story (1 Kings 17) in which a widow was assured that her barrel of meat and jar of oil would never be depleted.

The analogy was later picked up by Nicholas Kaldor (1956), when he presented his Keynesian theory of income distribution and growth. Both Keynes (1930) and Kaldor (1956) assumed full employment. For both of them, lower propensities to save would lead to an increase in prices relative to costs, and this would entail higher profits in the static case of Keynes and higher profit share and profit rates in the dynamic case of Kaldor.

In the meantime, another version of the widow’s cruse was put forward by Michal Kalecki (1942), without the full-employment assumption, based on adjustments through quantities (real output and employment) rather than prices. Kalecki’s equation reads that Profits = Investment + Consumption Out of Profits, under the classical assumption that wages are all spent. Taking the public sector into account, government deficit should be added to the right-hand side. Kalecki’s equation has given rise to the aphorism—attributed to Kalecki, but which can be found in Kaldor (1956, p. 96)—that “capitalists earn what they spend, and workers spend what they earn.” This aphorism shows the asymmetry in capitalist relations:

Capitalists can always decide to spend more (provided banks accept to finance additional investment), whereas workers cannot decide to earn more, because this depends on the employment they are offered by entrepreneurs. Modern versions of this quantity-adjusting theory can be found in the so-called Kaleckian models of growth, which show that a decrease in the propensity to save leads to higher rates of output growth and higher rates of profit.

The widow’s cruse is the price-adjusting equivalent of the quantity-adjusting paradox of thrift. With output adjusting through the multiplier, the short-run version of the paradox of thrift asserts that individual efforts to increase saving will be useless, and that, instead, output will fall, as was outlined by Keynes in 1936. But this is simply the quantity analogue of the mechanisms he was describing in 1930 as the “Danaid jar,” which can never be filled up, or the “banana parable,” whereby a thrift campaign in a banana-producing economy will lead only to rotten bananas, heavy business losses, large unpaid bank loans, and destroyed wealth.

The widow’s cruse is just as relevant now as it was at the eve of the Great Depression. Mainstream economists and right-wing think tanks are still chanting the virtues of household savings and government budget surpluses, without realizing that household expenditures have sustained the U.S. economic boom and that government deficits add to business profits. The issue of public pension-funds finance is also related to the widow’s cruse, which implies that such funds can only be financed as a pay-as-you-go redistribution mechanism: If one attempts to save too much, the savings will vanish like the rotten bananas.


  1. Kaldor, Nicholas. 1956. Alternative Theories of Distribution. Review of Economic Studies 23 (2): 83–100.
  2. Kalecki, Micha?. 1942. A Theory of Profits. Economic Journal 52 (June–September): 258–267.
  3. Keynes, John Maynard. 1930. The Treatise on Money. Vol. 1. London: Macmillan.

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