Roads to Social Capitalism

Roads to Social Capitalism

Theory, Evidence, and Policy

Peter Flaschel and Sigrid Luchtenberg

The current crises in the financialization of capitalism, and their repercussions on the financial viability of entire countries, severely question the achievements of mainstream economics and its disregard of Keynes’s theory of effective demand and finance. In view of this, Peter Flaschel and Sigrid Luchtenberg consider roads to a type of capitalism that could eventually be considered as ‘social’ in nature. The authors underpin their study with theory, empirical evidence, and policy from a positive as well as a normative perspective. As points of departure for their concept of social capitalism, the theoretical framework provides a synthesis of the work of Marx, Keynes, and Schumpeter on ruthless capitalism, regulated capitalism, and competitive socialism.

Chapter 4: Demand-Driven Distributive Cycles

Peter Flaschel and Sigrid Luchtenberg

Subjects: economics and finance, history of economic thought, radical and feminist economics


In this chapter1 we will discuss the central mechanisms by which output and income distribution are determined in a capitalist economy in the short as well as in the longer run. We thus and on the one hand now start to consider in detail Keynesian demand rationing on the market for goods and the problems this creates for the working of the economy. On the other hand, we introduce into these goods market dynamic and the implied labour market results an advanced type of wage–price spiral by which income distribution is determined in the longer run. We will find that the Marxian distributive cycle of Chapter 1 remains in place in such a framework, but is now interacting with effective goods demand which in turn depends on income distribution. We have to distinguish four possible scenarios as they are implied by the combinations of wage- and profit-led goods market regimes with goods- or labour-market dominance in the evolution of the real wage. The main finding of this chapter is that the Marxian distributive cycle is no longer characterised by a single regime throughout. Instead we will still get the dominance of a profit-led demand regime, but now coupled with real wages that are led sometimes by the state of the goods market and sometimes by the state of the labour market. Data for the US economy after World War II seem to support these findings. 4.1 Introduction Standard applied macro literature expresses labour market and goods...

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