Distribution and Growth after Keynes

Distribution and Growth after Keynes

A Post-Keynesian Guide

Eckhard Hein

In the first part of the book, Eckhard Hein presents a comprehensive overview of the main approaches towards distribution and growth including the contributions of Harrod and Domar, old and new neoclassical theories including the fundamental capital controversy critique, the post-Keynesian contributions of Kaldor, Pasinetti, Thirlwall and Robinson, and finally the approaches by Kalecki and Steindl. In the second part of the book neo- and post-Kaleckian models are gradually developed, introducing saving from wages, international trade, technological progress, interest and credit. Issues of ‘financialisation’ are also explored and empirical results related to the different models are presented.

Chapter 11: The Kaleckian models and classical, Marxian and Harrodian critique

Eckhard Hein

Subjects: economics and finance, history of economic thought, post-keynesian economics

Extract

As already noticed when introducing the basic Kaleckian models in Chapter 6 of this book, these models have been criticized in particular because of the treatment of the rate of capacity utilization as an adjusting variable, not only in the short run, but also in the medium to long run. From this it follows that the equilibrium rate of utilization may diverge from the ‘normal’ rate of utilization or from the target rate of the firms beyond the short run. This conclusion has been challenged by classical and Marxian authors, like Committeri (1986), Auerbach and Skott (1988), Dumenil and Levy (1995, 1999), Shaikh (2009) and Skott (2010, 2012). They have argued that such a deviation is not acceptable for long-period equilibrium, and that it will trigger responses by firms’ investment decisions. The main point is that, if the rate of capacity utilization is higher (lower) than its normal or standard rate in the long run, then the rate of accumulation cannot remain constant, and must drift up (down). Therefore, the Kaleckian models are said to be prone to ‘Harrodian instability’, referring to the implications of Harrod’s (1939) approach towards economic dynamics, which we have discussed in Chapter 2 of this book. The prevalence of this type of instability then requires other mechanisms to keep the long-run growth equilibrium stable.

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