Chapter 3: The Conventional Interpretation of a Fully-Funded Scheme and Capital Theory
* ‘Capital’ thus appears as past savings, which are, so to speak, ‘incorporated’ in the capital goods, existing at a given instant of time. As a result of the productive consumption of those goods, these past savings will periodically re-emerge in a ‘free’ form and can be re-incorporated in capital goods of the same or of different kinds; alternatively, they can be turned back into consumption. (Garegnani, 1983a, p. 33) 3.1 INTRODUCTION As we remember from Chapter 1, Samuelson (1958, p. 468) envisaged in capital accumulation a way to ‘trade with Mother Nature current consumption goods in return for future consumption goods’. Samuelson made explicit reference to neoclassical capital theory. Notably, Samuelson did not regard PAYG as detrimental to capital accumulation, a leitmotif nowadays. Historically, the Samuelsonian interpretation of PAYG was well suited to the post-World War II years of Keynesian policies of full employment, economic growth and expansion of the welfare state. The idea that welfare state institutions crowd out private capital accumulation was in retreat, and Samuelson could propose a rationalization of PAYG that tried to accommodate it within traditional economic theory. Later, well into the thick of the monetarist counter-revolution, Martin Feldstein (1974) criticized PAYG from the point of view of neoclassical theory. It was not by chance that, with reference to Samuelson’s contribution, Feldstein noted that ‘the assumption that there is no store of value or method of real accumulation is crucial’ (Feldstein, 1974, p. 923). Once the mechanism of capital accumulation proper to neoclassical theory is...
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