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The Economics of Demand-Led Growth

Challenging the Supply-side Vision of the Long Run

Edited by Mark Setterfield

The Economics of Demand-Led Growth is a collection of specially written essays that develop and apply the theory of demand-led growth. Long-run growth is usually portrayed as a supply-determined process. The contributions to this volume, however, are rooted in the theory of demand-led growth. In addition to general discussions of the role of demand in the long-run, the volume contains essays in the Kaldorian and Kaleckian traditions, and a section on the relationship between demand-led growth and structural change. The conclusion reached is that current neglect of the role of demand in analyses of long-run growth is unwarranted.
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Chapter 14: Notes on the Transformational Growth of Demand

Challenging the Supply-side Vision of the Long Run

Edward J. Nell


Edward J. Nell INTRODUCTION Understanding the Growth of Demand At present, neither conventional nor alternative approaches to economic theory provide much help in understanding the growth of demand, either in the aggregate, or for specific markets and sectors. ÔGrowth of demandÕ refers here to repeated, continuing expansion of demand (either at a steady rate or at a fluctuating rate with a persistent average), where the expansion is not offset by contraction elsewhere. Such growth of markets, and expected growth of markets, are important in making business decisions, and are an object of study by marketing divisions. Yet explaining such growth has not been an objective of economic theorists. Indeed, from a Ôreal-economyÕ (or barter exchange) perspective, it might seem that any growth of demand has to be based on a corresponding growth of supply. For if a new demand for a certain set of goods is to be effective in real terms, there must be an expanded supply of some other goods with which to pay for the newly demanded set. Explaining the growth of supply has therefore seemed adequate. But this is a way of thinking that overlooks the role of finance. Finance breaks the link between demanding one set of goods and paying for them with another; once finance is in the picture, goods can be demanded even if the other goods needed to pay for them have not yet been produced. With finance, growth of demand can be separated from the growth of supply. For the most...

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