A Post-Keynesian Guide
Chapter 3: Neoclassical distribution and growth theory: old and new–and a critique
In this chapter we address the neoclassical distribution and growth theory. As is well known, the neoclassical paradigm started out in the 1870s with the works by William Stanley Jevons, Carl Menger and Leon Walras attempting to replace the classical price, distribution and growth theory. Whereas classical theory had focused on the reproduction of a growing capitalist economy split into different social classes, neoclassical theory put forward an approach based on pre-societal individuals, subjective values, and supply and demand schedules generating optimal market equilibria. This meant that the focus of classical political economy, in particular of Adam Smith and David Ricardo but also of Karl Marx, on functional income distribution, capital accumulation and growth dynamics was replaced by focusing on static optimal allocation equilibria. As we will outline in Section 3.2 of this chapter, this approach provides a theory of distribution which is inherent to the general equilibrium price theory, based on ‘first principles’. These are a given production technology and given utility functions, given initial endowments and the assumption of strictly maximizing behaviour of individuals in perfectly competitive markets. Section 3.3 will then deal with the aggregate version of the neoclassical distribution theory, which was put forward in the late nineteenth century by authors like John Bates Clark and Knut Wicksell.
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