Conflict and effective demand in economic growth Conflict and effective demand in economic growth PETER SKOTT Institute of Economics University of Aarhus The right of the UniYersity of Cambridge to print and sell all manner of books was granted by Henry VIII in 1534 The University has print�d 1584 and publish�d continuously since C A M B R I DGE U N I V E R S ITY P R E S S Cambridge New York Port Chester Melbourne Sydney CAMBRIDGE UNIVERSITY PRESS Cambridge, New York, Melbourne, Madrid, Cape Town, Singapore, Sao Paulo Cambridge University Press The Edinburgh Building, Cambridge CB2 8RU, UK Published in the United States of America by Cambridge University Press, New York www.cambridge.org Information on this title: www.cambridge.org/978052 l 365963 © Cambridge University Press 989 This publication is in copyright Subject to statutory exception and to the provisions of relevant collective licensing agreements, no reproduction of any part may take place without the written permission of Cambridge University Press First published 989 This digitally printed version 2008 A catalogue recordfor this publication is available from the British Library ISBN 978-0-52 -36596-3 hardback ISBN 978-0-5 -0663 -0 paperback Contents Guide to text notation Acknowledgements V111 x Introduction Methodological issues 2.2 2.3 2.4 2.5 2.6 Introduction A unified theory Instability and the notion of equilibrium Walrasian general equilibrium Choice-theoretic foundations Simultaneous equilibrium A survey of some post-Keynesian and neo-Marxian ideas The model 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 3.10 1 Introduction Harrod The neoclassical solution Kaidor Pasinetti The neo-Pasinetti theorem Wood Kaldorian cycles Goodwin Kalecki Concluding remarks Introduction 4.2 Prices and short-term expectations 4.3 Production 5 10 11 16 18 18 18 21 23 27 29 31 32 35 38 40 42 42 43 45 v vi Contents 4.4 4.5 4.6 4.7 4.8 4.9 4 1 Adjustment costs Demand The output-expansion function Investment Investment - finance Banks Households Wage rates and employment Concluding comments Appendix 4A Ultra-short-run, short-run and steady-growth equilibria 5.2 5.3 5.4 5.5 5.6 5.8 Introduction Ultra-short-run equilibrium The short term - output adjustment The medium term - utilisation and warranted growth Choice of technique and the natural rate 'Accumulate, accumulate' Comparative dynamics Concluding comments Appendix 5A Appendix 58 Appendix SC Investment, instability and cycles 6.2 6.3 6.4 6.5 6.6 Introduction The investment function The equations Analysis Comparison with the Kaldor and Goodwin models Effects of short-run diminishing returns Conclusions Appendix 6A Appendix 68 Appendix 6C Finance and money-wage neutrality 7.2 7.3 7.4 Introduction Pre-Keynesian ideas The Asimakopulos critique Alternative financial behaviour - a modified EichnerWood hypothesis 47 49 50 52 55 56 57 59 60 61 63 63 63 65 70 76 78 81 84 86 86 87 89 89 90 92 94 00 02 03 04 10 111 14 14 15 22 25 Contents 7.5 7.6 7.7 7.8 Money-wage neutrality reconsidered Exogenous money Constant nominal interest rates Concluding comments Appendix 7A vii 27 29 35 37 39 Distributional questions in neo-Marxian and post-Keynesian theory 8.1 8.2 8.3 8.4 8.5 8.6 Introduction Target shares An alternative specification Inflation Theories of monopoly capital Effects of a rising degree of monopoly in the present theory Inflation and unemployment 8.8 Summary and conclusions 141 141 42 45 45 47 151 56 58 I Keynesians, monetarists and the real world Limitations of the theory Final remarks 59 59 161 Bibliography Index 64 171 Guide to text notation Carets, and dots, , are used to represent proportional growth rates (logarithmic derivatives) and time derivatives, respectively; i.e x = (dx/dt)( l /x), x = dx/dt Subscripts are used to denote partial deriva­ tives; if, for instance, I/ Y = f(u, 7T) then a(I/ Y)/ au =