The contribution of Gerald Shove to the development of Cambridge Economics

Frank Gerald Shove was a close friend of Keynes and the other protagonists of the economic debates in Cambridge during the 1920s and 1930s. Shove's influence on those debates is not well documented because he published little and had all his notes destroyed after his death. This paper looks at Shove's most significant contributions to the debates of the 1930s. Attention is concentrated on the debates over increasing returns and imperfect competition. Shove emphasized the complexity of economic phenomena and the need to develop tools to deal with it. He found his analytical and methodological inspiration in Marshall's work. This position led him to clash with younger economists, in particular Joan Robinson, whose work on imperfect competition and whose efforts to achieve rigorous and ‘precise’ results failed, in his view, to capture the working of actual markets. The final section of the paper discusses the similarity of Shove's methodological outlook to that of Keynes. Both were well aware of the need to go beyond Marshall, but they wanted to retain the richness, complexity and realism of Marshall's approach.     

Growth with Unused Capacity and Endogenous Capital Depreciation

The paper contributes to the debate on growth and distribution in a non‐mainstream perspective. It looks at the role that capacity utilization plays in the process of growth under the hypothesis that the rate of capital depreciation is a function of the degree of capacity utilization. Our hypothesis implies results partly different from those obtained by other models in which capacity utilization plays a key role. In particular, a varying rate of depreciation affects the conditions under which distributional changes in favor of wages affect the rate of growth positively.     

A note on the sustainability of full employment in the presence of budget deficits

In a recent issue of this journal, Tymoigne and Wray, as well as Palley, discussed whether economies can experience stable full-employment equilibria with persistent public budget deficits. This implies continuous growth of a stock-variable: high-powered money and/or government bonds in the hands of the private sector. Their discussion assumed a stationary state. The question is whether such a situation can be regarded as sustainable over time. This paper argues that a satisfactory solution to the problem can be found only by abandoning the hypothesis of stationary state and considering the effects that different compositions of public expenditure have on the rate of growth. To have a stable full-employment equilibrium with budget deficits, the economy must grow. Since the economy is assumed to be in full employment, the growth of aggregate output must be entirely due to the growth of productivity, which can be realized by changing the composition of public spending in favor of productive expenditures.     

The Marxian schemes of reproduction and the theory of effective demand

The paper deals with some theoretical and analytical issuesraised by a recent book by Trigg on Marx's schemes of reproduction.The paper presents a generalized model of expanded reproductionand concentrates on the attempt to develop Marx's schemes alongKeynesian lines. Trigg tries to develop a Keynesian interpretationof the schemes without significant changes to Marx's originalapproach; the paper argues that the abandonment of some of Marx'shypotheses, in particular that of free competition, is necessaryto allows us to provide a Marxian determination of underemploymentequilibria and to use a Marxian version of the Keynesian conceptof multiplier. In considering Marx's and Keynes's analyses ofcapitalist economies, the paper also emphasizes their similaritieswith respect to the importance of money and the capitalists'liquidity preference in the process of reproduction and growth.     

Market forms and effective demand: Keynesian results with perfect competition ∗

In recent years there has been a flourishing of models with microfoundations based on imperfect (or monopolistic) competition that claim to yield Keynesian results which, it is held, are incompatible with perfect competi-tion. The paper shows that Keynes’s results do not depend on market forms but are contingent on his treatment of investment. In Keynes’s analysis, the existence of underemployment equilibria is demonstrated regardless of the assumed market form. Far from taking into account the importance of investment, recent models with ‘Keynesian results’ ignore investment altogether.

The article argues that if the investment demand function, with its distinctive characteristics, is removed, involuntary unemployment can be explained only by imperfections or rigidities that prevent producers from pushing their supply up to the level of full employment. A conclusion that Keynes wanted to avoid.

The introduction of a hypothesis of market forms different from imperfect competition may be useful in order to develop macroeconomics along more realistic lines, however, as the conclusions of the paper suggest, this hypothesis loses its analytical power if made separately from a satisfactory treatment of investment.     

Banking theories and macroeconomics

Mainstream models that allow for financial operations are characterized by the understanding of banks as intermediaries of outside money (IOM). This approach to banks became dominant thanks to a peculiar rhetorical device by Tobin (1963 Tobin, J. 1963. “Commercial Banks as Creators of ‘Money’.”Paper 205. New Haven, CT: Cowles Foundation. [Google Scholar]). In recent years, however, this understanding is being increasingly questioned and an old view of banks as originators of inside money (OIM) is being reconsidered. The present article highlights the fundamental differences of these alternative doctrines from a money supply perspective and provides a simple theoretical argument to consider the limits of a point of view à la Tobin and regard the OIM banking theory more general than the IOM theory.