ACCUMULATION, CAPACITY UTILISATION AND DISTRIBUTION

This paper examines three approaches to the process of accumulationwhich are based on the ‘Keynesian premise’: the‘neo-Keynesian’, the ‘Kaleckian’ andthe ‘Sraffian’. Making some criticisms of the firsttwo from the viewpoint of the third and from a certain formal/conceptualperspective, we propose a synthetic model which is free fromthese criticisms and in which the adjustment of savings to investmentin the long period is achieved through all the three routesemphasised separately by these approaches: changes in the long-perioddegree of utilisation; changes in the ‘normal’ distributionof income; and variations in the size of productive capacity.The key to the synthesis is the hypothesis that, in the longperiod, the ‘normal’ degree of utilisation is endogenouslydetermined to coincide with the average level through mutualinfluence effected by investment in the short period. Our syntheticmodel, like the first two approaches, is in the line of steady-stateanalysis, but in a way compatible with the ‘Keynesianpremise’.     

Demand-led Growth Theory: A Historical Approach

This paper builds upon the Keynesian theory of demand-led growth in order to provide an analytical framework for explaining economic growth and development in concrete terms, consistent with the fundamental idea that growth in output and employment is determined by the growth in aggregate demand. The framework employs a historical approach to identify the main factors and their role in explaining demand-led growth and the accumulation process. The theoretical model developed abandons steady-state conditions by proposing that capacity utilisation varies in the long run as well as in the short run to ensure output has the elasticity to accommodate levels of autonomous demand free of any capacity saving constraint. On the basis of our analytical framework, the paper considers the main factors that explain the growth in aggregate demand: first, by examining the variables that determine the ‘super-multiplier’ and what social, institutional and technical conditions can cause its value to change over time; second, by identifying the components of autonomous demand and the main forces explaining their growth; and third, by considering the manner in which technical progress promotes demand-led growth.     

Monetising the Classical Equations: a theory of circulation

The Classical Equations describe output and income in real terms.To use them to analyse aggregate demand, the transactions theydescribe must be ‘monetised’. A sum of money equalto the wage bill of the capital goods sector can be shown tobe necessary and sufficient to carry out all transactions, ina process of circulation which also defines an expression forvelocity. When money has intrinsic value, the quantity approachmay hold in the short run but, in the long run, money will beendogenous. In these conditions, the rate of interest will bedetermined by the supply and demand for reserves, but when moneyis purely nominal, only a minimum rate will be fixed, and therate of interest will have to be pegged. The Appendix developsthe Classical Equations and shows that they define an invariableunit of account.     

A simple model of three economies with two currencies: the eurozone and the USA

This paper presents a Keynesian model which describes threecountries trading merchandise and financial assets with oneanother. It is initially assumed that all three countries haveindependent fiscal policies but that two of the countries sharea currency, hence the model can be used to make a preliminaryanalysis of the conduct of economic policy in ‘the eurozone’vis-à-vis the rest of the world—‘the USA’.The main conclusion will be that, if all three countries doindeed operate independent fiscal policies, the system willwork under a floating currency regime, but only so long as theEuropean central bank is prepared to modify the structure ofits assets by accumulating an ever rising proportion of billsissued by any ‘weak’ euro country.     

The Schumpeterian role of financial innovations in the New Economy's business cycle

Alan Greenspan claims that modern financial innovations, especiallyfinancial derivatives, were major contributors to a Schumpeterianprocess of ‘creative destruction’ which produceda high-growth ‘New Economy’ and opposes their regulation.A different perspective emerges when it is recognised that the‘New Economy’ followed the general contours of aSchumpeterian business cycle, and the role of modern financialinnovations is examined in that context. The authors argue thatthe primary role of financial derivatives has been in contributingto ‘reckless finance’ and speculative excesses inthe second phase of that cycle, and that Schumpeter would favoursubjecting the use of derivatives to more regulation.     

Capacity utilisation and corporate restructuring: a comparative study of the US, UK and other EU countries

This paper compares and contrasts capacity utilisation in themanufacturing sectors of the US, UK and other EU countries overthree decades. It argues that corporate governance and the pressuresof globalisation have led to a tighter capacity stance in theUK but not generally in the US or Europe. The paper furtherexplores the nature of the UK experience, in particular, therival theories that efficiency in capital use has increasedversus the view that firms have simply tightened their capacitystance in line with higher hurdle rates of return. The evidenceof the paper supports the view that UK firms adopted a ‘submissive’response to the pressures of globalisation by shutting capacityand retreating from new investment.     

Money, cycles and capital formation: von Mises the 'Austrian' vs. Robertson the 'Dynamist'

A ‘disequilibrium’ between saving and investmentdecisions determines a maladjustment in production, the disruptionof capital, and a downturn in economic activity, according tothe ‘Austrian’ approach. By contrast, the ‘Dynamists’argue that it may lead to economic growth, as disequilibriummay well be instrumental to capital accumulation. What explainsthese different predictions in otherwise similar models? Thekey is in the interplay between the analytical features andthe ideological options underlying each of these approaches:alternative lines of thought, entirely compatible with theiranalytical models, were abandoned by some of these authors whenthey conflicted with their pre-analytical views. This paperillustrates the argument by exploring the models of two ‘fathers’,von Mises and Robertson.     

On Sraffa's Standard commodity: is its price invariant with respect to changes in income distribution?

In his 1960 book, Sraffa suggested using a composite commodity,which he called the ‘Standard commodity’, to solveRicardo's search for an invariable measure of value, i.e., astandard capable of isolating the price movements of any othercommodity induced by changes in income distribution. The absencein Sraffa's book of an explicit proof of the invariance propertyof this standard gave rise to many misunderstandings about itsmeaning and its role as an invariable measure of value. In orderto clear up these questions, Bellino (On Sraffa's Standard commodity,Cambridge Journal of Economics, vol. 28, 121–32, 2004)has proposed a ‘proper’ definition of an ‘invariablemeasure of value’, showing that Sraffa's Standard commoditydoes fulfil the requirements of this definition. He claims thatthe fulfilment of this property (but not the constancy of its‘nominal’ price) qualifies the Standard commodityas an invariable measure of value. In this paper, a proof ofthe invariance of the price of the Standard commodity with respectto changes in income distribution is given, and the equivalenceof this property with Bellino's definition of invariance isshown.     

Wage formation in historical perspective: the French experience

Translator's note: In this article Robert Bayer introduces thenotion ‘regulation’ as a key concept in analysesof the labour market. The term refers to the balance of social,institutional and economic forces which characte rise at a particulartime the economic system as a whole or particular parts of it.I considered translating ‘regulation’ as ‘order’,‘regime’, ‘system’ or ‘formation’;but these terms are either too static or already bear inappropriateconnotations. It was therefore decided to retain the Frenchexpression in the English text.     

Keynes's Z function, heterogeneous output and marginal productivity

Keynes was adamant that the assumption of homogeneous outputand capital in macroeconomic theory is inadmissable. His aggregatesupply or Z function is a generalisation of Marshall's ordinarysupply function to take account of heterogeneous output, andis an essential element of the principle of effective demand.The ‘linear Z curve’ controversy can be attributedto Keynes's desire to demonstrate how his general monetary theoryof value and output encompasses the special case of Classicaltheory, including the marginal productivity theorem. The infamoussecond footnote on pages 55–6 of The General Theory canthereby be fully resolved.     

The principle of institutional direction: Coase's regulatory critique of intervention

That Coase's political convictions changed from an early socialismto a later neo-liberalism stands in apparent contrast to thetheoretical consistency of his early (‘The Nature of theFirm’) and later (‘The Problem of Social Cost’)contributions to economics. Offering further evidence abouthis early views in particular, this paper takes a fresh lookat Coase's views on competition and antitrust to show that heconsistently stressed the role of what we shall call the principleof ‘institutional direction’, and that this principleinvolves an important criticism of both neo-liberal and socialistviews on regulation and state intervention.     

'Total factor productivity vs. realism' revisited: the case of the South Korean steel industry

This paper presents key features of the development of the SouthKorean steel industry through the critical examination of anarticle by Truett and Truett. Despite their claim to exhibit‘realism’ by use of a translog cost function, theirmethodology has strong affinities with the methods of measuringtotal factor productivity growth, which have long been knownas invalid but continue to be applied not least to the experienceof East Asian countries. It will be argued that the theoreticaland empirical flaws involved with these methods invalidate theirresults and corresponding policy implications. Above all, byshowing that the assumptions for their calculation do not holdin terms of the economic conditions of the industry, the paperpoints to a different understanding of ‘realism’than that conceived by and for their study.