The growth imperative revisited: a rejoinder to Gilányi and Johnson

Abstract:

In Binswanger (2009) it was shown that in a simple circular flow model of a pure credit economy, positive growth rates are necessary in the long run in order to enable firms to make profits in the aggregate. If the growth rate falls below a certain positive threshold level, firms will make losses. Certain aspects of this model are challenged by the papers of Zsolt Gilányi and Reeves Johnson in this issue of the Journal But nevertheless, both papers confirm the existence of a growth imperative in capitalist economies. This may be taken as evidence that the finding of a growth imperative is quite robust with respect to different model assumptions.

Key words::

• bank money
• credit
• growth
• profits

Notes

¹Unless otherwise indicated, references to Gilányi or Johnson are to their papers presented in this issue of the journal.

²Of course, we could also assume that loans are not paid back at the end of the period and, instead, they are rolled over to the next period. In this case there is a constant increase in loans from one period to the next, insofar as loans grow at a specific growth rate in the steady state. However, even under this assumption, all preexisting loans (“stocks”) are spent again together with the additional loans in each period. Therefore, the previous “stock” of loans plus the change in loans is equal to the flow of money in the economy.

³As also suggested by Johnson, the zero-profit growth rate in the alternatively specified model is slightly higher (0.52 percent instead of 0.45 percent) because of the higher cost of production in Equation (6A) as compared to Equation (6). Equation (6A) uses the current wage bill, whereas Equation (6) uses last period's wage bill, which, in a growing economy, is lower than the current period's wage bill.

⁴I will not further discuss Johnson's comments on Gilányi's note. Johnson mainly compares his “stock-flow-consistent zero-profit growth rate” (Equation [11]) to a minimum growth rate that one would get by also respecifying Gilányi's model. However, I have argued that the “stock-flow-consistent zero-profit growth rate” is derived from an inconsistent respecification of my model.

⁵Wenzlaff et al. (2014) is a recent German-language example of a discussion of the growth imperative.

Additional information

Notes on contributors

Mathias Binswanger

Mathias Binswanger is a professor of economics at the economics department of the University of Applied Sciences and Arts, Northwestern Switzerland.