Neo-Kaleckian and Sraffian Controversies on the Theory of Accumulation

Abstract

Non-orthodox economists generally share the Keynesian Hypothesis of the independence of investment from capacity savings, in the long run no less than in the short run. This hypothesis marks an essential point of difference from neoclassical theory. Keynes showed that within the limits of the existing capacity utilisation, investment determines savings rather than the other way around. How best to extend this conclusion to the long run is the object of the current paper. The paper assesses the controversy on demand-led growth that has taken place since the mid-1980s between neo-Kaleckian and Sraffian authors. The Sraffian front may be divided into a first and a second Sraffian position, the latter being the Sraffian supermultiplier approach. I shall argue that this second approach is the most promising framework for analysing economic growth.

Acknowledgments

I am grateful to Franklin Serrano for many helpful discussions on these topics over the years, and for his detailed comments on this paper. I have incorporated many (although not all) of his suggestions, particularly in Section Four. I also thank Oscar Dejuan, Ariel Dvoskin, Mark Lavoie, Riccardo Pariboni, Fabio Petri, Anwar Shaikh and two referees for numerous useful suggestions.

Disclosure statement

No potential conflict of interest was reported by the author

Notes

¹The exception seems to be Garegnani's SVIMEZ Report (1962), of which only the first two sections have been published in their entirety (Garegnani 1978–79). In the portion of the SVIMEZ Report published as part of this symposium, Garegnani (2015) takes ‘final demand’ as the independent variable. In his view, long-term expectations are the result of a persistent final-demand-led growth rate of the economy. Final demand includes private and government consumption expenditures, net exports and autonomous investment related to technical innovation (by default, the rest of gross investment is induced by the accelerator mechanism). Garegnani also seems to include induced consumption in final demand while, in our view (see Section Six) only autonomous private consumption (financed through consumer credit) should be included.

²It should also be recognised that the Cambridge equation is a demand-led growth model in a limited sense. Although capitalists decide the rate of growth of the capital stock independently of capacity savings, the adjustment of capacity savings does not take place through the variability of output and, in the longer run, of capacity, but through a change in income distribution.

³Garegnani's argument is that if we consider two regimes with different rates of growth of aggregate demand, then even if entrepreneurs had perfect foresight, the degree of capacity utilisation over the period that encompasses both regimes and the transition period would not be normal (see also Palumbo and Trezzini 2003). But this is a deceptive argument, for if we apply it to Solow's model it would lead us to conclude that neoclassical growth theory does not study normal growth paths since variations of parameters lead to different normal paths.

⁴Aside from the Sraffian supermultiplier model, all growth models, including the neoclassical, Cambridge equation and neo-Kaleckian approaches, in equilibrium respect the Harrodian warranted growth equation, although they postulate different causal links between saving and investment.

⁵See Lavoie (2006, 114). The model draws upon the seminal contributions of Rowthorn (1981) and Amadeo (1986).

⁶Equation 7 is easily obtained from the definition of the actual profit rate: , where P is the sum of profits, X_a is actual aggregate income and X_f is the full capacity aggregate income.

⁷As in all macroeconomic models, the long-run goods markets equilibrium is where the rate of growth of the capital stock is equal to the rate of growth of capacity saving. The Keynesian Hypothesis implies, of course, that outside equilibrium it is the latter that adjusts to the former.

⁸At point A, u_a = u_n. If we normalise the capacity utilisation rate so that u_n = 1, Equation 9 boils down to α = s/v_n. Bringing us back to Harrod, point A violates the Keynesian hypothesis since α cannot be exogenously determined.

⁹Incidentally, the empirical evidence suggests a positive relation between the rate of growth and the saving (investment) rate (S/X = I/X) (see Cesaratto 2010). This is embarrassing for the standard Solow model and, more importantly as regards the present paper, it appears also to undermine the neo-Kaleckian desire to demonstrate the thrift paradox in a growth context. The puzzle is solved once the autonomous components of aggregate demand are introduced with the ensuing distinction between the marginal (s) and the average (S/X) propensities to save. It will be shown in Section Six that while a lower s has a positive level effect on output, a higher growth rate is necessarily associated with a higher S/X.

¹⁰Recall that, in general, .

¹¹Some rationalisations for the endogenity of u_n are suggested by Hein, Lavoie and van Treeck (2011, 2012). Not very persuasively, they refer to ‘provisional’, ‘conventional’ or even ‘aspirational’ notions of the degree of capacity utilisation.

¹²Ciampalini and Vianello (2000) have put forth a parallel critique looking at capitalists’ behaviour from the point of view of the profit rate. Suppose for instance that the economy settles at C in Figure 1. In the neo-Kaleckians’ view the realised profit rate, e.g. , is the rate expected on new investment, as if entrepreneurs never realise that this higher realised profit rate depends on the current overutilisation of capacity. This amounts to supposing that investors exhibit a sort of Faustian behaviour:

The thesis according to which the expected profit rate is governed by the realised profit rate presupposes … that every time existing capacity is over- or underutilised―and a profit rate higher or, respectively, lower, than the normal one is therefore obtained―investors would expect that the productive capacity they plan to install will also end up being over- or underutilised. But to attribute to investors such an expectation is to … consider them to be victims of an irremediable interior discord, which induces them to plan to put in place a certain productive capacity and, at the same time, not consider it adequate to their wishes. “Two souls, alas! reside within my breast; and each withdraws from and repels its brother”. (Ciampalini and Vianello 2000, 383; author's translation)

¹³I have in mind here Sraffian authors such as Serrano (2006) and Petri (1994). Other Sraffian economists, e.g. Vianello, hold somewhat different views, as we shall see.

¹⁴For instance, the ‘independence’ of central banks is nothing other than an assignment to a ‘super-partes’ institution the role of watchdog of wage discipline. The most striking example was the Bundesbank (Cesaratto and Stirati 2011).

¹⁵A different view is held by Vianello (1989), Ciampalini and Vianello (2000) and Pivetti (2015), who, referring to Marx, maintain that a lower normal profit rate discourages investment.

¹⁶Dennis Robertson (1915, 9) and Garegnani (1978–79, 347) advance similar criticisms of the treatment of expectations in purely psychological terms; they favour an approach based on real economic circumstances. The Schumpeterian view is criticised in Cesaratto (1996).

¹⁷Serrano allows both a short-period adjustment of capacity savings to higher investment through a higher degree of capacity utilisation, and once the maximum capacity has been reached, a Cambridge equation style adjustment:

what the maximum rate of growth says is that capacity output cannot grow faster than that rate if the degree of utilization is to be kept at its “planned” or normal level. That means that both actual output and also capacity can grow a bit faster at least for a while, to the extent that there are always planned margins of spare capacity. For very high rates of growth of demand such that neither capacity nor output can respond fast enough the result will be demand inflation and “forced saving” in a way similar to the Cambridge theory of distribution. (1995, 44n)

¹⁸By comparison, according to the neo-Kaleckians the actual rate becomes the ‘new normal’.

¹⁹In a nice example Serrano (1995, 131–132) compares two economies that at a certain point in time have the same level of autonomous/non-capacity-generating expenditure. Assume, however, that one economy is stagnating with no net investment while the other is on a normal path led by a positive growth rate of autonomous demand g_z. It is plain that the second economy will have a larger ‘fraction’ s_p. Suppose Z = 100, s = 0.5, v_n = 2, and g_z = 0.05. Then X = 250 and s_p = 0.2. If g_z = 0.02, then X = 217 and s_p = 0.08.

²⁰Serrano (1995, 75) seems to acknowledge that he is discussing an existence problem when he argues that through the supermultiplier

we have shown how the existence of a definite level of capacity output determined by effective demand requires two conditions, namely: a) that the economy's marginal propensity to spend be lower than one; and b) that there is a positive level of autonomous expenditures that is both independent from income (output) and does not generate capacity.

²¹Unfortunately Trezzini (2015) and Palumbo (2013) still do not appreciate the flexibility of the SM for analysing the instability of capitalism in an ordered way.

²²Kalecki, too, appears to have been somewhat sceptical about the ability of technical change to drive accumulation. Writing of ‘the influence of technological innovations’, Kalecki (1967, 150–151) argues that ‘this factor is by no means necessarily adequate to secure the full utilisation of equipment or even to keep the degree of this utilization at a constant level. Innovations break the impasse of a simple reproduction only to some extent and they do not warrant the utilization of resources in the sense of Tugan-Baranovski.’

²³Dejuan (2005) argues in a similar vein, but his stability proof assumes, unrealistically, that entrepreneurs know g_z.

²⁴These final observations have been prompted by a remark I received from Randall Wray at a presentation in Copenhagen in May 2011.