Harrodian Instability and the ‘Normal Rate’ of Capacity Utilization in Kaleckian Models of Distribution and Growth—a Survey

Abstract

Starting from potential Harrodian instability in the Kaleckian distribution and growth model we survey Kaleckian reactions put forward to avoid or to cope with this instability. We show that, contrary to the position taken by the critics of the Kaleckian model, this model is capable of maintaining an endogenous rate of capacity utilization, the paradox of thrift and the paradox of costs in the long run, even if the problem of Harrodian instability arises. We conclude that Kaleckian models are more flexible than their Harrodian and Marxian critics suppose when attacking the simple textbook version.

Public debt and full employment in a stock-flow consistent model of a corporate economy

“…A reduction in the retention rate (a fall in s f ) increases …rms'indebtedness (m ) by reducing retained earnings, and the rise in m will require a reduction in b: 9 Analogously, an increase in stock buybacks (a fall in ) reduces equity …nance and raises …rms'indebtedness m. Thus b will fall. 10 11 Distributional changes also a¤ect debt: an increase in the pro…t share reduces m and raises b :…”

Aggregate demand, functional finance, and secular stagnation

“…Assuming that the output capital ratio (the choice of technique) depends strongly on interest rate, the equilibrium interest rate could be de…ned as the rate that is consistent with full employment and the target debt ratio. 17 This may be Summers's implicit assumption. But if it is, the target debt ratio needs to be speci…ed, and it is not obvious that this target should be independent of other parameters that a¤ect aggregate demand.…”

Post-Keynesian macroeconomics since the mid 1990s: main developments

“…However, as discussed in detail in Hein/Lavoie/van Treeck (2011), the mechanism proposed by the critics in order to tame Harrodian instability and to bring back the economy to a normal rate of capacity utilisation are far from being convincing. 8 Furthermore, as has been reviewed and discussed by Hein/Lavoie/van Treeck (2012), Kaleckian and Steindlian authors have put forward different justifications for taking the rate of capacity utilisation as an adjusting and endogenous variable, probably within bounds, nonetheless: Normal or target rates of utilisation cannot be precisely determined in a world of fundamental uncertainty about future events and should thus rather be considered as a range, and within this range Harrodian instability disappears (Dutt , 2005a(Dutt , 2010a. Firms may have multiple goals and accept variations in capacity utilisation and hence deviations from the target or normal rate in the long-run equilibrium to come closer to meeting other targets, for instance dividend payments demanded by shareholders (Dallery/van Treeck 2010).…”