Some observations on models of growth and distribution with autonomous demand growth

Abstract

This paper offers some theoretical and methodological observations on a model of growth and distribution, recently developed by Franklin Serrano and others and called the Sraffian supermultiplier model, in which the growth of autonomous capitalist consumption demand and distribution are exogenously given and capacity utilization is at an exogenously given “normal” level in long‐run equilibrium. First, it provides a simple long‐run equilibrium version and dynamic formulation of the model, and compares it to other models of growth and distribution using a common framework and focusing on the effect of a change in income distribution on growth. Second, it shows that the model can be modified to examine other components of autonomous demand growth, including government spending, exports, consumption by workers, and investment and technical change, and to simultaneous multiple sources of autonomous demand growth. Finally, it comments on some methodological issues concerning the model, and on its implications for the notion of long‐run equilibrium.

Autonomous demand, multiple equilibria and unemployment dynamics

“…The strategic role of autonomous demand (see Hicks ( 1950 ) for a definition), which has been emphasized by Serrano and Freitas ( 2017 ) within the so called supermultiplier literature and which has been developed in a Kaleckian background (discussed by Lavoie 2016 ), has been criticized on both analytical and empirical grounds (see for instance Skott 2017 ). However, we agree with the justifications put forward by Dutt ( 2019 ), based upon both a deepening of the dichotomy between endogenous and exogenous variables, along with the relevance of the historical dimension. To these considerations, we add the hypothesis of a medium-run perspective, which is particularly appropriate to incorporate the role of autonomous demand.…”

“…Also Government expenditures, as stressed by Allain ( 2015 ), can be mentioned. Finally, as underlined by Dutt ( 2019 ), autonomous demand needs not refer only to non-capacity creating expenditures. It might refer also to investment incorporating technical change.…”

Stability issues in Kaleckian models driven by autonomous demand growth—Harrodian instability and debt dynamics

“…In Section 2, we will thus provide an extremely simple model in which we study Harrodian instability and debt dynamics, ignoring both interest payments and consumption out of wealth. In order to highlight the role of debt dynamics, we will even 'switch off' Harrodian instability in the first version, but not the notion that firms operate at a normal or target rate of utilisation in the long run, following the procedure suggested by Dutt (2019Dutt ( , 2020. Section 3 will then include a positive interest rate on government debt as well as consumption out of financial wealth, as in Hein (2018).…”

“…Before we consider Harrodian instability and its effects, we begin by assuming with Dutt (2019Dutt ( , 2020 that firms may have 'rational'-or better 'reasonable'-expectations about the trend rate of growth given by government expenditure growth γ. 5 Hence, for the time being and for the purposes of comparison, we begin with our simplest model where Harrodian instability is 'switched off'.…”

Harrodian instability in Kaleckian models and Steindlian solutions

“…3 See, for example, Allain (2015Allain ( , 2019, Fiebiger (2018), Fiebiger/Lavoie (2019), Lavoie (2016), Nah/Lavoie (2017, 2019a, 2019b, Palley (2019), Pariboni (2016), for a recent controversy see Lavoie (2017) and Skott (2017), for a recent survey see Dutt (2019), and for some further critical assessments see Nikiforos (2018) and Skott (2019). 4 Franke (2019a) has recently proposed another stabilising mechanism via the capital-output ratio making use of Harrod's notion of long-run capital outlays which are not affected by demand dynamics in the goods market.…”