Accumulation and capacity

Abstract

This chapter deals with the principle of effective demand in the long run. It is essentially based on the Kaleckian model of growth and income distribution in its various versions. Its distinctive features relative to the previous neo-Keynesian model are outlined, in particular the fact that the actual rate of capacity utilization is not constrained to equal the normal rate of utilization. The paradoxes of thrift and of costs are analyzed, notably when it is assumed that the share of profit, or the rate of profit expected to be realized at normal capacity, is introduced in the investment function. The issue of Keynesian and Harrodian stability are discussed, as are the various mechanism that could bring back the rate of capacity utilization towards its normal level. The issue of whether or how the Kaleckian model can achieve the natural rate of growth, thus generating a steady rate of unemployment, is also discussed. Much attention is devoted to the model with overhead labour costs, as it has several implications regarding the understanding of business cycles. Technical progress is also introduced into this Kaleckian model, as are variants that take into account business debt, household debt and growing non-capacity creating autonomous expenditures. The model is also extended to include the evolution of wealth variables pertaining to two classes of households.