Appraising Pasinetti's structural dynamics

Abstract

This paper proposes an appraisal of Luigi Pasinetti's investigation of structural economic dynamics im terms of the long-term development of a ‘pure labour’ economy. It is argued that such an approach, in its search for fundamental ‘natural’ relationships, has strong normative features that make it similar to François Quesnay's analysis of the ‘natural order’, which was envisaged as a type of ideal standard. There is a clear bridge between Pasinetti's emphasis on natural dynamics and the identification of the policy implications of structural change. In this connection, the author considers Pasinetti's own contribution to the analysis of the relationship between the policy goal of average price stability and the choice of a special numéraire (Pasinetti's ‘dynamic standard commodity’). The paper concludes by suggesting that Pasinetti's investigation of the stability conditions of the general price level in a dynamic framework may be considered as a solution to the issues examined in the late 1920s by economists such as Robertson and Keynes with respect to the policy objectives of central banking. It is also emphasized that Pasinetti's consideration of the ‘natural’ rate of interest suggests a way to simultaneously achieve average price stability and the proportionality of the intertemporal distribution of income with respect to the quantities of labour contributed to the production process. In this way, the old Wicksellian debate concerning the relationship between price stability and the natural rate of interest is solved from the point of view of structural dynamics.