Trend and business cycles with external markets: Non‐capacity generating semi‐autonomous expenditures and effective demand

The Global Financial Crisis has underlined the importance of developments in the household sector to explaining macro patterns. Some recent papers have discussed the role of non‐capacity generating semi‐autonomous expenditures in growth theory. This literature ties together several aspects of heterodox thought: growth and distribution; the Sraffian supermultiplier; Duesenberry's relative income hypothesis; the endogenous money approach and Kalecki–Luxemburg external markets. The basic message is that non‐wage sources of effective demand, based on mortgage and consumer credit, can play a key role in inducing capacity investment and driving long‐run output growth. This article gives a broad overview of the role of financed‐induced semi‐autonomous expenditures in growth, cycles and crises, and thus criticizes some of the previous approaches that claim to mimic actual cycles while abstracting from these crucial determinants of economic activity.