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Demand drives growth all the way: Goodwin, Kaldor, Pasinetti and the Steady State

Author

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  • Lance Taylor
  • Duncan K Foley
  • Armon Rezai

Abstract

A demand-driven alternative to the conventional Solow–Swan growth model is analysed. Its medium run is built around Marx–Goodwin cycles of demand and distribution. Long-run income and wealth distributions follow rules of accumulation stated by Pasinetti in combination with a technical progress function for labour productivity growth incorporating a Kaldor effect and induced innovation. An explicit steady state solution is presented along with analysis of dynamics. When wage income of capitalist households is introduced, the Samuelson–Modigliani steady state ‘dual’ to Pasinetti’s cannot be stable. Numerical simulation loosely based on US data suggests that the long-run growth rate is around 2% per year and that the capitalist share of wealth may rise from about 40 to 70% due to positive medium-term feedback of higher wealth inequality into its own growth.

Suggested Citation

  • Lance Taylor & Duncan K Foley & Armon Rezai, 2019. "Demand drives growth all the way: Goodwin, Kaldor, Pasinetti and the Steady State," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 43(5), pages 1333-1352.
    • Handle: RePEc:oup:cambje:v:43:y:2019:i:5:p:1333-1352.
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    File URL: http://hdl.handle.net/10.1093/cje/bey045
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    Citations

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    Cited by:

    1. Thomas R Michl & Daniele Tavani, 2022. "Path dependence and stagnation in a classical growth model," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 46(1), pages 195-218.
    2. Petach, Luke & Tavani, Daniele, 2022. "Aggregate demand externalities, income distribution, and wealth inequality," Structural Change and Economic Dynamics, Elsevier, vol. 60(C), pages 433-446.
    3. Sasaki, Hiroaki & Asada, Yasukuni, 2020. "Quantifying Goodwin Growth Cycles with Minimum Wage Shares," MPRA Paper 99926, University Library of Munich, Germany.
    4. Kazuhiro Kurose, 2022. "A two-class economy from the multi-sectoral perspective: the controversy between Pasinetti and Meade–Hahn–Samuelson–Modigliani revisited," Evolutionary and Institutional Economics Review, Springer, vol. 19(1), pages 239-270, April.
    5. Vinicius Curti Cícero & Daniele Tavani, 2024. "Institutional changes, effective demand and inequality: a structuralist model of secular stagnation," Working Papers PKWP2410, Post Keynesian Economics Society (PKES).
    6. Stefano Di Bucchianico, 2021. "Negative Interest Rate Policy to Fight Secular Stagnation: Unfeasible, Ineffective, Irrelevant, or Inadequate?," Review of Political Economy, Taylor & Francis Journals, vol. 33(4), pages 687-710, October.
    7. Sasaki, Hiroaki & Sonoda, Ryunosuke, 2024. "Income Redistribution Policy, Growth, Inequality, and Employment: A Long-Run Kaleckian Approach," MPRA Paper 121968, University Library of Munich, Germany.
    8. Sasaki, Hiroaki & Asada, Yasukuni & Sonoda, Ryunosuke, 2024. "Effects of Minimum Wage Share and Wage Gap Reduction on Cyclical Fluctuation: A Goodwin Approach," MPRA Paper 121695, University Library of Munich, Germany.
    9. Servaas Storm, 2023. "Lance Taylor (1940–2022): Reconstructing Macroeconomics," Development and Change, International Institute of Social Studies, vol. 54(5), pages 1331-1353, September.
    10. João Gabriel de Araujo Oliveira & Joanilio Rodolpho Teixeira, 2020. "A note reconsidering a post‐Keynesian model of growth and distribution in the globalization context," Metroeconomica, Wiley Blackwell, vol. 71(3), pages 487-495, July.
    11. Stefan Ederer & Miriam Rehm, 2021. "Wealth inequality and aggregate demand," Metroeconomica, Wiley Blackwell, vol. 72(2), pages 405-424, May.
    12. Ivan Mendieta‐Muñoz & Doğuhan Sündal, 2022. "Business cycles, financial conditions, and nonlinearities," Metroeconomica, Wiley Blackwell, vol. 73(2), pages 343-383, May.
    13. Sasaki, Hiroaki, 2024. "The Paradox of Technological Progress, Growth, Distribution, and Employment in a Demand-led Framework," MPRA Paper 121694, University Library of Munich, Germany.

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