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The Rate of Interest in the Kaldor-Robinson Model of Distribution and Growth

In: Money, Distribution Conflict and Capital Accumulation

Author

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  • Eckhard Hein

Abstract

In the Kaldor-Robinson model the attempt is made to integrate major elements of the early Post-Keynesian distribution and growth theory pioneered by Joan Robinson (1956, 1962) and Nicholas Kaldor (1955/56, 1957, 1961) into a simple model, without being able to do justice to the rich flavour of their theories.16 The main characteristics of these theories, and hence of the Kaldor-Robinson model, are as follows: First, full or normal utilization of the capital stock in long-period growth equilibrium is assumed.17 Secondly, it is assumed that firms’ investment decisions determine capital accumulation and growth and are themselves mainly affected by the expected profit rate. Third, a flexible mark-up is supposed, which means that in goods market disequilibrium, goods market prices change faster than nominal wages. Under the conditions of full utilization of the capital stock, this allows for the adjustment of saving to investment through redistribution of income, provided that the propensity to save out of wages is lower than the propensity to save out of profits. The goods market equilibrium, therefore, also establishes equilibrium income shares in this model. The Kaldor-Robinson model shall now be extended by means of introducing an exogenously determined interest rate into the accumulation function. We get the following model:

Suggested Citation

  • Eckhard Hein, 2008. "The Rate of Interest in the Kaldor-Robinson Model of Distribution and Growth," Palgrave Macmillan Books, in: Money, Distribution Conflict and Capital Accumulation, chapter 11, pages 82-86, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-59560-6_11
    DOI: 10.1057/9780230595606_11
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