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Savings and Investment, from the Price Mechanism to the Multiplier

In: Henry George and How Growth in Real Estate Contributes to Inequality and Financial Instability

Author

Listed:
  • Edward Nell

    (New School)

Abstract

Henry George often argued in macroeconomic terms, though he did not develop a macroeconomic theory. In this chapter we present a model that is consistent with Marshall’s ‘supply and demand’, but applies to aggregate supply and demand. The model is based on a conventional short-period production function, which shows the outputs associated with various levels of both fixed plant and equipment employment. As the economy employs craft technology, returns diminish to additional employment. Then, wages support consumption, Kalecki-fashion investment generates realized profits, and the level of employment is found when we know the real wage and level of investment (at the point where the C + I line is tangent to the production function, so the real wage equals the marginal product). This system can be developed into a simple growth model, based on the “Golden Rule” that the rate of profit equals the rate of growth, replacing the misguided Solow model.

Suggested Citation

  • Edward Nell, 2019. "Savings and Investment, from the Price Mechanism to the Multiplier," Palgrave Studies on Henry George for the 21st Century, in: Henry George and How Growth in Real Estate Contributes to Inequality and Financial Instability, chapter 0, pages 55-69, Palgrave Macmillan.
    • Handle: RePEc:pal:psochp:978-3-030-18663-0_5
    DOI: 10.1007/978-3-030-18663-0_5
    as

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