Animal Spirits, Keynesian stability, and the relationship between distribution and growth

Two salient features of the canonical Kaleckian growth model are the Keynesian stability condition and the paradox of costs. Both of these features are controversial. Harrodians contest the Keynesian stability condition on the grounds that it understates the reaction of investment spending to variations in the capacity utilization rate. Meanwhile, neo-Goodwinians argue that the demand regime is profit-led. A third salient feature of the Kaleckian model, following the contributions of Joan Robinson, is its assumption that the parameters of the investment function are conditioned by animal spirits. This paper shows that the treatment of animal spirits can affect both of the first two salient features of the Kaleckian model mentioned above. Specifically, it is shown that allowing for variation in animal spirits can: reconcile the Keynesian stability condition with the observation that there is a greater reaction of investment spending than saving to variation in the rate of capacity utilization; and complicate the effects of distribution on growth in an otherwise intrinsically wage-led economy.