Project: Distribution and Growth
Distribution and Growth - Post-Keynesian Approaches
Prof. Dr. Eckhard Hein
Winter Semester 2012/2013
1. Problems, aims, procedure
The recent three decades have seen tremendous changes in the distribution of income, in particular a decline in the labour income share in major economies. In this project the relationship between income distribution and long-run economic growth was examined theoretically and empirically. A post-Keynesian perspective was chosen, because from this perspective income shares matter in particular when it comes to the explanation of long-run growth. During the recent years, there have also been several empirical studies based on the Kaleckian model, in particular. The purpose of this project was manyfold. First, an updated overview over the different approachse towards distribution and growth after Keynes should be presented. Second, the Kaleckian model, as a variant of the post-Keynesian approach and as a kind of workhorse of the recent post-Keynesian contributions to the analysis of distribution and growth, was to be outlined, developed and extended into several directions. Third, in particular the most recent empirical applications of the Kaleckian model were to be reviewed and critically assessed. Overall the purpose of the project was to develop a coherent and comprehensive post-Keynesian approach to the issues of income distribution and economic growth and to present it in an accessible way for students and researchers.
The result of the research project is a book on Distribution and Growth after Keynes: A Post-Keynesian Guide. The first part of the book gives an overview over key contributions to the development of distribution and growth theories after Keynes. It includes the initial contributions by Harrod and Domar, who were the first to treat the capacity effect of investment explicitly, which was omitted in Keynes’s General Theory, before the neoclassical distribution and growth theories, old and new, are reviewed and the fundamental critique of the neoclassical approach related to the ‘Cambridge controversies in the theory of capital’ is outlined. Since the neoclassical distribution and growth theories abstract from the most important features of modern capitalism, the role of money, active investment of firms, aggregate demand failures, unemployment and distribution conflict, on the one hand, and are logically inconsistent outside a one good barter economy, on the other hand, the rest of the book turns to post-Keynesian approaches. The first generation post-Keynesian distribution and growth approaches put forward by Kaldor and Robinsonin are reviewed, before the contributions by Kalecki and Steindl are outlined in the first part.
In the second part of the book Kaleckian models of distribution and growth are gradually developed and empirical results based on these models are reviewed. First, two baseline models, the neo-Kaleckian distribution and growth model and the post-Kaleckian model are presented. The former model generates uniquely wage-led results – a higher wage share is beneficial for the rates of capacity utilization, capital accumulation, growth and profit. The latter model, however, allows for wage- or profit-led regimes depending on the values of the model parameters and coefficients. Then the models are extended, by introducing saving out of wages and international trade. The post-Kaleckian version has been used extensively in empirical research on wage- and profit-led demand and growth regimes since the early/mid 1990s, and the main results of these empirical studies are finally reviewed and summarised: Domestic demand is wage-led in almost any economy, and only in a few economies overall profit-led demand is obtained through introducing the effects of re-distribution on net exports. In the next steps, productivity growth, interest and credit, as well as financialisation issues are introduced into different versions of the Kaleckian models and the respective empirical results are presented. In the last but one chapter, the critique of the Kaleckian distribution and growth models put forward by classical, Marxian and Harrodian authors is addressed and it is shown that the Kaleckian approach is able to deal with the related problems without having to give up the main conclusions, the validity of the paradox of thrift and a potential paradox of costs in the long run.
Summing up, it is shown that the post-Keynesian approaches, and in particular the Kaleckian/Steindlian variants provide rich, applicable and empirically relevant models of distribution and growth for modern capitalism. These approaches are based on the principle of effective demand, include distributional conflict between different social groups and highlight the relevance of history and institutions when it comes to determining income distribution, investment in capital stock, growth and technological change.
- Eckhard Hein: Distribution and Growth after Keynes: A Post-Keynesian Guide, Cheltenham: Edward Elgar, 2014, 584 pages, ISBN: 978 1 78347 728 9.
- Eckhard Hein: Wage- and profit-led regimes, in: King, J.E. (ed.), The Elgar Companion to Post Keynesian Economics, 2nd edition, Cheltenham: Edward Elgar, 2012, pp. 583-588, ISBN: 978 1 84980 318.
- Eckhard Hein: The rate of interest as a macroeconomic distribution parameter: Horizontalism and Post-Keynesian models of distribution and growth, Bulletin of Political Economy, 2012, 6 (2): 107-132, ISSN: 0973-5747.
- Eckhard Hein: On the importance of the retention ratio in a Kaleckian distribution and growth model with debt accumulation – a comment on Sasaki and Fujita (2012), Metroeconomica, 2013, 64 (1): 186-196, ISSN: 1467-999X.