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Lecture 1: the Keynesian Hypothesis, Harrod, the Cambridge equation, the neo-Kaleckians

Sergio CesarattoProfessore ordinario di Politica economica

Università di SienaDipartimento di Economia Politica e Statistica (DEPS)

Piazza San Francesco 753100 Siena338 1768793

sergio.cesaratto@unisi.ithttp://www.econ-pol.unisi.it/cesaratto/

http://politicaeconomiablog.blogspot.com/

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Basics

• 3 main points made by Sraffians:• A) criticism of neoclassical capital theory (negative part) (Petri)• B) recovery of the Classical theory of distribution (positive) (Petri)• C) interpretation of Keynes and extension of his theory to the long

run (positive)

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Sraffa, Marx, Keynes, Kalecki: a synthesis

• The concept of social surplus central in Classical theory of distribution and growth. The availability of a surplus is the prime mover of economic development (to let political, intellectual, military class to exist, to be exchanged with foreign goods and technology etc). In a planned economy the size of the surplus limits economic development. In a market economy the inequality in income distribution limits the realisation of the surplus by capitalists.

• In this respect Marx, Keynes, Kalecki criticised Say’s Law. • Sraffa reinforced this criticism by demolishing the marginalist

version of Say’s Law, and recovered and reinforced the Classical surplus approach. In Kalecki the connection between Classical distribution theory and the criticism to Say’s Law is clearer than in Keynes.

• Sraffa-Garegnani reinforced the Keynesian theory of Effective Demand which is, however, limited to the short run (given capacity). It must be extended to the long-run (the main focus of this course)

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The Keynesian Hypothesis and further implications• The main tenant of the Sraffian theory of accumulation is the

Keynesian Hypothesis (KH): investment determines savings both in the short and in the long run. In the short-run by a fuller exploitation of existing capacity; in the long-run by increasing capacity.

• In a demand-led theory, resources (capital and population) adjust to demand growth, not the other way round.

• Monetary and fiscal policy affects output also in the long run• Inflation has not a monetary origin, it is due to the conflict over

income distribution• There is not a natural rate of unemployment. The latter is basically

involuntary. When unemployment falls, inflation rises not to cheat workers – as in Friedman’s story – but because they have an higher bargaining power.

• The limit to accumulation is mainly political: capitalism must preserve an industrial reserve army to keep workers calm; duty of the (independent) Central Bank is to do the dirty job of preserving social peace by threatening higher unemployment.

• We shall not say much on open economies, so let us say something now.

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Steady state

• We shall often talk of steady-state or balanced-growth. We mean situation in which output and the capital stock grows at the same rate, and K/Y = v is thus constant at its normal/desired level.

• (we neglect here technical progress)• Steady states or normal accumulation paths are only an

approximation: in reality capitalism evolves through economic cycles. Depressions can last very long (as we see in Europe)

• Digression: is heterodox growth theory only interested on the demand-side only? No.

• Supply-side heterodox story mercantilist-nationalist tradition of pro-active industrial policies and developmental state.

• See e.g. Marianna Mazzuccato (SPRU Univ.Sussex), The Entrepreneurial State: debunking private vs. public sector myths