This paper extends a Steindlian model of growth and income distribution to incorporate borrowing by consumers. It shows that borrowing by consumers can improve growth prospects in the short run by increasing consumer demand. However, in the longer run the effects of increasing consumer borrowing are ambiguous because, by increasing consumer debt, it redistributes income towards the rich who have a higher propensity to save, thereby possibly depressing aggregate demand and growth despite the borrowing-induced expansion. The problem may be exacerbated by financial considerations involving the increase of the interest rate due to greater borrowing, but these considerations are not necessary for it. The problem is more likely to occur when autonomous investment demand is weak, i.e. when borrowing-induced consumption increases are most required to counter tendencies towards stagnation.
While mainstream growth theory in its neoclassical and new growth theory incarnations has no place for aggregate demand, Keynesian growth models in which aggregate demand determines growth neglect the role of aggregate supply. By assuming that the rate of technological change responds to labour market conditions, this paper develops a simple and conventional growth model that integrates the roles of aggregate demand and aggregate supply. The model shows how the long-run equilibrium growth rate of the economy, at which the unemployment rate is constant, can be affected by aggregate demand.Growth, aggregate demand, aggregate supply, technological change, Keynesian growth models, hysteresis,
This paper develops a formalization of the model of growth developed by Steindl in chapter XI11 of his Maturity and Stagnation in American Capitalism in order to examine the interaction of real and financial factors in capitalist economies. It will look at the shortand long-run behaviour of the economy in which firms have monopoly power, hold excess capacity, and finance a part of their investment spending out of internal savings. The analysis shows the possibility of instability in the economy due to financial and goods market considerations and their interaction, and considers the implications of financial factors for the long-run effects of the rise of oligopoly.
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