Cycles and Growth: A Source of Demand-Driven Endogenous Growth

Abstract

This paper moves in a theoretical context in which the level of economic activity is dependent on aggregate demand in both the long and the short period. It shows that given two simple hypotheses, the economy will exhibit a tendency to grow independently of any increase in the average level of ongoing investment (or any other type of ‘autonomous’ demand) over time. The two hypotheses are (a) that investment oscillates over time and (b) that the community’s marginal propensity to consume is lower when income contracts in slumps than when it increases in booms. This points to a source of growth that is as endogenous to the system, as trade cycles are

Growth without Normal Capacity Utilization and the Meaning of the Long-Run Saving Ratio

“…A different approach to the analysis of long-run tendencies has been developed more recently in Garegnani and Trezzini (2010), Trezzini (2011a), and Palumbo (2013), and explicit reflections on the methodological issue have been put forward recently in Smith (2013) and Trezzini (2013). In these investigations, the growth path is not conceived as a theoretical entity that exists independently of the fluctuations of the economy but as a trend determined by the fluctuations themselves and, as such, not independent of them.…”

“…This component of aggregate consumption cannot therefore be considered autonomous with respect to income in a very general sense. An analysis in this direction is developed in Garegnani and Trezzini (2010) where the evolution of the 'structural' part of consumption is assumed to take place through the asymmetry of the propensities to consume in the different phases of the cycle. In the model developed here, we dramatically simplify by assuming a constant rate of growth of structural consumption in the expansions, a different constant rate in the recessions and a constant marginal propensity to consume over the whole business cycle.…”

Sraffa and the Reconstruction of Economic Theory: Volume Two

“…The approach was essentially abandoned by the Keynesian tradition, unfortunately, and its revival is proving hard to achieve. It has been used more recently in some contributions based on the classical and Keynesian approach (see Garegnani and Trezzini, 2010).…”

Neo-Kaleckian and Sraffian Controversies on the Theory of Accumulation

“…There is here a point of convergence with the work of Hyman Minsky (1986) and his followers on the financial fragility of capitalism. I therefore close by acknowledging once again the limitations of the investigation of formally stable growth paths and the necessity, emphasised by Garegnani and Trezzini (2010) among others, of integrating the analysis of long-run growth with that of the cycle and crises.…”