Growth without normal capacity utilization

Abstract

Within the demand-led approach to growth, the long-period tendencies of quantities cannot be effectively studied through theoretical positions entailing normal utilization of capacity. Whether in the form of constant or of average normal utilization, this assumption contradicts the supposed autonomy of aggregate demand. Analysis of the operation of the adjustment of capacity to demand suggests that potentially offsetting forces make fully adjusted positions irrelevant. As quantities cannot be assumed to gravitate towards such positions, the relations between quantity variables determined on the normal utilization hypothesis provide a poor guide to the analysis of reality.Growth, Capacity Utilization, Keynesian Long-period Analysis, Accumulation,

Investment hysteresis and potential output: A post-Keynesian–Kaleckian agent-based approach

“…The variable μ, for instance, is expected to capture all the micro-, macro-and meso-economic reasons behind the decision of increasing or decreasing capacity utilization, namely the desire to push capacity utilization up to the costs minimizing rate, the possibility to rapidly satisfy peaks of demand by installing an excessive productive capacity and the strategic decision to keep idle capacity as a deterrent to new entrant firms (see Kurz, 1986;Lavoie, 1996;Palumbo et al, 2003). Therefore, investment decisions adjust discontinuously to aggregate demand shocks according to the sensitivity to invest and according to the series of past shocks that affected firms' investment decisions in the past.…”

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

“…Garegnani (1992) then developed a general critique which questioned the consistency of assuming normal capacity utilization when proper account is taken of the role of aggregate demand in the process of economic growth. 5 This position has been further developed by Trezzini (1995Trezzini ( , 1998 and Palumbo and Trezzini (2003). the same rate g ¼ g y ¼ g k .…”

Neo-Kaleckian and Sraffian Controversies on the Theory of Accumulation

“…3 Stretching a bit beyond Garegnani's own views, FSP exponents (e.g. Palumbo and Trezzini 2003;Smith 2012;Trezzini 1995Trezzini , 2011 seem to suppose that any steady state necessarily contradicts the Keynesian Hypothesis. They forget that on a steady state-path all cats are grey, so to speak: we cannot clearly identify the causal saving-investment nexus, and national accounting identities are not causal relations.…”

“…(ii) A clear requirement for the stability of the supermultiplier is that any growth rate of autonomous/non-capacity-creating demand must have a sufficient degree of persistence. Despite the scepticism of Palumbo and Trezzini (2003), the supermultiplier appears to be a useful tool for analysing not only historical periods in which g z and long-term expectations are relatively stable, but also more erratic phases in which, nevertheless, the pattern of autonomous demand acts as a temporary attractor. As Dejuan (2005, 244) sensibly puts it, even if 'the pace of autonomous demand is not so stable, the adjustment might never be completed and capacity would rarely be fully used.…”

“…Garegnani's argument is that if we consider two regimes with different rates of growth of aggregate demand, then even if entrepreneurs had perfect foresight, the degree of capacity utilisation over the period that encompasses both regimes and the transition period would not be normal (see also Palumbo and Trezzini 2003). But this is a deceptive argument, for if we apply it to Solow's model it would lead us to conclude that neoclassical growth theory does not study normal growth paths since variations of parameters lead to different normal paths.…”