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NICHOLAS KALDOR and MAINSTREAM ECONOMICS Also by Edward J NICHOLAS KALDOR AND MAINSTREAM ECONOMICS Also by Edward J. Nell KEYNES AFfER SRAFFA: The Reconstruction of Political Economy EFFECTIVE DEMAND AND TRANSFORMATIONAL GROWTH: Economics after the Capital Critique FREE MARKET CONSERVATISM: A Critique of Theory and Practice GROWTH, PROFITS AND PROPERTY BEYOND THE STEADY STATE: The Revival of Growth Theory (with Joseph Halevi and David Laibman) RATIONAL ECONOMIC MAN (with Martin Hollis) PROSPERITY AND PUBLIC SPENDING: Transformational Growth and the Role of the State Also by Willi Semmler COMPETITION, INSTABILITY AND NONLINEAR CYCLES (editor) COMPETITION, MONOPOLY AND DIFFERENTIAL PROFIT RATES FINANCIAL DYNAMICS AND BUSINESS CYCLES (editor) Nicholas Kaldor and Mainstreant Econontics Confrontation or Convergence? Edited by Edward J. Nell Professor of Economics New School for Social Research, New York and Willi Semmler Associate Professor of Economics New School for Social Research, New York Palgrave Macmillan ISBN 978-1-349-10949-4 ISBN 978-1-349-10947-0 (eBook) DOI 10.1007/978-1-349-10947-0 ©Edward J. Nell and Willi Semmler, 1991 Softcover reprint of the hardcover 1st edition 1991 978-0-333-49473-8 All rights reserved. For information, write: Scholarly and Reference Division, St. Martin's Press, Inc., 175 Fifth Avenue, New York, N.Y. 10010 First published in the United States of America in 1991 ISBN 978-0-312-05356-7 Library of Congress Cataloging-in-Publication Data Nicholas Kaldor and mainstream economics: confrontation or convergence?/edited by Edward J. Nell and Willi Semmler. p. em. ISBN 978-0-312-05356-7 1. Kaldor, Nicholas, 1908-1986. 2. Economics. I. Nell, Edward J. II. Semmler, Willi. HB 103.K36N53 1991 330.1--dc20 ~893 CIP In memory of Nicholas Kaldor: dedicated to those working to solve the problems of the Third World on the nature of time: It seems clear that if we are to get out of the present impasse we must begin by constructing a different kind of abstract model, one that recognizes from the beginning that time is a continuing and irreversible process; that it is impossible to assume the constancy of anything over time, such as the supply of labor or capital, the psychological preferences for commodities, the nature and number of commodities, or technical knowledge. All these things are in a continuous process of change but the forces that make for change are endogenous not exogenous to the system. - Economics Without Equilibrium Contents Acknowledgements X Notes on the Contributors xi Editors' Introduction: Alternative Theories 1 PART I NICHOLAS KALDOR: AN OVERALL EVALUATION 1 Nicholas Kaldor 1908--86 A. P. Thirlwall 13 2 Nicholas Kaldor Remembered J. K. Galbraith 48 PART II METHODOLOGY AND BASIC APPROACH 3 Kaldor between Hayek and Keynes, or: Did Nicky Kill Capital Theory? M. Desai 53 4 A Sweeping New Non-substitution Theorem: Kaldor's Discovery of the von Neumann Input-Output Model P. A. Samuelson 72 5 Equilibrium and Stability in Classical Theory D. J. Harris 88 6 On the Resolution of Conflicts by Compensation U. Krause 101 7 The Impact of the Division of Labor on Market T. Scitovsky 114 PART III SAVING AND DISTRIBUTION 8 Profit Squeeze and Keynesian Theory S. A. Marglin and A. Bhaduri 123 9 Post-Keynesian Theory of Distribution in the Long Run N. Salvadori 164 10 Corporate Behavior, Valuation Ratio and Macroeconomic Analysis G. Abraham-Frois 190 vii viii Contents PARTlY MONEY AND MACROECONOMICS 11 The Endogeneity of Money H. P. Minsky 207 12 On the Endogeneity of Money Supply J. Tobin 221 13 Marx, Keynes, Kalecki and Kaldor on the Rate of Interest as a Monetary Phenomenon B. J. Moore 225 14 Money: Cause or Effect? Exogenous or Endogenous? P. Davidson 243 15 Change, Continuity and Originality in Kaldor's Monetary Theory M. Lavoie 259 PARTY BUSINESS CYCLES 16 A Keynesian Business Cycle R. H. Day and T. Y. Lin 281 17 Perfect Foresight Cycles in a Marxian-Keynesian Model of Accumulation with Money D. K. Foley 306 18 Wandering around the Warranted Path: Dynamic Nonlinear Solutions to the Harrodian Knife-Edge A. Shaikh 320 19 A Dynamical Macroeconomic Growth Model with External Financing of Firms: A Numerical Stability Analysis R. Franke and W. Semmler 335 20 A Working Model of Slump and Recovery from Disturbances to Capital-goods Demand in a Closed Non-monetary Economy E. S. Phelps 360 21 Cyclical Growth in a Kaldorian Model P. Skott 379 22 Endogenous Credit and Endogenous Business Cycles M. Jarsulic 395 PART VI THEORY OF GROWTH 23 Change and Continuity in Kaldor's Thought on Growth and Distribution F. Targetti 411 24 Technical Change, Growth and Distribution: A Contents ix Steady-state Approach to 'Unsteady' Growth on Kaldorian Lines H. D. Kurz 421 25 A Kaldorian Saving Function in a Two-sectoral Linear Growth Model H. Hagemann 449 26 International Debts and Deficits: A Kaldor-Pasinetti Model H. Gram 469 PART VII EMPIRICAL EVIDENCE ON POST-WAR GROWTH 27 Kaldor's Growth Theories: Past, Present and Prospects for the Future R. Boyer and P. Petit 485 28 Kaldor's Macro System: Too Much Cumulation, Too Few Contradictions D. M. Gordon 518 29 Disembodied Technical Progress: Theory and Measurement S. Nagy 549 PART VIII ECONOMIC POLICY AND ECONOMIC SYSTEMS 30 Nicholas Kaldor as Advocate of Commodity Reserve Currency A. G. Hart 561 31 Kaldor on International Economic Policy S. Dell 571 32 Capitalism, Socialism and Effective Demand E. Nell 577 Index 613 Acknowledgements The papers in this book were presented at a conference on Nicholas Kaldor held at the Graduate Faculty of New School for Social Research and the Jerome Levy Institute at Bard College in October 1987. We are greatly indebted to the New School and the Levy Institute for their financial support of the conference. In addition, the Levy Institute financially supported the publication of this volume with a grant which is gratefully acknowledged. We particularly want to thank Lady Kaldor for joining the conference and John Kenneth Galbraith for delivering a delightful after-dinner speech. We are also grateful to Karin Ray and Marsha Lasker from the New School and Susan Howard from the Levy Institute for their kind assistance in preparing and organizing the conference and Mathew Forstater for assistance in editing the conference volume. EDWARD J. NELL WILLI SEMMLER X Notes on the Contributors Gilbert Abraham-Frois is Professor of Economics at University of Paris-X (Nanterre). He is the author of Dynamique Economique (Dalloz Pub­ lishers, 1989) and (with E. Berrebi) Prix, profits, et rythmes d'accumulation (Cambridge University Press, 1987). Amit Bhaduri, presently at the Indian Institute of Management in Cal­ cutta, is the author (with Joseph Falkinger) of 'Optimal Price Adjustment Under Imperfect Competition', in European Economic Review, 34, 1990. Robert Boyer is presently a Directeur de Recherches CNRS (Centre National de la Recherche Scientifique), working in CEPREMAP (Paris), and teaching at Ecole des Hautes Etudes en Sciences Sociales (EHESS, Paris). His most recent publications include Regulation Theory: A Critical Assessment (Columbia University Press, 1989). Paul Davidson is occupant of the J. F. Holly Chair of Excellence in Political Economy at the University of Tennessee. He is co-author of the book Economics for a Civilized Society (Norton Publishers, 1989). Richard H. Day is Professor of Economics at the University of Southern California, editor of the Journal of Economic Behavior and Organization (lEBO), and co-editor of and contributor to Adaptive Economic Models (Academic Press, 1975). Sidney DeU is a Senior Fellow of UNITAR (United Nations Institute for Training and Research). His latest book is The United Nations and Inter­ national Business (Duke University Press). Professor Meghnad Desai teaches at the London School of Economics, and is currently writing a study of Hayek. His most recent book was an edition of Lenin's Economic Writings. Duncan K. Foley is Professor of Economics at Barnard College of Colum­ bia University. He is the author of Understanding Capital: Marx's Econ­ omic Theory and other books and articles on economics. Reiner Franke is Research Assistant in the Department of Mathematics and Economics at the University of Bremen, and recently in the Econ­ omics Department of the University of Bielefeld (FRG). xi xii Notes on the Contributors John Kenneth Galbraith is Paul Warburg Professor of Economics, Emeri­ tus, Harvard University, and Honorary Fellow, Trinity College, Cam­ bridge. He is the author of The Affluent Society, The New Industrial State, and Economics in Perspective. David M. Gordon is Professor of Economics in the Graduate Faculty of the New School for Social Research. He is co-author (with Samuel Bowles and Thomas E. Weisskopf) of After the Wasteland: A Democratic Economics for the Year 2000 (M. E. Sharpe, 1990). Harvey Gram is Professor of Economics at Queens College of the City University of New York. Two of his articles, 'Two Sector Models in the Theory of Capital and Growth' (1976) and 'Duality and Positive Profits' (1985) are reprinted in Sraffian Economics, edited by Ian Steedman. His article 'Ideology and Time: Criticisms of General Equilibrium', appears in Joan Robinson and Modem Economic Theory, edited by George Feiwel. Harald Hagemann is Professor of Economic Theory at the University of Hohenheim in Stuttgart. His most recent publication is 'The Structural Theory of Economic Growth', in M. Baranzini and R. Scazzieri (eds), The Economic Theory of Structure and Change (Cambridge University Press, 1990). Donald J. Harris has been Professor of Economics at Stanford University since 1972. He has published Capital Accumulation and Income Distri­ bution (Stanford University Press, 1978) and numerous articles in leading journals on issues in the theory of capital, distribution, growth, develop­ ment, and technical change. Among his recent papers is 'On the Classical Theory of Competition', Cambridge Journal of Economics, 1988.
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