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Thirlwall à la Godley

Short note on Thirlwall's Law by Lance Taylor available here. As he notes on Thirlwall's Law:  "Insofar as they [the conditions to generate it] are 'extreme,' the plausibility of (3) [Thirlwall's Law] is open to doubt," which is one of the points I raised in my recent debate with Jaime Ros. Causality here remains from exports to growth, which was reversed in Clavijo and Ros, but there is a healthy skepticism about the generality of the law.

Arguably Godley had a version of Thirlwall's Law in his model too. As noted by Zezza: "the ideas underlying the ‘New Cambridge Hypothesis,’ which assumed... that the private sector would adjust rather quickly to a shock, to restore its desired income/assets ratio." In this sense, in the long run in a steady state Godley assumed that the net acquisition of financial assets would be zero. This would be a stock version of the flow equilibrium between investment and savings, the private balance.


  1. I find your logic here confusing. I don't see how it follows from that statement from Zezza that the "net acquisition of financial assets would be zero" in a steady state. A target ratio means that in the long run both are growing at the same rate. asset growth would only be zero if income growth was zero and i don't see any reason to presume that. the hypothesis is consistent with any number of CAD sizes.

    1. Sorry for the delay in replying. Backlogged. The point of Gennaro's quote is to show that the stock-flow norms play a central role in the New Cambridge tradition. And yes there it just says they grow at the same ratio, yet Wynne did think that the net acquisition of financial assets would be zero.

    2. True I just wanted to make it clear that Wynne's position was separate from the idea of stock flow norms or a "steady state".


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