Friday, February 12, 2016

A Clarification of the clarification of supermultipliers

After my post I got an email and post below by Franklin. Mind you, I still would refer to supermultiplier models as Kaldorian, and the models with autonomous investment as neo-Kaleckian. As Franklin notes Bortis, a Kaldorian and Sraffian, makes the transition to exogenous distribution, even if Kaldor himself didn't. Below the email and the post.

Dear Matias:

Great Post.Your use of the phrase “no independent investment function” to refer to induced investment models is unfortunately quite confusing.

This phrase since the classic survey of Hahn in Matthews has been used to refer to models in which full employment (or full capacity in Lewisian and neo-Marxian models) saving determines investment.

I am sure that what you mean is that in supermultiplier models there is no autonomous component in the (capacity creating) investment function. It would be much better to all of us if you changed that at no cost for you. If you do this , please omit this part from my uninvited guest post.

The Sraffian supermultiplier (Serrano, 1995) , as the name says is,well... Sraffian. That means that its key feature is that distribution is exogenous. In fact the original title of my 1995 PhD dissertation was going to be “demand led capacity growth under exogenous distribution”. That is why it can and recently it has been adopted/discovered by a few eminent neo-Kaleckians , as the key feature of their approach is also the exogenous profit share, determined separately from output (although along different lines through the degree of monopoly).

Kaldor himself never moved away completely from some version of the Cambridge theory of distribution, either of the “competitive” (prices are flexible relative to Money wages ) or “managerial” (there is mark-up pricing but the mark-up is function of the desired induced investment share and thus of the rate of growth of the economy (a la Wood, Eichner, etc.) . See chapter three of my PhD thesis and chapter two of my 1988 Master´s thesis for a critique of both [in Portuguese].

In both (totally unrealistic )versions of the Cambridge mechanism, it is accumulation that determines distribution endogenously, unlike the separation between distribution and accumulation we find in Sraffa , Kalecki and their modern followers.

In fact, Kaldor´s paper that I quoted in my thesis and that Lavoie (2015) mentions, called “conflict in national economic objectives” is the only one in which (although without using equations) he does not mix the harrod balance of payment equilibrium condition X/m=Ybp ,which shows a balance of payments constraint with a proper supermultiplier , say Y=G+X/(c(1-t)+m-gv ) which is the level of output determined by effective demand

In all his other works Kaldor makes Y=Ybp and this occurs because Kaldor arbitrarily assumes that G=t.Y and that vg =(1- c(1-t)) via some Cambridge mechanism that makes the aggregate marginal propensity to consume adjust itself to the marginal propensity to invest vg. See Fabio Freitas (2003) and Bhering & Serrano (2013) for details here and here.

(Palumbo ROPE 2009 also mentions these assumptions by Kaldor but unfortunately fails to note that the endogeneity of distribution that is the problem and not the induced investment function as she claims)

The inconsistency of having a proper aggregate demand led growth model with endogenous Cambridge distribution is the reason why I say in chapter two of my Ph. D. thesis that “It seems then that the only reason why Kaldor did not get to point of producing a explicit model of the industrial economy identical to our Sraffian supermultiplier must be attributed to

His reluctance to abandon completely his own version of the Cambridge theory of distribution. In fact , a consistent supermultiplier analysis requires the distribution of income  (and the aggregate marginal propensity to save) to be treated as an exogenous parameter, being therefore incompatible with the idea that distribution is somehow endogenously determined via the Cambridge equation.”

And it is then also no surprise that it was Heinrich Bortis, supervised by Kaldor that first got to the idea of an exogenous distribution supermultiplier, that he calls “Classical-Keynesian” in his 1979 Cambridge PhD (though his book was published only in 1997).

But note that , again as I demonstrated in chapter 3 of thesis, that in Cambridge models whatever the initial level of capacity there will always be enough aggregate demand for as distribution will change so that aggregate consumption changes to fill the gap (see Serrano & Freitas, 2015).

Of course you may ask: but then what is the point of having induced investment growing at the rate the autonomous part of demand grows if there is never lack of aggregate demand? The only consistent answer to this last question is: please just drop the endogenous distribution Kaldorian supermultiplier and use either the neo-Kaleckian or Sraffian ones, according to the theory of exogenous distribution you find more reasonable. In other words, if you like the idea of an autonomous demand supermultiplier , don´t be Kaldorian (in this specific sense). The exogenous distribution supermultipliers are not just more general as Vernengo correctly argues but most importantly , they are more consistent.

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