ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Capitalist Stability and Pre-capitalist Surroundings

Capitalist Stability and Pre-capitalist Surroundings

Capitalist Stability and Pre-capitalist Surroundings Accumulation and Stability under Capitalism by Prabhat Patnaik; Clarendon Press, Oxford, 1997; pp viii+322, Special Indian price Rs 725.

Prabhat Patnaik sets out to answer    one of the enduring questions  in the macroeconomics of the capitalist economy: how does it manage to get all the equations right, in particular how does investment equal the rate that would maintain the required level of capacity utilisation, or employment? The traditional answer of the market mechanism which would always make savings and investment equal was replaced by the Keynes-Kalecki answer of government intervention to maintain rates of expenditure (consumption) so as to compensate for the lack of investment out of current savings. This, one might say, is one of the founding metaphors of the post-Second World War social contract in the West and Japan.

Patnaik finds this answer inadequate. Starting from Harrod’s dynamic version of the Keynesian model, he points out that the equality between the actual rate of growth and the warranted rate (which would use up all available surpluses and maintain the required level of capacity utilisation) is an unstable solution, and departures from the warranted rate would not bring the economy back on to it. The only stable solution is that of simple reproduction or zero growth and the economy, in the Harrod model, would converge to simple reproduction (p 22).

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