Paths of accumulation and growth: Towards a Keynesian long-period theory of output

Abstract

Abstract According to the principle of effective demand, the equilibrium level of aggregate output is a multiple of the expected autonomous demand for the period under consideration. Aggregate demand matches aggregate supply in equilibrium, but the equilibrium may and usually does lie below the output corresponding to full capacity and full employment. However, in the long term firms are presumed to use capacity at the normal or desired degree. Can the principle of effective demand be extrapolated to conclude that the rate of growth of output will depend on the expected rate of growth of autonomous demand? A positive answer would be a significant step towards a Keynesian long-period theory of output. This paper attempts to make an advance in that direction. Starting from a ‘prospective accelerator’ that incorporates expected increases in autonomous demand and takes account of an excess of capacity in order to eliminate it, this paper shows that the path of autonomous demand determines both the actual and the warranted rates of growth.