Economic models and social economy.

Rakesh Bhandari bhandari at phoenix.Princeton.EDU
Fri Jul 10 23:47:38 PDT 1998

Charles, am I wrong to sense that this model is roughly based on the ideas of Luigi Pasinetti which I quote here because it speaks to this economic model, the concern with leisure time, and my fave topic the theory of economic crisis.

" an economic system in which productivity is increasing, consumers' preferences evolve, and the problem of making the increments to production correpsond to the evolution of consumers' preferences is by no means a trivial one. As already discussed at length, the consumption decisions concerning increments to expenditure are necessarily different from the previous ones as they concern preferences that they have to be learnt, i.e., found out for the first time. But the amount that can be learn within each period of time is not infinte; which means that although the process of learning itself can go on ad infinitum, the rate at which it can go on is limited. And when it happens--as is periodically bound to happen--that a sudden jump is required in the rate of consumers' learning, in order to keep up with technological discoveries, there is no reason to expect an immediate response. In these cases, investment decisions will tend to be postponed, which means that the total amount of actual investment will drop and acause total effective demand to fall short of the technical possibilities of production. The economical system will indeed remain unable to take advantage of all its technologically possible production, until it succeeds in finding an appropriate structual re-distribution of demand, employment and productive capacity...What the underconsumptionists did not realize is that the difficulty o fincreasing total effective demand is one of finding out, and achieving at sufficient speed, its appropriate structural composition and not one of reaching any absolute level. It seems important to stree that this proposition does not depend on the belief that human possibilities and imagination for new types of consumption can increase indefinitely. Even if the absolute amount of consumption had a limit, the alternative would always be open of devoting the continually increasing productivity to reducing labour time (and increasing leisure time), instead of production. The point is that the proces is not one to be expected automatically. The learning process it entails can by no means be taken for granted, although there is no inherent impossibility in human nature of carrying it on. DIfficulties do arise because periodic accelerations of this process of learning are required. More specifically, the maintainence of full employment requires a speeding up periodically in the rate at which technical improvements are, so to seak, to be digested. But of course there is no impossibility in the process itself. In other words, with an appropriate structural dynamics, an economic system can indeed grow indefinitely, though through periodical difficulties. In the ed, it can indeed take advantage of whatever increase in potential production technical improvements may bring along, with per capital consumption indefinetely increasing in quantity and quality, or with leisure time increasing." Structural Change and Economic Growth, p. 242

Do crises tend to break out in the consumption goods sectors due to oversaturated demand? I thought the consumer goods industries tend to show the least cyclical variation. If there is overproduction of these consumer goods is that because there is really no need or no demand for them?

best, rakesh

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