Consumption and Economic Growth in the Framework of Classical Economics (original) (raw)

Abstract

1. Introduction 10 2. Cantillon 2.1 Introduction 16 2.2 Equilibrium prices and income distribution 2.3 Consumption and activity levels 2.4 Conclusion 3. Quesnay 29 3.1 Introduction 29 3.2 Bon prix and income distribution: the indeterminateness of profits 31 3.3 Sectoral quantity dynamics 3.4 Consumption propensities and activity levels 3.5 Conclusion 4. Turgot 42 6. Smith 68 6.1 Introduction 68 6.2 Natural prices and income distribution 70 6.3 Growth dynamics 6.4 Consumption and economic growth 78 6.5 Conclusion 7. Ricardo 82 7.1 Introduction 82 7.2 Theory of value and distribution 84 7.3 Theory of economic growth 90 7.4 The apparent irrelevance of demand 95 7.5 Conclusion 8. Sismondi 101 8.1 Introduction 8.2 Theory of value and distribution 8.3 Theory of economic growth 8.4 Consumption and economic growth 111 8.5 Conclusion 9. Malthus 9.1 Introduction 9.2 Theory of value and distribution 8 9.3 Theory of economic growth 126 9.4 Consumption and economic growth 9.5 Conclusion 135 10. Marx 10.1 Introduction 137 10.2 Theory of value and distribution 139 10.3 Theory of economic growth 143 10.4 The problem of demand deficiency 10.5 Conclusion 154 11. Kalecki and Classical Economics 11.1 Consumption demand and classical growth theory 156 11.2 Marx-Luxemburg-Kalecki 11.3 Kalecki, Keynes and classical economics 168 11.4 Conclusion: demand-led growth 12. Consumption and Demand-led Growth 180 12.1 A simple growth model 12.2 Growth through autonomous consumption 12.3 Demand-led growth and classical economics 191 13. Conclusion 198

Key takeaways

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  1. Demand sufficiency is critical for economic growth in classical economics, particularly emphasized by Sismondi and Malthus.
  2. Classical economists recognize the circular flow between production and consumption, impacting activity levels and growth.
  3. The surplus approach, as discussed by Marx, highlights the need for demand to realize production outputs.
  4. Kalecki and Keynes articulate demand-led growth, emphasizing the importance of autonomous consumption and induced investment.
  5. Investment decisions correlate to consumption patterns, challenging marginalist views of saving and investment equating.

Figures (1)

As Keynes observes in the final chapter (chapter 24 titled ‘Concluding Notes on the Socia

As Keynes observes in the final chapter (chapter 24 titled ‘Concluding Notes on the Socia

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FAQs

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What explains the classical economists' view on the role of consumption in growth?add

The thesis finds that classical economists, especially Malthus and Sismondi, argue that demand sufficiency, particularly through consumption, is critical for validating production levels, independent of investment.

How did Marx challenge traditional views on demand in economic growth?add

Marx asserted that demand plays a crucial role in determining output, emphasizing that surplus-value realization is contingent on sufficient aggregate demand, which includes consumption by capitalists.

What are the implications of the circular flow for classical economic theories?add

The circular flow suggests that without sufficient demand, production cannot be fully realized, ultimately leading to economic downturns—a theme explored in depth by Quesnay, Malthus, and Marx.

When did the notion of effective demand become prevalent in economic thought?add

The notion of effective demand was articulated prominently by Rosa Luxemburg and later by Michal Kalecki in the early 20th century, emphasizing aggregate demand's role in economic activity.

What critiques do Sismondi and Malthus offer regarding classical growth theory?add

Sismondi and Malthus critique classical growth theory for inadequately addressing demand insufficiency, underscoring that the economic system can stagnate if aggregate demand does not keep pace with productive capacity.