Distribution, Employment and Secular Growth
IN HIS General Theory Keynes takes the social structure as given, with the result that the level of employment is determineu independently of changes in the distribution of income. That such is a good first approximation is generally admitted on the ground that over the short run, especially without great institutional change, the distribution of income is found to remain rather stable. Over the long run, however, the whole complex of society is liable to undergo significant change. It is necessary, then, to introduce the "distribution effect" as an explicit variable in the relevant macro-economic functions affecting employment and secular growth. Only thus can we hope to mitigate those "outstanding faults of the economic society in which we live ... its failure to provide for full employment and its arbitrary and inequitable distribution of wealth and incomes" which Keynes stresses in his concluding long-run digression.1 But he made no analysis to justify his "operationalism" along those lines. It is the aim of this essay to analyze the relationship between income distribution and secular employment in the interest of "progressive equilibrium." 2
ment side of the growth equation, on the supposition that tampering with the distribution of income to lower the average propensity to save involves too many noneconomic complications as well as the possible impairment of investment incentives. This seems to be the position taken by Mr. Harrod and Professor Domar. On the other hand, Mrs. Joan Robinson suggests the possibility, and perhaps desirability, of operating on the savings side of the growth equation, for she says: "It can be plausibly argued that the phenomenon of excessive thriftiness is a product of excessive inequality, and that measures to correct inequality, which may be advocated on their own political and humanitarian merits, would, as a by-product, permanently reverse the position, and make deficient thriftiness the normal rule. There seems very little point in discussing artificial measures for absorbing excessive saving until this great question has been argued out." 3 It will be shown, however, that the above schism between the two sides of dynamic economics is more apparent than real. This we shall endeavor to do by analyzing the "distribution effect" not only on thriftiness but also on the inducement to investin the broad light of institutional reality and historical development.