ABSTRACT

Rosa Luxemburg believed capitalist economies suffer from “underconsumption.” Export-led growth could boost effective demand, as enshrined in the “East Asian” model. However, low wages or high labor productivity would have to keep unit labor costs down, and the exporting country would in effect have to loan money to the importing countries, two requirements that can become unsustainable. Mikhail Tugan-Baranovsky argued that effective demand need not be problematical, since investment spending could in effect maintain itself, which oddly manifested itself in the Soviet strategy of achieving high growth at the expense of workers’ consumption. Micha? Kalecki showed that “internal exports” of military spending could address Luxemburg’s and Tugan-Baranovsky’s concerns. Proper fiscal policy could also work, though such “Keynesian” policy post-World War II was halted by inflationary episodes and international competition issues. Kalecki’s work shows that another way of stabilizing a capitalist or socialist economy could be social control over the markup of prices above costs.