ABSTRACT
In the early twentieth century, the dissemination of the concept of a business cycle (Mitchell 1913) reflected, to a certain extent, the state of the current thought regarding economic fluctuations. At that time, the advanced theoretical hypotheses used to carry out empirical research precisely defined the scope of interpretation (Burns 1952, p. 33). First, economic cycles characterise monetary economies. Second, if any phase of a cycle depends on the previous one, it will neither be of the same amplitude nor of the same duration. Lastly, a cycle is never the same as the preceding one because it is derived from a process of slow and gradual change. Economic crises highlight the instability of capital accumulation during the business cycle. Among the several economic explanations that exist, we will focus on the overaccumulation of capital – defined as a situation where investment becomes excessive and thus produces smaller returns than expected, or no returns at all. The subject of the economic changes to result from this situation divides economists. According to the standard viewpoint, overaccumulation can be avoided through reducing the savings of the present generation in order to improve the well-being of those to follow. This endogenisation of savings allows the economy to converge on the Phelps golden rule path (Cass 1972). In such a case, the accumulation process adapts, in order to be perpetuated into the future. Up to this point, standard economists had not tried to connect structural change and the business cycle. In the opinion of non-standard economists, an overaccumulation of capital goes hand by hand with an overproduction. Corrections are then developed in order to avoid a fall in profits or to stop its tangible decline. In such cases, the correction will alter the accumulation process in the future. This latter process defines structural change. As a result, when structural change acts through economic crises, its magnitude is proportional to the causes of the bottlenecks that must be corrected. Following this, we can assume that both the intensity and the recurrence of the overaccumulation, as well as its correction, can provide an analysis of the structural change that can be put into place during the next business cycle as well as over longer time spans. Within this framework, different causes of structural change have already been observed, for example, the relationship between investment and savings and
hence that between the rate of profit and interest, the expansion and the credit crunch, labour productivity and technical change, innovation etc. All of these interactions can be retraced in the past. This chapter will focus on social spending as a specific contributor to economic recovery processes, and will explore how this has been demonstrated in historical analyses of recessions either lasting a decade or longer. The combination of these different time spans aims to qualify social spending as an agent of structural change. This theory echoes empirical studies that show how the increase in social spending is neither continuous, proportionate to growth nor random (Michel and Vallade 2007). In the French case this has been demonstrated by a study of the main categories of social spending over the long term (1850-2012) (Michel and Vallade 2010, Michel 2013). The evolution of social expenditure shares two salient features. First, social spending on education, health and pensions fluctuates in an identical way, with the same phases of accelerated and reduced growth; only the extent of their fluctuations differentiates them. Second, their fluctuations in relation to the gross domestic product (GDP) are significant; they have been found to be similar on two historical occasions. From the mid-nineteenth century to 1945, their growth is countercyclical; each of their expansion phases corresponds to the long depression phases of the GDP (1873-1890 and 1924-1939). After 1945, their fluctuations become procyclical. These similarities have only been observed in retrospect. We propose to assess how economists studying recovery processes in relation to economic crises have gradually extracted these similarities over time. In the nineteenth century, economists did not immediately make references to social spending in relation to economic recovery processes. During this period, Sismondi, Malthus and Marx extensively studied the recovery process through the spread of wage-labour. At the same time as sharing observations on the role of the flexibility of wages to control capital excess, they introduced different components of the social sphere, such as education and health into their economic analysis. In doing so, they began to establish a relationship between wages, social spending and the dynamic of accumulation across the business cycle. In the twentieth century, another generation of comprehensive research added to these analyses. Within the context of economic recessions, social spending was conceived as a hidden condition of technical progress allowing the renewal of a virtuous capital accumulation as well as providing an income for a large section of society. Over time, social spending has gained a structural dimension developed not only during the economic crises, but also during the growth phases that followed. In relation to economic dynamics, Myrdal, Schumpeter and Keynes have made special contributions to this issue. However, by doing so, they examine if social spending, which has developed as a historical form of structural change to exit from economic crises since the nineteenth century, is reaching its limit.
