ABSTRACT
In this chapter 1 we reconsider and generalize a 2D growth cycle model of Skott (1989a, b, 1991) which is based on supply-side adjustment processes and a Kaldorian theory of income distribution. This model is of the Keynes–Wicksell variety, 2 but does not assume full capacity growth, which was a characteristic of the Keynes–Wicksell approach to macrodynamics. Instead, there is the assumption of a (microfounded) output expansion function of firms, which depends on profitability and the state of the labor market. This function immediately implies the first law of motion of the model, for the rate of employment, when labor productivity is assumed as given (or growing at a constant rate). Capital stock growth furthermore depends on income distribution, which in turn depends on Keynesian effective demand and goods market equilibrium in a Kaldorian way, via the assumption of a price level that is completely flexible and that clears the market for goods. Combined with the output expansion function, this provides us with the second law of motion, for the actual output/capital ratio, of our version of Skott’s growth cycle model.
