ABSTRACT
Transformational Growth, like other Post Keynesian approaches sees the cycle as caused primarily by changes in the level of effective demand. To this it adds three propositions. First, there is a difference in the way the economy responds to effective demand changes between the old and new business cycles. In the OBC the dominant effect is an increase in prices relative to money wages. At its extreme this is the kind of effect exhibited in the Cambridge growth models of the 1950s. In the NBC output responses dominate and prices move little compared to money wages. Once again at its extreme this is exhibited in a Keynesian cross or simple Kaleckian model. The second assertion is that this response in the nineteenth century tends to dampen the business cycle, in the sense of reducing fluctuations in output and employment, while the twentieth century response does not.1 Once again, a simple Cambridge model shows an extreme version of this. That is, autonomous changes in effective demand are met by offsetting changes in real consumption, with no net effect on output. A simple Kaleckian model shows another extreme, with consumption and autonomous demand moving in the same direction, with prices (relative to wages) unchanged. Third, the cause of the difference is a shift from an economy dominated by craft production to one dominated by mass production.
