 Profit-led growth and the stock marketReview of Keynesian Economics, 2017, vol. 5, issue 1, 61-77 Abstract: This paper presents a simple stock-flow consistent model of corporate capitalism with a financial market for firm equities issued by managers as part of their investment plan with the investment rate in turn sensitive to the q ratio, workers who save for life-cycle motives, and capitalist rentier households who save from a bequest motive. The model assumes full capacity utilization; saving and investment decisions are coordinated through changes in the valuation of the capital stock or q ratio. Changes in valuation can induce enough investment and capitalist consumption to fill the demand gap left by a reduction in the wage share. But unless there is a strong sensitivity of investment to the q ratio, the increased profitability will be dissipated in a profit-led stock market boom. The model helps resolve the neoliberal paradox of rising profitability with little growth. It also clarifies the relationship between classical and Keynesian growth models which can be seen as special cases arising from limiting values of the investment sensitivity to the q ratio. Keywords: Pasinetti paradox; Cambridge equation; q ratio; heterodox growth model; stock-flow consistency (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:elg:rokejn:v:5:y:2017:i:1:p61-77 Access Statistics for this article Review of Keynesian Economics is currently edited by Thomas Palley, MatÃas Vernengo and Esteban Pérez Caldentey More articles in Review of Keynesian Economics from Edward Elgar Publishing |
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