Goodwin’s MKS system: a baseline macro model

Peter Flaschel

Cambridge Journal of Economics, 2015, vol. 39, issue 6, 1591-1605

Abstract: We extend Goodwin’s distributive cycle by effective demand forces and endogenous process innovations, driven by the evolution of the employment rate of workers in the sphere of production and its consequences for the income distribution between capital and labour. We show that the extended dynamics can create persistent fluctuations in employment, income distribution and productivity growth if their balanced growth path is surrounded by an unstable multiplier–accelerator process, a basic variant of its well-known Goodwin formulation. Our integration of global stability through a Marxian reserve army mechanism, with locally destabilising Keynesian demand and Schumpeterian process innovations, provides a basic model of what Goodwin describes as the MKS system approach to the understanding of the evolution of capitalism.

Date: 2015
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