Towards a Theory of the Consumption--Growth Relationship

Davide Gualerzi

Review of Political Economy, 2012, vol. 24, issue 1, 33-50

Abstract: This paper is a contribution to the analysis of the growth process within industrial market economies. It examines the connection between growth and the composition of demand, in particular the consumption--growth relationship. The focus is not on the trade-off between consumption and growth but on the positive feedback between them which, via changes in the composition of demand, shifts the constraint along which the trade-off operates. The starting point of the theory of the Consumption-Growth relationship put forward here is the early Keynesian growth theory which sought to extend the principle of effective demand to the long-run. We attempt to establish a systemic link between the transformation of consumption patterns and the principle of effective demand, thus contributing to a long-run theory of effective demand. Imbedded in the relationship is a process that accounts for structural transformation and the pattern of economic growth. The process of new market formation is especially relevant for this relationship. That process is at the center of a theoretical framework that aims to explain actual dynamics of an industrial market economy. The framework presented here therefore represents both a departure from the aims of Pasinetti's natural dynamics, and a development of his work.

Date: 2012
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DOI: 10.1080/09538259.2011.636607

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