The supply side of the SM model: the warranted rate of growth

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Chapter 3 in The Supermultiplier, 2023, pp 23-37 from Edward Elgar Publishing

Abstract: Capitalism is a demand-constrained system. This is the fundamental hypothesis that guides our book. But it does not allow us to ignore the supply side of an economic system, particularly the limits derived from the shortages of materials and factors of production. The supermultiplier model highlights the short-term limits derived from the shortages of capital. The “warranted” or “potential” growth rate is the first supply limit to a demand-driven system. It results from investing, year after year, the savings corresponding to full capacity utilisation. Competition forces firms to install the best available technology and use it properly, i.e., with normal capacity utilization. Among the chapter’s contributions are (1) The bulk of economic processes exhibit constant returns to scale; (2) The normal degree of capacity utilization plays the role of an attractor. (3) Competition compels economic agents to be efficient.

Keywords: Economics and Finance (search for similar items in EconPapers)
Date: 2023
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