Speaker
Description
This paper aims at showing that (i) contemporary Post Keynesian theory is largely based on Smith’s theorem of the division of labour and that (ii) this approach proves very useful for interpreting current macroeconomic dynamics. Accordingly, this paper provides an actualization of Smith’s thought, focusing on Myrdal and Kaldor’s contributions and on the use of their analyses to interpret the path of regional divergences in Italy.
On the methodological plane, both Myrdal’s and Kaldor’s contributions are based on the theory of circular ccumulative causation (CCC). Circular cumulative causation indicates a mechanism where if event A happens this gives rise to a number of further events B which – depending on A – produce feedback effects on event A. Therefore, A is both the cause and the effect of B. Mydal used this approach initially for the analysis of labour market discrimination and then for the study of regional divergences. This idea can be used for many applications, implying that social dynamics do not develop in equilibrium conditions. In this theoretical framework, instability is conceived as the key feature of the functioning of deregulated market economies. Myrdal shows that a deregulated market economy tends to spontaneously produce increasing regional divergences and that these are self-fulfilling. Regional divergences, in the light of Kaldor’s theory of growth, are also induced, via restrictive fiscal policies and their effects on the “size of the market” and, therefore, on the path of labour productivity, via the operation of increasing returns. It is also interesting to observe that both Myrdal and Kaldor, based on Smith, pointed out that the increase of real wages stimulates labour productivity increases, both because of workers’ better nutrition and motivation, and because of the incentive for firms to innovate.
This theoretical framework is used here in order to show that increasing regional divergences in Italy are partly the spontaneous outcome of a deregulated market economy to produce disequilibrium and are partly induced by restrictive fiscal policy combined with wage moderation. In both cases, the Smithian idea that the size of the market affects the division of labour and that this, in turn, determines the dynamics of labour productivity remains confirmed.
References
Myrdal, G. (1957a). Economic Theory and Underdeveloped Regions. London: London: General Duckworth & Co.
Myrdal, G. (1957b). Rich land and poor: The road to world prosperity. London.
Myrdal, G. (1959). Economic theory of underdeveloped regions. London: University Paperback
Kaldor, N. (1957). A model of economic growth, “The Economic Journal”, vol.67, n.268, December pp.591-624.
Kaldor, N. (1972), The irrelevance of equilibrium economics, “The Economic Journal”, vol.82, n.328, December, pp.1237-1255.
Kaldor, N. (1981a). A Keynesian perspective on money, “Lloyds Bank Review”, 1981, in Kaldor, 1989.
Kaldor, N (1981b). The role of increasing returns, technical progress and cumulative causation in the theory of international trade and economic growth, “Economie Appliqueé”, n.4, in Kaldor, 1898,
Kaldor, N. (1989). Further essays on economic theory and policy, Duckworth, London, edited by F.Targetti and A.P. Trirlwall.
| Organization | University of Salento |
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