Philip Pilkigton throws out some new ideas: The basic idea runs as such: firms want to expand. In order to expand, they must invest. But in order to invest they must accumulate profits. Now, you will probably think “they can borrow money to invest to too”. This is true. But in the Post-Keynesian theory it is sometimes assumed that the leverage ratio of firms remains somewhat constant. We will come back to this in a moment. Let us now lay out the most basic form of the Post-Keynesian growth equation for the firm. It runs as such:

How should we read this intuitively? The most interesting component from our perspective is the convention that allows the firm to borrow, p. As we can see, when this term increases in numerical value this leads to a higher denominator. This means that a higher rate of growth, g, will be able to take place for a lower rate of profit, r.

The growth equation as laid out above remains a handy tool provided we recognise it for what it is.  I remain highly skeptical of long-run modelling and of the usefulness of some of the comparative statics approaches that are deployed.

Should we redefine growth and its centrality in our economic thoughts?