Subjectivism and Economic Analysis: Essays in memory of Ludwig ...

ENDOGENOUS CHANGEX=X (L*,X*) [1]w=X/L [2]X=p+wL* [3]I= s p+s p wwL* [4]I=I* [5]Equation [1] is a production function where X is the flow of theonly good produced; L* the amount of labour available in theeconomy and X* the stock of capital in existence; the output andthe capital comprise the same good. Equation [2] says that thewage rate must be equal to the marginal product of labour.Equation [3] requires profits and wages to exhaust the product.Equation [4] requires investment to be equal to saving. In thisequation s pand s ware the marginal propensities to save out ofprofits and wages, respectively. Finally, Equation [5] represents theindependent investment function. There are five equations, butonly four unknowns: X, w, p, I. The problem, then, is a problem ofoverdeterminacy: one equation should be dropped or a furtherunknown introduced. Therefore, something must be given up. Itcould be, in turn, the independent investment function, marginalistdistribution, full employment, etc.The approach adopted by Sen in the treatment of distributionalproblems has been revived in the treatment of growth. Works byMarglin (1984a, b), Dutt (1987, 1990) and Taylor (199D havefollowed Sen’s procedure by starting from a general framework andpresenting different growth regimes as different ways of closing thesame general framework. Such a procedure amounts to deciding onwhich variables are going to be exogenous and which ones are goingto be endogenous in each particular case. Thus, by playing withexogenous and endogenous variables, various combinations areobtained. It is argued here that this procedure proves appropriatefor generating a set of models, each of which is associated with anon-fully comprehensive theory. In any case such a combinationmust be compatible with the purpose of producing a determinatesystem, that is, a system that yields an equilibrium solution.In presenting the analytical foundations of the approach, Dutt’sformulation will be followed. 11 However, while in Dutt’s work theemphasis is on closures, that is, on what is assumed to be exogenous,here the emphasis is on what is given up, that is, on the variablesmade endogenous for the sake of having a determinate system. Thepurpose of this shift of emphasis is to highlight which set ofmessages is provisionally left out and not processed to form a115