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

ENDOGENOUS CHANGEP=Wa 0+rP(K/X)where P, W and r have the usual meaning: the price, the money wageand the rate of profit, respectively. Assuming P=1 we get:1=Wa 0+r(K/X)with W now representing the real wage rate. The reason for using(K/X) instead of the capital coefficient a 1is the same as before.The equations presented above can be said to constitute thecommon analytical core of any model of growth. They imply nomore than the following propositions: for any given degree ofcapacity utilisation (a) production can be either consumed orinvested; (b) what is not paid as wages is paid as profits. This means,for example, that only if we know the degree of capacity utilisation,the consumption rate and the real wage rate can we determine theaccumulation rate and the profit rate. In other words, we have fiveunknowns, but only two equations to play with. So three additionalexplanations, in the form of independent relations, have to besupplied. Provided no further unknown is introduced, the systemwill yield a determinate solution. At the same time no more thanthree independent relations can be added to the model, otherwisethe model will become overdetermined. A particular model ofgrowth, therefore, will be distinguished by what set of independentrelations is added to that common analytical core, in particular, bywhat is going to be exogenous and what is going to be endogenous.This choice is not obviously unconstrained: if, for example,independent relations are introduced to determine the degree ofcapacity utilisation, the accumulation rate and the profit rate, theconsumption rate and the real wage rate must be determinedendogenously. In other words, if all actors in the economy hadtheories on all the relevant variables, no consistency of plans orpolicies could be possible. This implies that any particular choicecan be characterised by what one is prepared to sacrifice in order toavoid overdeterminacy.What follows will be devoted to a brief illustration of fourpossible alternative choices. In each case emphasis will be placedon the relations that could not be added because otherwise thesystem would become overdetermined. Such relations areassociated with the set of messages from the economy andnature, which are provisionally not included in the currentlyentertained theory.117