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

MAURIZIO CASERTAIt must be noticed that any regime that is associated with a nonfullycomprehensive theory cannot be said to be in final equilibrium.The whole approach, based as it is on a multiplicity of regimes,provides a solution to the problem posed by the provisional natureof the equilibrium position: a different regime will replace the oldone when the set of messages previously neglected are processed toform a theory. Thus, the overall picture which one gets from theadoption of this approach is that of a succession of growth regimesbrought about by the creation of new knowledge and theundertaking of new policies.Four regimes of growthLet us consider one possible selection of independent relations to beadded to the common analytical core. The market-clearinghypothesis, typical of neoclassical thinking, defines one. Thisimplies adding to the price and production equations twoindependent relations requiring full employment of labour andequilibrium in the goods market. So we can write:g=nK/X=a 1where n is the rate of growth of the labour force. The two equationsimply, respectively, that accumulation is going on at a rate equal tothe rate of growth of the labour force and the capacity is being usedat its normal level. Finally we need a relation linking distribution togrowth. This is provided in the form of a saving function. A classicalsaving function is assumed, implying that workers save nothing andcapitalists save a constant fraction of their income. The fifth relationwe need is therefore the following:g=srwhere s is the capitalists’ propensity to save. We are now endowedwith five independent relations that determine five unknowns: thedegree of capacity utilisation, the accumulation rate, the profitrate, the consumption rate and the real wage rate. It is clear thatthe introduction of an independent investment function, allowingfor entrepreneurial investment propensities, would overdeterminethe system. This case can be assumed to be characterised,therefore, by the absence of an independent investment function.118