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Joan robinson's growth model

What Is Joan Robinson's Growth Model?

Joan Robinson's growth model is a theoretical framework within the field of economic growth theory that examines the dynamics of capital accumulation and income distribution in a capitalist economy. Developed by the prominent Post-Keynesian economist Joan Robinson, the model offers an alternative perspective to mainstream neoclassical growth theories. It emphasizes the critical role of investment decisions, the distribution of national income between wages and profits, and the concept of various "golden ages" representing different scenarios of steady economic expansion. The Joan Robinson's growth model posits that the rate of capital accumulation is influenced by the expected rate of profit and the saving propensity of capitalists, diverging from the idea that saving automatically determines investment.

History and Origin

Joan Robinson introduced her seminal growth model in her 1956 book, The Accumulation of Capital.10 This work was a significant contribution to Post-Keynesian economics, building upon the foundations laid by John Maynard Keynes while also drawing on classical economists like Karl Marx. Robinson sought to extend Keynes's short-period analysis to the long run, focusing on the factors determining an economy's long-term growth path.9 Her approach differed markedly from the prevailing neoclassical views of the time, particularly regarding the role of capital and the determination of income distribution. She also published "The Model of an Expanding Economy" in The Economic Journal in 1952, laying some groundwork for her later comprehensive work.8 The model emerged in the context of broader debates in economics concerning the nature of capital and economic dynamics, which later culminated in the famous Cambridge Capital Controversies.

Key Takeaways

  • Joan Robinson's growth model focuses on the relationship between capital accumulation, income distribution (between workers and capitalists), and economic growth.
  • It highlights that investment drives saving, rather than the other way around, in contrast to some traditional views.
  • The model introduces the concept of "golden ages," representing steady-state growth paths under different conditions, such as full employment or limited labor supply.
  • It emphasizes the influence of expectations and "animal spirits" on investment, moving beyond purely mechanical determinants.
  • The model is a cornerstone of Post-Keynesian economic thought, critiquing aspects of neoclassical theory, particularly concerning the aggregation and measurement of capital.

Formula and Calculation

While Joan Robinson's growth model was initially presented in verbal terms, focusing on qualitative relationships and concepts rather than precise mathematical equations, later formalizations have captured its essence. A fundamental relationship within the model concerns the equality of desired investment and saving, particularly the saving out of profits.

One simplified representation of the model's core mechanism, where the growth rate (g) is driven by the profit rate (r) and the saving rate out of profits (s), can be expressed as:

g=IK=srg = \frac{I}{K} = sr

Where:

This relationship implies that for a given saving rate, a higher profit rate enables a higher rate of capital accumulation, which in turn fuels economic growth. The model assumes a closed economy with no government intervention, reflecting a laissez-faire capitalist system.7

Interpreting the Joan Robinson's Growth Model

Interpreting Joan Robinson's growth model involves understanding its departure from traditional equilibrium analysis and its focus on dynamic processes. The model suggests that an economy's growth trajectory is not necessarily self-correcting towards a unique, stable equilibrium, but rather depends on historical conditions and behavioral factors. For instance, the "golden age" refers to a state of steady growth where the rate of capital accumulation equals the rate of growth of the labor force, assuming full employment.6 However, Robinson also identified other "ages," such as the "limping golden age" (where capital is insufficient for full employment) or the "bastard golden age" (where real wages are at a subsistence level), highlighting that growth can occur with persistent unemployment or an inequitable distribution of national income. The model emphasizes that the functional distribution of income—how income is divided between wages and profits—is crucial for determining the pace and character of accumulation.

Hypothetical Example

Consider a hypothetical economy, "Capitalia," operating under the assumptions of Joan Robinson's growth model. In Capitalia, the economy is divided into two classes: workers, who spend all their wages on consumption, and capitalists, who save and invest all their profits. Suppose the current capital stock in Capitalia is $1,000 billion, and the current aggregate profit rate is 10%. If the capitalists' saving rate is 100% of their profits, then the total savings available for investment from profits would be $100 billion ((0.10 \times $1,000 \text{ billion})). This $100 billion becomes the investment, leading to a growth rate of capital stock of 10% (($100 \text{ billion} / $1,000 \text{ billion})).

In this simplified scenario, the growth rate of the capital stock is directly determined by the profit rate and the saving propensity of the capitalist class. If the economy aims for a specific rate of economic growth to maintain full employment given population growth, the actual realized profit rate and the capitalist saving rate must align to achieve this "golden age" growth path. If investment falls short of what's needed for full employment growth, the economy might enter a "limping golden age" with persistent unemployment.

Practical Applications

Joan Robinson's growth model, as a component of Post-Keynesian thought, has practical implications in understanding macroeconomic phenomena beyond what purely neoclassical models might offer. It informs discussions on income distribution, particularly how the division between wages and profits influences the overall rate of capital accumulation and growth. For instance, policies aimed at altering the wage rate or supporting a higher profit rate for reinvestment could be analyzed through this lens.

The model also contributes to debates on the role of aggregate demand in long-run growth, suggesting that insufficient demand can hinder capital formation. Fur5thermore, it provides a theoretical basis for understanding why economies might experience persistent unemployment, even in the long run, rather than naturally trending towards full employment equilibrium. This perspective contrasts with many mainstream views which assume that market forces alone will typically lead to optimal resource allocation and full employment over time. The insights from Robinson's work are still relevant in contemporary discussions about economic stagnation and the distribution of wealth.

##4 Limitations and Criticisms

Despite its significant contributions, Joan Robinson's growth model, and the broader Post-Keynesian approach it represents, has faced limitations and criticisms. One of the most prominent critiques arose during the Cambridge Capital Controversies of the 1950s and 1960s, a debate primarily between economists at Cambridge University, England (including Robinson), and economists at MIT in Cambridge, Massachusetts.

A central point of contention was the concept and measurement of "capital" as a single, homogenous factor of production. Robinson and other critics argued that neoclassical economics often treated capital as a measurable aggregate quantity, similar to labor, to determine its marginal product and thus its share of income. However, they contended that capital goods are inherently heterogeneous (e.g., machinery, buildings, intellectual property) and their value depends on the rate of profit itself, leading to logical inconsistencies like "reswitching" and "capital reversing." Thi2, 3s meant that aggregating capital into a single, measurable unit for use in an aggregate production function was problematic and could not be used to justify the distribution of income in terms of marginal productivity. The controversy highlighted deep fissures in economic theory and methodology that persist in some form today.

Ad1ditionally, some critiques of Joan Robinson's growth model point to its highly abstract nature and simplifying assumptions, such as the strict two-class economy (workers and capitalists) and the assumption that workers save nothing and capitalists save all their profits. While these simplifications help to highlight key mechanisms, they may limit the model's direct applicability to more complex, real-world economies with diverse income sources and saving behaviors.

Joan Robinson's Growth Model vs. Solow-Swan Model

Joan Robinson's growth model stands in stark contrast to the Solow-Swan model, which is a cornerstone of neoclassical economics and often seen as its rival during the Cambridge Capital Controversies. While both models aim to explain economic growth over the long run, their underlying assumptions and mechanisms differ significantly.

The Solow-Swan model, developed by Robert Solow and Trevor Swan, emphasizes the role of technological progress, labor force growth, and capital accumulation as factors of production in achieving a steady-state equilibrium. It posits that a country's long-run growth rate is determined by its rate of technological progress and population growth, with capital accumulation primarily affecting the level of output per worker, not the steady-state growth rate itself. Crucially, the Solow-Swan model assumes that saving drives investment, and that capital is a homogeneous and easily measurable factor.

In contrast, Joan Robinson's growth model, rooted in Post-Keynesian economics, inverts this causality, arguing that investment determines saving. It places greater emphasis on income distribution, the animal spirits of investors, and the structural complexities of capital. Unlike the Solow-Swan model's tendency towards a unique, stable equilibrium, Robinson's model explores multiple possible "golden ages" or growth paths, some of which may include persistent unemployment, depending on the dynamic interplay of accumulation, distribution, and expectations. The fundamental differences between the models highlight divergent views on how capitalist economies function and the appropriate way to model long-run economic dynamics.

FAQs

Who was Joan Robinson?

Joan Robinson (1903–1983) was a prominent British economist and a central figure in the Cambridge School of economics, particularly known for her contributions to imperfect competition theory, Post-Keynesian economics, and the theory of economic growth. She was a student and close collaborator of John Maynard Keynes.

What is a "golden age" in Robinson's model?

In Joan Robinson's growth model, a "golden age" describes a situation of steady, balanced economic growth where the rate of capital accumulation is equal to the rate of growth of the labor force, with full employment being maintained. It represents a particular type of stable long-run growth path.

How does Joan Robinson's model differ from neoclassical growth theories?

Joan Robinson's growth model differs from neoclassical economics by emphasizing that investment drives saving (rather than saving driving investment), highlighting the role of income distribution in determining growth, and questioning the concept of an aggregate, measurable capital stock. It also suggests that economies do not necessarily tend towards a unique, full-employment equilibrium.

What is the significance of the "Cambridge Capital Controversies" for Robinson's model?

The Cambridge Capital Controversies were a series of debates during the mid-20th century where Joan Robinson and other economists from Cambridge, England, critiqued the neoclassical concept of capital and its role in production and distribution theory. These controversies affirmed Robinson's concerns about the logical coherence of aggregate capital in neoclassical models, solidifying her model's alternative perspective.

Does Joan Robinson's model provide policy prescriptions?

While Joan Robinson's growth model is primarily a theoretical framework for understanding economic dynamics, its insights can inform policy discussions. For example, by highlighting the role of income distribution and investment expectations, it suggests that policies affecting these areas could influence an economy's long-term growth path and whether it achieves a desirable "golden age" or a less favorable outcome with persistent unemployment.