Is there a growth imperative in strongcapitalist economiesstrong a.pdfVIP

MathIaS BINSwaNgEr Is there a growth imperative in capitalist economies? a circular flow perspective Abstract: This paper postulates the existence of a growth imperative in capitalist economies. The argument is based on a simple circular flow model of a pure credit economy, where production takes time. In this economy, positive growth rates are necessary in the long run in order to enable firms to make profits in the aggregate. If the growth rate falls below a certain positive threshold level, firms will make losses. Under these circumstances, they will go out of business, which moves the whole economy into a downward spiral. According to the model presented, capitalist economies can either grow (at a sufficiently high rate) or shrink if the growth rate falls below the positive threshold level. Therefore, a zero growth economy is not feasible in the long run. Key words: bank money, credit, growth, profits. In a recent article, gordon and rosenthal (2003) postulated a growth imperative for firms operating in competitive markets, as they are typical for modern capitalist economies. the authors argue that the risk of going bankrupt is too high in an economy where there is a zero or negative average growth rate of consumption, investment, and the capital stock over the years. Only positive mean growth rates of a sufficiently high level lower the long-run probability of bankruptcy to a level that is low enough to be tolerable for firms. In this paper, I provide an alternative explanation for a growth im- perative in modern capitalist economies, which are also credit money economies. the present argument is based on a simple circular flow model of a pure credit economy, where production takes time. accord- ing to the model presented, a sufficiently high positive mean growth rate is necessary because otherwise firms, in the aggregate, will not be able to realize profits. and firms that are not able to realize profits