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Keynes's multiplier in a two-sectoral framework

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  • Jochen Hartwig

Abstract

This paper endeavours to reinterpret one of the most fundamental concepts of macroeconomics: the Keynesian investment multiplier. The multiplier is not interpreted as a dynamic process (or quantity reaction of output) nor as a logical relation (or ratio) between income and investment expenditure, but as an equilibrium condition that prescribes the proportionality between the two 'departments' of the economy (the consumption-goods and the investment-goods sector) necessary for 'completely successful reproduction'. The Marxian concept of reproduction schemes is combined with Keynes's 'fundamental psychological law' (which states that the marginal propensity to consume is positive and less than unity) to derive this result. This 'structural' view of the multiplier is then used to analyse questions relating to economic growth, capital accumulation and structural change.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Review of Political Economy.

Volume (Year): 16 (2004)
Issue (Month): 3 ()
Pages: 309-334

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Handle: RePEc:taf:revpoe:v:16:y:2004:i:3:p:309-334

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  1. L. Randall Wray, 1999. "Theories of Value and the Monetary Theory of Production," Economics Working Paper Archive wp_261, Levy Economics Institute.
  2. Lianos, Theodore P., 1979. "Domar's growth model and Marx's reproduction scheme," Journal of Macroeconomics, Elsevier, vol. 1(4), pages 405-412.
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Cited by:
  1. M. G. Hayes, 2008. "Keynes's Z function: a reply to Hartwig and Brady," Cambridge Journal of Economics, Oxford University Press, vol. 32(6), pages 1003-1003, November.
  2. Jochen Hartwig, 2011. "Effective Demand: Securing the Foundations," Working Papers PKWP1211, Post Keynesian Economics Study Group (PKSG).
  3. Jochen Hartwig, 2006. "Explaining the aggregate price level with Keynes's principle of effective demand," Review of Social Economy, Taylor & Francis Journals, vol. 64(4), pages 469-492.
  4. Jochen Hartwig, 2009. "D and Z in ROPE – Will the Real Keynes Please Stand Up?," KOF Working papers 09-243, KOF Swiss Economic Institute, ETH Zurich.
  5. Jochen Hartwig, 2014. "“Relative Movements of Real Wages and Output” – How does Keynes’s 1939 essay relate to his Principle of Effective Demand?," KOF Working papers 14-355, KOF Swiss Economic Institute, ETH Zurich.
  6. Gechert, Sebastian, 2012. "The multiplier principle, credit-money and time," MPRA Paper 34648, University Library of Munich, Germany.

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