Joan Robinson's model of economic growth
J. Robinson describes the 'golden age' as one where there is full employment of labour and full utilization of capital.
In her own words, "when technical progress is neutral, and proceeding steadily, without any change in the time pattern of production, the competitive mechanism working freely, population growing (if at all) at a steady rate and accumulation going on fast enough to supply productive capacity for all available labour, the rate of profit tends to be constant and the level of real wages to rise with output per man.
Then there are no internal contradictions in the system... Total annual output and the stock of capital (valued in terms of commodities) then grow together at a constant proportionate rate compounded of the rate of increase of the labour force and the rate of increase of output per man.
We may describe these conditions as a golden age (thus indicating that it represents a mythical state of affairs not likely to obtain in any actual economy)."
In the language of Roy Harrod we can say that golden age corresponds to a situation where the natural, the warranted and the actual rate of growth of national income are all equal. It represents a state of economic bliss, since consumption is then increasing at the maximum technically feasible rate which is compatible with maintaining that rate of increase.
Assuming K/N = 0 = constant in conditions of full employment and fill utilization, an increase in the amount of fully employed labour is given by AN = AK/0.
The rate of growth of fully employed labour is then given by which shows that fully employed labour grows at the same rate as the rate of growth of capital, aifei which implies that capital must grow as fast as labour population, the condition of course being that the capital- labour ratio (0) is constant.
Let us now consider the question whether the economy possesses any equilibrating mechanism if and when it diverges from the 'golden age' equilibrium for some reason. There are two possibilities indicating divergence.
Let us consider (i) first. The implies that labour population is growing faster than capital accumulation leading to a situation of progressive underemployment. Naturally this state is found in most of the underdeveloped countries.
Given the state of technology, a higher rate of population growth as compared to capital accumulation leads to a reduction in the money-wage rate (w) of the workers. If the general price level (p) remains constant, the real wage rate (w/p) will also decline.
If this happens, the rate of growth of capital can increase since the profit rate would tend to increase as indicated by equation. In such circumstances, the rate of growth of capital would increase to catch up with the constant rate of growth of labour population so as to make AK/K = AN/N.
If, however, real wages fail to fall either because money wages are rigid or because the price level falls in the same proportion as money wages, the equilibrating mechanism cannot operate and 'progressive underemployment' cannot disappear. This corresponds with Harrod's notion of indefinite instability "based on the assumptions of the constancy of technological coefficients and relative factor-price movements." 15 Let us take up (ii) now.
In this situation capital accumulation grows faster than labour population. Naturally this situation corresponds to the conditions of the developed countries. The possibility of returning to the path of golden age' equilibrium is greater here because even if the real-wage rate were rigid, a change in labour productivity (p) or in the capital-labour ratio (0) might well be such as to increase the profit rate and hence the rate of growth of capital, as would be clear from equation (2.11).
According to Kurihara, "This is where J. Robinson goes beyond her basic model and becomes more Schumpeterian than Ricardian."16 If we concentrate our attention on the production function given by (2.5), we can see that it would shift upward if labour productivity (Y/N = p) increased for the same capital-labour-ratio (K/N = 9) or if the latter ratio decreased for the same value of the former.
Let us now turn our attention to equation (2.11). This suggests that if labour productivity (p) rises faster than the real wage rate (w/p) while 0 remains constant, then the rate of growth of capital can increase. Even if there is no change in w/p and p and only the capital- labour ratio (0) falls, the rate of growth of capital can again increase.
The problem arises only when a fall in capital-labor ratio (0) is accompanied by a more than proportionate decrease in labour productivity (p) for a given real-wage rate (w/p) because, in this instance, the rate of growth of capital will decline instead of increasing.
The thrust of Robinson's, Galbraith's and Shapiro's argument is that anything that reduces the impact of uncertainty on the decisions on the production, employment and, most importantly, accumulation of firms, is likely to result in more satisfactory and stable systemic behaviour.
Especially is it likely to beget a higher rate of accumulation on average and so a greater chance of absorbing the level of saving associated, if not with full employment levels of income, at least with high levels, certainly higher levels than would occur in a system characterised by the Marshalling freely competitive structures that Keynes used for most of the time in his models in The General Theory itself.
In one of her first works Economics is a Serious
Subject: The Apologia of an Economist to the Mathematician, the Scientist and the Plain Mans, Robinson analysed the historical development of economical thought. She saw economics as (1) an attempt to produce objective scientific knowledge of a business world, and (2) a branch of theology a means of the ruling ideology and an instrument of social control. She believed that economists need to separate those two aspects.
Joan Robinson was initially a supporter of neoclassical economics; her first major work The Economics of Imperfect Competition being largely within mainstream economics.
There, she analysed the theory of imperfect competition, trying to replace existing economic models based on perfect competition with ones based in imperfect competition.
However, since most economists" analysed economic equilibria assuming perfect competition, Robinson's models did not receive much attention at the time. Her work however, together with Edward H. Chamberlin's Theory of Monopolistic Competition started wide discussion on monopolistic competition.
In her article on the neoclassical theory of distribution, Euler's Theorem and the Problem of Distribution, Robinson further contributed to Marshallian economics.
Robinson abandoned her views on neoclassical economics after getting acquainted with John Maynard Keynes. As a member of the "Cambridge School" of economics, Robinson assisted with the support and exposition of Keynes' General Theory, writing especially on its employment implications in 1936 and 1937 (in the midst of the Great Depression it tried to explain).
She eventually became one of the leading interpreters of Keynes, defending his ideas against the criticism of mainstream conservative economists. She also argued for expanding of Keynes' General Theory to other fields of economics. In 1942 Robinson's An Essay on Marxian Economics famously concentrated on Karl Marx as an economist, helping revive the debate on this aspect of his legacy.
The book brought Marx's political and economic ideas back into the spotlight of contemporary debate. In 1949, she was invited by Ragnar Frisch to become the vice-president of the Econometric Society but declined.
In the 1950s, Piero Sraffa and Robinson started what has been known as the "Cambridge Capital Controversy," concerning the nature and role of capital goods. In her 1954 article "The Production
Function and the Theory of Capital," Robinson attacked the traditional neoclassical view that capital could be measured and aggregated. Sraffa's and Robinson's views became the Cambridge position.
On the other side were Americans, including Paul Samuelson and Robert Solow from the Massachusetts Institute of Technology, who claimed that capital could be aggregated.