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

ENDOGENOUS CHANGEmodel that Dutt has named after Kalecki and Steindl. The followingequations define the model:1=a 0C+g(K/X)1=Wa 0+r(K/X)g=sr1=Wa 0(1+z)g=g(r, X/K).Given the mark-up rate z, the propensity to save j, the labourcoefficient a 0and the parameters of the investment function (whichis here kept implicit), the model will determine C, W, g, r and X/K.The forces affecting income distribution will here manifestthemselves through the determination of the mark-up rate z. Thisimplies that the rate of profit r can change without this placing anyconstraint on such forces. This can be realised by means of avariable degree of capacity utilisation whose variations will producethe saving per unit of capital required to sustain desiredaccumulation. As a further consequence of the variability ofcapacity utilisation, desired accumulation g will now depend on thedegree of capacity utilisation as well as on the rate of profit.There is no theory of the degree of capacity utilisation in thismodel. It will be fixed at the level required to make saving per unitof capital equal to investment per unit of capital. It is, therefore, aresidual variable. No theory implies no policies. The messages fromthe economy showing a degree of capacity utilisation different fromany pre-determined one will not cause any revision or confirmationof theories. No theory of the degree of capacity utilisation is beingchecked against reality. However, such a theory may be in theprocess of being formed. When this process is completed it maybring about a change in regime. Again, equilibrium is provisional.The concept of provisional equilibrium, therefore, has animplication for actual theorising. By playing with exogenous andendogenous variables, different combinations are obtained, wherethe exogenous variables are the variables for which a theory exists,and the endogenous those for which a theory is not yet formed. It isthis extraordinary flexibility that renders this approach particularlysuitable for treating change as neither deterministic norinexplicable. The succession of regimes that results from theadoption of this approach can adequately reflect the formation ofnew theories and the undertaking of new policies. What thisapproach cannot do is explain how new theories are formed and old121