Consumption and Economic Growth in the Framework of Classical Economics

Abstract

This thesis is first and foremost an exploration of classical economics with consumption as its focus. It is the latter which distinguishes the present work from the already existing and growing literature on classical economics. The distinctive nature of the theory of value and distribution and the theory of activity levels and growth in classical economics and Marx is analysed and interpreted in chapters 2 to 9, which deal respectively with Cantillon, Quesnay, Turgot, Steuart, Smith, Ricardo, Sismondi and Malthus. The analytical separability between the theory of value and distribution and the theory of activity levels and growth emerges clearly in these chapters. The development of the role of consumption in economic growth, within the classical theoretical framework, particularly from Sismondi and Malthus, is then traced through Marx, Luxemburg and Kalecki – Marx and Luxemburg in particular working within that classical framework. Hence, the thesis we put forward is that the problem of demand insufficiency present in classical economics and Marx, but not satisfactorily formulated or theorized, finds an analytical resolution in Kalecki, via Luxemburg, independent of Keynes. Both Kalecki and Keynes articulate clearly the coordination mechanism between planned saving and planned investment which occurs via changes in aggregate activity levels. In classical economics, most notably in Smith and Ricardo, planned saving is one and the same as planned investment (our latter-day terms); but this assumption is untenable in any economy where saving and investment decisions are decentralised. Finally, in chapter 12, a simple demand-led growth model is presented. Consumption, especially autonomous consumption, is shown to play a decisive role. The last section of the chapter notes the affinities between classical economics and demand-led growth. This reflective section affirms the enduring relevance of the theoretical framework of the classical economists and Marx.