Stagnation Theory and Stagnation Policy

Abstract

Following the traditions of Kalecki and Keynes, we are led to believe that a high long-term rate of growth is necessary to establish an adequate use of capacity and full employment, because somehow our economy is rather inflexibly adjusted to such high long-term rates of growth. In this line is Harrod’s theory (Harrod, 1939, 1948), as well as my own Maturity and Stagnation (Steindl, 1952). Both explain the secular depression of the pre-war decade in these terms: the economy is unable to adjust to low growth rates because its savings propensity is adapted to a high one.

This paper is based on a lecture given at the University of Groningen, Holland, in March 1977. I want to thank Professor Amit Bhaduri and Professor K. Laski for criticism and advice in adapting it for publication. Reprinted here from Cambridge Journal of Economics, vol. 3, no. 1, March 1979, with minor revisions.