I. Innovation
2. On the Economic Sustainability of Market Economies
2.8. Some concluding remarks
Nominal variables transformed Into real variables
Ratios
period Creal Ireal GDPreal Cfiz/Ifiz Creal/Ireal
0 200 90 290 3,33 2,22
1_1 241,67 48,33 290 3,33 5,00
1_2 483,33 96,67 580 3,33 5,00
1_3 400,00 180,00 580 3,33 2,22
In the base period, real and nominal GDP, as well as the real and nominal consumption and investments by definition, coincide. We can observe that the consumption in real terms (200$0) does not coincide with the consump-tion measured in physical terms (100kg), and the ratio of the consumpconsump-tion and investment in real terms (100/45, no unit) is different from the same ratio measured in physical quantities (100/30 kg/liter) because the real variables are influenced by the base period relative prices. For this reason, a propor-tional growth measured in physical terms (1_2; or the special case of zero growth: 1_1) changes the ratio of consumption and investment in real terms if relative prices change.
This said, the existence of a growth imperative in nominal terms in itself does not necessarily impede the ecological sustainability of an economic system, because nominal growth does not necessarily imply real growth (though this seems to be the general case) and real growth is also possible with structural change (again empirical evidence shows that this change is not sufficient).
paradigm”80. These economists have spent many efforts to obtain strictly positive aggregate net savings and hence growth from other hypotheses than simply postulating the existence of some economic agents who pursue the aim of realizing strictly positive net retained earnings in monetary terms.
None of these models can demonstrate the existence of growth imperative.
If we simply postulate that the aim of production is not to satisfy human needs but to realize strictly positive savings in monetary terms (!), then we obtain growth imperative in monetary terms.81 Most of the economists call for the theoretical underpinning of the postulate of strictly positive net re-tained earnings in monetary terms as the reason for a growth imperative. The same “critique” applies to standard economics: the postulate of firms not seeking strictly positive net retained earnings should also be underpinned theoretically as the main reason for the possibility of zero-growth. Also, the objection that the postulate of strictly positive net retained earnings is equiv-alent to postulating growth imperative; and therefore, these models presup-pose the result is also completely irrelevant. In standard economics, the pos-tulate that firms do not seek strictly positive net retained earnings (namely firms seek to maximize profits) is also equivalent with postulating the possi-bility of zero growth; hence these economists also presuppose what they want to obtain as a result. This said, all model results are necessarily contained in the model assumptions, and none of the postulates can be underpinned theo-retically.
None of the models which depart from money82 is appropriate at present to establish in real terms the growth imperative of market economies per se. To do so, an appropriate price theory should be included in these models, which is missing. In brief, a growth imperative in nominal terms is not equivalent to a growth imperative in real terms. As to orthodox models, they cannot describe monetary production economies per se, because genuine money is missing in these models, as manifested, for example, in the paradox of thrift.
80 Stiglitz (2010): Needed: a new economic paradigm. Financial Times. 08.19.
81 Two remarks are in due order. First, it is true that a firm cannot sell if its product does not satisfy human needs, but this is just a prerequisite to be able to sell and realize profits. Second, the aim of firms is to realize strictly positive savings and not just strictly positive profits! Think of the differ-ence between for-profit and non-profit firms: non-profit firms also realize profits but they use this profit for other purpose than to realize profits again. This said, a for-profit firm does not always distribute all of its profits as dividend. The omnipresent profit maximization model rule allows for for-profit firms to distribute always all the profits, hence in the orthodox models firms are in fact non-profit firms.
82 Let us call these models accounting approaches. For example: Kaleckian models, post Keynesian models, stock-flow consistent models, monetary circuit models.
None of the models where the growth imperative is due to the behaviour of the financial sector is appropriate to establish the growth imperative of mar-ket economies per se. At best, all that these models can do is to establish that the present version of market economies with the present financial system is subject to the growth imperative. These models erroneously suggest that fi-nancial reforms would eliminate capitalism’s growth imperative.
Orthodox economists believe that all social phenomena, like growth, are the result of individual choice, and therefore green movements may be the cure.
Even if it were the case, in order to get zero growth from now on, these econ-omists should explain what would make the same free agents to change their behaviour in a concerted way after some centuries and not to choose availa-ble options that lead to growth. Furthermore, why these agents have not cho-sen the options leading to zero growth in the past? As to the “strength” of this orthodox explication, the same logic applies if we turn upside down the problem. That is, if the observed empirical fact were zero growth capitalism, and we were to expect the black swan of growing capitalism, we should ex-plain why free agents were to change their behaviour from now on.83
In brief, for-profit firms’ and commercial banks’ aim of realizing strictly pos-itive net retained earnings in monetary terms linked to the habitual simplifi-cations of considering proportional steady states and non-negative savings for all economic agents imply that the capitalist system so defined is subject to a double growth imperative in nominal terms stemming from the behav-iour of for-profit firms on the one hand and from the behavbehav-iour of commer-cial banks on the other hand. Would a financommer-cial reform eliminate commercommer-cial banks as proposed in the Chicago plan84 or just reduce their importance85, the pace of nominal growth needed for the normal functioning of the economy would decline. This proposition says nothing on real growth – though intui-tively, one expects real growth, too.
83 This logic is frightening: communism and fascism also wanted to change people who not fitted into the system. Should “non-green” people be eliminated?
84 See for example Benes, J., & Kumhof, M. (2012). IMF working paper: The Chicago plan revis-ited. WP12/202, August.
85 See for example Barrdear, John and Kumhof, Michael (2016): The Macroeconomics of Central Bank Issued Digital Currencies (July 18, 2016). Bank of England Working Paper No. 605.
Bibliography
• Barrdear, John and Kumhof, Michael (2016): The Macroeconomics of Central Bank Issued Digital Currencies (July 18, 2016). Bank of England Working Pa-per No. 605.
• Benes, J., & Kumhof, M. (2012). IMF working paper: The Chicago plan revis-ited. WP12/202, August.
• Binswanger, Mathias (2015): The growth imperative revisited: a rejoinder to Gilányi and Johnson. Journal of Post Keynesian Economics. 37. 648-660.
• Cahen-Fourot, Louison and Lavoie, Marc (2016): Ecological monetary eco-nomics: a post-Keynesian critique. Ecological Economics. 126. 163-168.
• Cartelier, Jean (2018): Money, markets and capital. The case for a monetary analysis, Routledge.
• Godley, Wynne and Lavoie, Marc (2007): Monetary Economics. Palgrave Macmillan.
• Gordon, Myron. J. and Rosenthal, Jeffrey. S. (2003): Capitalism’s growth im-perative. Cambridge Journal of Economics. 27/1. 25–48.
• https://www.econstor.eu/bitstream/10419/158012/1/886727073.pdf (2020.02.14)
• Obertone, Laurent (2018): Conférence de Laurent Obertone á Orange, 12.10.2018. https://www.youtube.com/watch?v=IDieFl5FsLo (2019.12.31.)
• Richters, Oliver and Siemoneit, Andreas (2017a): Consistency and stability analysis of models of a monetary growth imperative. Ecological Economics.
136. 114-125.
• Richters, Oliver and Siemoneit, Andreas (2017b): Fear of Stagnation? A re-view on growth imperatives. VÖÖ Discussion Papers.
• Romer, Paul (2016): The Trouble with Macroeconomics.
https://paulromer.net/trouble-with-macroeconomics-update/WP-Trouble.pdf (2020. 02. 14.)
• Rosier, Michel (1991): Eléments d’une approche théorique et comptable du phénomène d’endettement. Cahier monnaie et financement. Université Lu-mière Lyon 2. 20. 176-185.
• Rosier, Michel (1992): Des causes et des remèdes aux surendettements na-tionaux et internana-tionaux. Cahier du G.R.A.T.I.C.E.
• Rosier, Michel (1993): L’Etat expérimentateur. PUF.
• Soros György (1997): The Capitalist Threat. Atlantic Monthly. 279/2.
• Stiglitz, Joseph E. (2010): Needed: a new economic paradigm. Financial Times. 08.19.
• Taleb, Nassim (2012): Antifragile: things that gain from disorder. Random House.
• Taleb, Nassim N. (2007): The Black Swan: the impact of the highly improba-ble. Random House.
Béla Pataki, Pál Danyi