Demand Drives Growth all the Way

A demand-driven alternative to the conventional Solow-Swan growth model is analyzed. Its medium run is built around Marx-Goodwin cycles of demand and distribution. Long-run income and wealth distributions follow rules of accumulation stated by Pasinetti in combination with a technical progress function for labor productivity growth incorporating a Kaldor effect and induced innovation. An explicit steady state solution is presented along with analysis of dynamics. When wage income of capitalist households is introduced, the Samuelson-Modigliani steady state "dual" to Pasinetti's cannot be stable. Numerical simulation loosely based on US data suggests that the long-run growth rate is around two percent per year and that the capitalist share of wealth may rise from about forty to seventy percent due to positive medium-term feedback of higher wealth inequality into its own growth.Series: Ecological Economic Paper