Notes on the accumulation and utilization of capital: Some theoretical issues

Abstract

This paper discusses some issues related to the triangle between capital accumulation, distribution, and capacity utilization. First, it explains why utilization is a crucial variable for the various theories of growth and distribution, and, more precisely, with regards to their ability to combine an autonomous role for demand (along Keynesian lines) and an institutionally determined distribution (along classical lines). Second, it responds to some recent criticism by Girardi and Pariboni (2019) and I explain that their interpretation of the model in Nikiforos (2013) is misguided, and that the results of the model can be extended to the case of a monopolist. Third, it provides some concrete examples on why demand is a determinant for the long-run rate of utilization of capital. Finally, it argues that when it comes to the normal rate of utilization it is the expected growth rate of demand that matters, and not the level of demand. This insight provides a more straightforward way to link the adjustment at the micro and the macro level.