Accumulation of Capital

Within the so-called ‘Keynesian hypothesis’ of investment being determined independently of saving decisions, there are two different views of the adjustment of saving to investment along a long-run growth path: one based on changes in income distribution in favour of profits, and the other based on increases in the size of productive capacity and obtainable output. After showing how wide the margins are within which the size of productive capacity, and hence of obtainable output and savings, can increase through a cumulative process of equipment creation, some implications of the alternative, distribution-based adjustment are critically examined. Finally, it is noted that the accounts of actual growth experiences by some economic historians seem to be more in line with the production-based approach than the distribution-based approach.