Post-Keynesian Models of Economic Growth: Open Systems

Abstract

The closed systems nature of neoclassical models of economic growth – guaranteeing automatic equality between planned savings and investment which, in turn, ensures stability of such models – is achieved by assuming away the existence of uncertainty inherent in economic systems. Once the role of Keynesian uncertainty is acknowledged, the assumption of automatic equality between ex-post savings and ex-ante investment becomes untenable. This paper attempts to show that once this possibility of planned savings and investment inequality is incorporated in an otherwise essentially neoclassical model of economic growth, its closed system nature disappears and the model metamorphoses itself into an open system.