Mark Setterfield

New School for Social Research

mark.setterfield@newschool.edu

Fundamental Distinctions Between Competing Approaches in Long Run Macroeconomics

Demand Side Matters for Theory of Distribution Characterization of Conception of the “Long
Long Run Growth? Supply Side Run”
Classical No Surplus approach Technical and social Equalization of rates of
return; convergence to
“normal” rates of profit,
utilization.
Neoclassical No Marginal productivity Technical Steady state
theory
Keynesian Yes Surplus approach Technical and social Evolutionary sequence of
short/medium run
“episodes” of macro
performance

Notice the cross-cuts between competing theories:

! Neoclassical and Classical – both supply-led visions of long-run growth process; Keynesians view growth as demand-
led
! Keynesian and Classical – both characterize supply side in terms of social and technical relations; Neoclassicals view
supply side as technical (engineering) construct
! Keynesian and Classical – both adopt surplus approach to theory of distribution; Neoclassicals adhere to marginal
productivity theory