Lupa Bhoumik - Discussion Submission

Goodwin's distributive cycle and propagation mechanism of the cyclical movement

In Goodwin’s model, although labor and capital are in continuous conflict, there lies a
symbiosis between them where the gain of labor share means the loss in terms of
capital expansion and vice versa. The solution to the Goodwin system (in the
employment, labor share space) itself is a counter-clockwise cycle which is often known
as a Goodwin pattern or a distributive cycle.

There are two important factors that promulgate this cycle. They are a) Profit-driven
accumulation and b) Reserve army mechanism. Capitalist means of production
requires the accumulation of capital and a huge surplus labor pool that it can employ or
curve down according to the needs. In this case, the reserve army serves this role.
Initially, with the supply of labor being elastic, employment continues with a prevailing
real wage. With this increase in employment and thus, decrease in the reserve army,
real wage increases. But this reduces the profit of capitalists, which in turn reduces the
accumulation rate and output. This result again decreases the demand for labor. So, the
system balances out the reserve army of labor by lowering employment with the aim of
decreasing the labor share to increase the profit rate and hence, accumulation. This
cyclical relationship repeats continuously and interacts in a predator-pray dynamics.