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The New Palgrave Dictionary of Economics pp 1–3
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Acceleration Principle
P. N. Junankar
Living reference work entry

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First Online: 01 January 2017
828 Accesses 2 Citations
Abstract
The acceleration principle holds that the demand for

capital goods is a derived demand and that changes
in the demand for output lead to changes in the
demand for capital stock and, hence, lead to
This website sets only cookies which are necessary for it to function. They are used to enable core
investment. The flexible accelerator, which includes
functionality such as security, network management and accessibility. These cookies cannot be
both demand
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https://link-springer-com.bibliotecaipn.idm.oclc.org/referenceworkentry/10.1057/978-1-349-95121-5_202-2 1/12
optimal level. The principle neglects technological

change but has been used successfully in explaining
investment behaviour and cyclical behaviour in a
capitalist economy. Almost all macroeconomic
models of the economy employ some variant of it to
explain aggregate investment.
Keywords
Acceleration principle Aftalion, A.
Aggregate demand Aggregate investment
Business cycles Capital–output coefficient
Chenery, H. B. Clark, J. M. Depreciation
Derived demand Distributed lag accelerator
Eisner, R. Expectations Haberler, G.
Harrod, R. F. Harrod–Domar growth model
Marx, K. H. Pigou, A.C. Technical change
JEL Classifications
E22
This chapter was originally published in The New

Palgrave Dictionary of Economics, 2nd edition, 2008.
This website
Edited sets only
by Steven cookies and
N. Durlauf which are necessary
Lawrence for it to function. They are used to enable core
E. Blume
switched off in our systems. You may disable these by changing your browser settings, but this may
affect how the website functions. Please view our privacy policy for further details on how we
Access provided by Instituto Politecnico Nacional
process your information.
Download reference work entry PDF
The acceleration principle has been proposed as a

theory of investment demand as well as a theory
determining the supply of capital goods. When
combined with the multiplier, it has played a very
important role in models of the business cycle as well
as in growth models of the Harrod–Domar type. The
acceleration principle has been used to explain
investment in capital equipment, the production of
durable consumer goods and investment in
inventories (or stocks). In general, it has been used to
explain aggregate investment, although it is
sometimes used to explain investment by firms
(micro-investment behaviour). The main idea
underlying the acceleration principle is that the
demand for capital goods is a derived demand and
that changes in the demand for output lead to
changes in the demand for capital stock and, hence,
lead to investment. Its distinctive feature, then, is its
emphasis on the role of (expected) demand and its
de-emphasis on relative prices of inputs or
interestrates.
The acceleration principle is a relatively new concept:

itThis
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of Surplus Value, Part II (1863, p. 531). Amongst the
earliest
affectexponents of thefunctions.
how the website acceleration principle
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Albert Aftalion in Les Crises périodiques de information.
process your
surproduction (1913). Later contributions by J.M. Clark

(1917), A.C. Pigou (1927) and R.F. Harrod (1936)
discussed the acceleration principle both as a
determinant of investment and in its role in
explaining business cycles. Haberler (1937) provides a
fairly comprehensive account of the acceleration
principle up to that date. Since then the contributions
by Chenery (1952) and Koyck (1954) provide
important extensions and developments of the
theory. In recent years work by Eisner (1960) has
employed the acceleration principle in econometric
work. Almost all macroeconomic models of the
economy employ some variant of the acceleration
principle to explain aggregate investment.
Underlying the acceleration principle is the notion

that there is some optimal relationship between
output and capital stock: if output is growing, an
increase in capital stock is required. In the simplest
version of the acceleration principle,
where is planned capital stock, Y t is output and v

is a positive capital–output coefficient. On the
assumption
This website that
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planned output) leads to an increase in planned

capital stock,
and again on the assumption of an optimal

adjustment in the unit period
In other words, for net investment to be positive,

output must be growing: v is called the accelerator.
The acceleration principle can be derived from a cost-

minimizing model on the assumption of either fixed
(technical) coefficients and exogenous output, or
variable coefficients with constant relative prices of
inputs and exogenous output.
Some of the shortcomings of this simple model were

well known; for example, the problem of being
optimally adjusted: this was discussed in the context
of whether or not the economy (or the firm) was
working at full
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sets If thewhich
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management
aggregate demand would not lead to an increase in
investment. Similarly, it was well known
process that
your the
information.
accelerator may work in an asymmetric fashion

because of the limitations imposed on decreasing
aggregate capital stock by the rate of depreciation:
the economy as a whole could only decrease its
capital stock by not replacing capital goods that were
depreciating. Another important qualification to the
simple accelerator model was than an increase in
(expected) output would lead to an increase in
investment only if it was believed that, in some way,
the increase was ‘permanent’ or at least of long
duration.
A generalization of the simple accelerator is provided

by the flexible accelerator or the capital stock
adjustment principle (also known as the distributed
lag accelerator). It overcomes one of the major
shortcomings of the simple accelerator, namely, the
assumption that the capital stock is always optimally
adjusted. The flexible accelerator also assumes that
there is an optimal relationship between capital stock
and output but allows for lags in the adjustment of
the actual capital stock towards the optimal level.
This is written as
where b is a positive constant between zero and one
andaffect equals
how thevY t . Thisfunctions.
website equation implies
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view ourthe
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adjustment path of actual capital stock
process towards
your the
information.
optimal level is asymptotic. In this version, the

adjustment is not instantaneous either since, because
of uncertainty, firms do not plan to make up the
difference between and K t−1 and/or because the
supply of capital goods does not allow the
adjustment to be instantaneous. A similar equation
was derived by assuming increasing marginal costs of
adjusting capital stock by Eisner and Strotz (1963).
In evaluating the acceleration principle it is worth

stressing that, in some versions, it is used as an
explanation of investment demand with the implicit
assumption that the supply of capital goods will
always satisfy that demand. In models where the
acceleration principle is used to explain the supply of
capital goods, it is assumed that they always satisfy
the demand for them. The flexible accelerator is a
hybrid version which includes both demand and
supply elements. Although there is no formal
treatment of replacement investment, it is usually
postulated to be determined in the same way as net
investment. A major shortcoming of the acceleration
principle is its simplistic treatment of expectations of
future demand as well as its neglect of expectations
of the time paths of output and input prices.
Although most of the work in this field treats the
acceleration
functionalityprinciple as applying
such as security, to management
network the aggregate
and accessibility. These cookies cannot be
economy,
switched offitinhas
ouralso beenYou
systems. used todisable
may explainthese
investment
by changing your browser settings, but this may
by firms. It is especially important that the supply of
capital goods is formally modelled along with the

acceleration principle determining investment
demand. Aggregation over firms is usually assumed
to be a simple exercise of ‘blowing up’ an individual
firm’s investment demand. However, it should not be
forgotten that in a modern capitalist economy an
individual firm may invest by simply taking over an
existing firm rather than by buying new capital
goods. An important shortcoming of the acceleration
principle is its neglect of technological change.
The acceleration principle is an important concept

and has been used successfully in explaining
investment behaviour as well as cyclical behaviour in
a capitalist economy. It will continue to play an
important role in macro econometric models as well
as in models of business cycles.
See Also
Clark, John Maurice (1884–1963)
Multiplier–Accelerator Interaction
Bibliography
Aftalion, A. 1913. Les crises périodiques de

surproduction. Paris: Rivière.
Chenery, H.B. 1952. Overcapacity and the

acceleration principle. Econometrica 20 (1): 1–28.
Clark, J.M. 1917. Business acceleration and the law of

demand: A technical factor in economic cycles.
Journal of Political Economy 25: 217–235.
Eisner, R. 1960. A distributed lag investment

function. Econometrica 28 (1): 1–29.
Eisner, R., and R. Strotz. 1963. Determinants of

business investment. In Commission on money and
credit, Impacts of monetary policy. Englewood Cliffs:
Prentice-Hall.
Haberler, G. 1937. Prosperity and depression. Geneva:

League of Nations.
Harrod, R.F. 1936. The trade cycle. Oxford: Oxford

University Press.
Junankar, P.N. 1972. Investment: Theories and

evidence. London: Macmillan.
Knox, A.D. 1952. The acceleration principle and the
theory of investment: A survey. Economica 19 (75):
269–297.
Koyck, L. 1954. Distributed lags and investment

analysis. Amsterdam: North-Holland.
Marx, K.H. 1863. Theories of surplus value, Part II.

Moscow: Progress Publishers.
Pigou, A.C. 1927. Industrial fluctuations. 2nd ed.

London: Macmillan, 1929.
Author information
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P. N. Junankar
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© 2008 The Author(s)
About this entry
Cite this entry
Junankar, P.N. (2008). Acceleration Principle. In: The New

Palgrave Dictionary of Economics. Palgrave Macmillan,
London. https://doi-
org.bibliotecaipn.idm.oclc.org/10.1057/978-1-349-95121-
5_202-2
.RIS .ENW .BIB
DOI Received Accepted

https://doi.org/10. 11 January 2017 11 January 2017
1057/978-1-349-
95121-5_202-2
Published Publisher Name Online ISBN

20 March 2017 Palgrave 978-1-349-95121-
Macmillan, 5
London
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Published: 20 March 2017
DOI: https://doi-org.bibliotecaipn.idm.oclc.org/10.1057/978-1-
349-95121-5_202-2
Original
Published: 07 October 2016
DOI: https://doi-org.bibliotecaipn.idm.oclc.org/10.1057/978-1-
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3/3/24, 02:30 Acceleration Principle | SpringerLink

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The New Palgrave Dictionary of Economics pp 1–3

Living reference work entry

828 Accesses 2 Citations

The acceleration principle holds that the demand for

optimal level. The principle neglects technological

Acceleration principle Aftalion, A.

Aggregate demand Aggregate investment

Business cycles Capital–output coefficient

Chenery, H. B. Clark, J. M. Depreciation

Derived demand Distributed lag accelerator

Eisner, R. Expectations Haberler, G.

Harrod, R. F. Harrod–Domar growth model

Marx, K. H. Pigou, A.C. Technical change

This chapter was originally published in The New

Download reference work entry PDF

The acceleration principle has been proposed as a

The acceleration principle is a relatively new concept:

surproduction (1913). Later contributions by J.M. Clark

Underlying the acceleration principle is the notion

where is planned capital stock, Y t is output and v

planned output) leads to an increase in planned

and again on the assumption of an optimal

In other words, for net investment to be positive,

The acceleration principle can be derived from a cost-

Some of the shortcomings of this simple model were

accelerator may work in an asymmetric fashion

A generalization of the simple accelerator is provided

optimal level is asymptotic. In this version, the

In evaluating the acceleration principle it is worth

capital goods is formally modelled along with the

The acceleration principle is an important concept

Clark, John Maurice (1884–1963)

Aftalion, A. 1913. Les crises périodiques de

Chenery, H.B. 1952. Overcapacity and the

Clark, J.M. 1917. Business acceleration and the law of

Eisner, R. 1960. A distributed lag investment

Eisner, R., and R. Strotz. 1963. Determinants of

Haberler, G. 1937. Prosperity and depression. Geneva:

Harrod, R.F. 1936. The trade cycle. Oxford: Oxford

Junankar, P.N. 1972. Investment: Theories and

Koyck, L. 1954. Distributed lags and investment

Marx, K.H. 1863. Theories of surplus value, Part II.

Pigou, A.C. 1927. Industrial fluctuations. 2nd ed.

Authors and Affiliations

Editors and Affiliations

© 2008 The Author(s)

Junankar, P.N. (2008). Acceleration Principle. In: The New

.RIS .ENW .BIB

DOI Received Accepted

Published Publisher Name Online ISBN

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