Full text: Trend and Cycle

methods.Another influence can come from the side of labour. If the 
price of the product is constrained by foreign competition in an 
open market the mark-up may be subjected to squeezing by the 
action of unions or by scarcity of labour. 
The danger of appearance of excess capacity which we assume is 
almost always threatening accumulation arises generally the fact 
that technical progress tends to increase the mark-up and 
therefore shifts distribution in favour of profits. This at the 
same time tends to create excess capacity . 
The relation between a "normal" mark-up and a ’’normal” long run 
capacity utilisation which will be underlying the argument can be 
described as follows: It is supposed that with a normal 
(customary) long run utilisation the mark-up has to be just large 
enough to yield a profit rate (or rather rate of retained profits) 
which is sufficient to finance the given growth rate, taking into 
account borrowingj^to an extent which will not change the existing 
relative indebtedness. There is thus a ’’warranted” rate of 
retained profits which in turn is determined by a given growth 
rate - that is the rate of growth which has been ruling so far and 
which gives rise to the question whether it can continue and under 
which conditions its continuation is either assured or endangered. 
If the "natural” tendency of the system to produce a shift 
towards profits is counteracted by aggressive competition then 
there will be two results: 
There will be an increase in the real wage and the consequence 
will be that a certain number of producers - those with the most 
outdated methods and equipment - will be eliminated. This will be 
a factor which contributes,to the reduction in overcapacity. 
Second, owing to the shift to labour the effective demand will 
increase and that should in principle be a strong force making for 
the reestablishment of "normal” rates of utilisation. The second 
factor may be considered the major one,but the first factor will 
have a considerable role to play in the structural changes due to 
the maturity of old industries. 
The result of these considerations seems to indicate not only that 
distribution is the element which accounts for the difference in 
behaviour in short and long run, but also that the continuation of 
the growth process depends essentially on the action of certain 
correctives to the tendency of technical progress which tends to 
shift income towards profits; correctives,either in form of 
aggressive competition or in form of pressure from labour (in an 
open economy) will be necessary in order to prevent the appearance 
of continuing overcapacity which would frustrate the further 
accumulation. Thus distribution turns out to be a most important 
element in the explanation of the normal growth process. 
This does not mean that the essential role of the exogenous factor 
as it was described before,is in any way modified.

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