“Deuda Pública, Demanda Agregada, Acumulación: Un Punto de Vista Alternativo”

If one abandons the idea, proper to the dominant theory, of a tendency of the economic system to ‘natural’ positions in which the overall level of activity is regulated by the quantities of available resources, the role of aggregate demand as the determinant of aggregate production asserts itself quite persuasively. The change of perspective we refer to concerns, in particular, the level of output taken in its trend, that is over the long run. The influence of demand is in fact admitted even by traditional analysis in situations variously defined as ‘short-period’ ones, where, however, it is ascribed to some sorts of rigidity or slowness of the mechanisms of adjustment of prices or quantities as compared with what is believed to be the ‘natural’ functioning of the economic system. Being backed by the possibility of referring to a theory of prices and distribution other than the dominant one, as allowed by the modern revival of the classical approach initiated by Sraffa, the standpoint here adopted accepts the Keynesian view which takes the expenditure of the collectivity, ultimately determined independently of aggregate production, as the normal determinant of the level of total output. It follows that, in the absence of appropriate policy interventions, demand sets an upper limit to profitable production, which will generally stand below the level consistent with the full utilization of available resources. The idea that the levels of output depend positively on public expenditure, even more so if that idea is not confined to the short run, is obviously in contrast with most modern analysis, according to which public expenditure would merely crowd out private expenditure. To the extent that the latter view reflects the conclusion, proper to neoclassical theory, that the free functioning of the price system entails the tendency to a condition of full employment, or of ‘natural’ unemployment, it stands or drops together with the acceptance of that theory. That idea finds no analytical support, instead, in the theoretical approach which inspires the present paper, in which the determination of distribution and prices is consistent with the existence of (unvoluntary) unemployment. On the basis of the above premise, the expenditure of the public sector turns out as one of the elements which contribute, both directly and through induced private expenditure, to form the aggregate expenditure, and which therefore determine the level of total output. The present analysis will assume that the level of public expenditure exceeds the amount of public revenues, thus generating a deficit. The effects of public expenditure we are taking into account will therefore extend to the formation of budget deficits and consequent accumulation of public debt. And, as is shown in the paper, admitting the influence of public expenditure on the level of total income makes relevant differences, with respect to the prevailing literature, about the consequences for the economic system of sequences of budget deficits and the growth of public debt. The application to the role of public expenditure, of the Keynesian principle that output is limited by demand, was already proposed, in the ‘40s and ‘50s of the former century, by the so called functional finance. The present work moves in an analogous direction. However, besides providing a more definite formulation of some of the positions involved, the paper attempts to develop some implications which can be drawn from those positions. In particular, concentrating on the ratio of public debt to domestic product, the limiting of which is often taken as a target of current economic policies, the paper shows that lower levels of public expenditure may cause higher, rather than lower, values of that ratio, once the level of output is allowed to depend on the level of demand. Our analysis detects a (quite low) ‘threshold’ of the tendential public debt ratio, above which the attempt at obtaining actual values of the ratio lower than the tendential ones by means of comparatively lower flows of public expenditure is bound to be frustrated, at least for a series of periods, by a negative effect on the level of output proportionally larger than on the stock of debt. And even if, after a sufficient number of periods of lower public expenditure, the actual ratio would start being lower than the tendential one, this result would be attained while causing the levels of domestic product to stand below those which would have alternatively been; moreover, if other ‘autonomous’ components of aggregate demand could be negatively affected by the lower levels of activity, as is reasonable for e. g. private investment, the target would move forward, thus further lengthening the time needed to obtain an actual public debt ratio lower than the tendential one; and so on and so forth. The opposite would be true for expansionary policies, which would produce values of the actual public debt ratio lower than the tendential one, at least for a number of periods, while keeping the levels of income higher than otherwise; with the reasonable possibility of having that kind of conditions further extended if private investment would be positively by higher levels of activity, and so on.