Overview

Thomas Malthus identified a crucial tension at the heart of a market economy: While an accumulation of wealth is necessary to provide the capital investment needed to generate growth, too much accumulation will cause planned saving to exceed profitable investment, which will result in secular stagnation, a condition of low growth and underemployment of resources. Keynes drew inspiration from Malthus in his attempt to comprehend the causes of the Great Depression of the 1930s. Now, Aronoff demonstrates how a related but slightly different aspect of Malthus' thought can illuminate one of the most pressing issues of our times. In A Theory of Accumulation and Secular Stagnation, Aronoff explores Malthus' ideas relating to secular stagnation and uses the insight gained to understand the origins of the subpar growth and tepid employment, periodically punctuated by booms, that has plagued the US economy since the turn of the millennium. He explains how the rise of mercantilism among Asian countries – principally China – and increased income concentration generated an upsurge in excess saving. This accumulation created a chronic deficiency in demand while also depressing interest rates, which generated a search for yield that fuelled periodic booms.

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In A Theory of Accumulation and Secular Stagnation ... Daniel Aronoff intelligently looks back to the works of early 19th-century `classical growth' economist Thomas Malthus. ... Aronoff does a laudable job of showing how Malthus's theories might apply to the current economic environment. ... as investors continue to evaluate potential implications for zero and negative interest rates, weak capital spending, and deflationary pressure, they will find it useful to include Malthus's theory of accumulation as part of their mental models. (Todd Wenning, CFA Institute, cfapubs.org, Vol. 11 (1), 2016)

In A Theory of Accumulation and Secular Stagnation ... Daniel Aronoff intelligently looks back to the works of early 19th-century 'classical growth' economist Thomas Malthus. ... Aronoff does a laudable job of showing how Malthus's theories might apply to the current economic environment. ... as investors continue to evaluate potential implications for zero and negative interest rates, weak capital spending, and deflationary pressure, they will find it useful to include Malthus's theory of accumulation as part of their mental models. (Todd Wenning, CFA Institute, cfapubs.org, Vol. 11 (1), 2016)

Reviewer Comments of Kent Klitgaard for potential manuscript of Daniel J. Aronoff. 'A Theory of Accumulation and Stagnation' General 1. A short outline I. Introduction A. Introduction to secular stagnation B. Roots of Stagnation 1. Trade deficit with China 2. Increasing income inequality II. Accumulation A. Net savings not intended to be spent B. Chronic deficiency in aggregate demand C. Investment as a function of expected future demand D. Excess savings not spent long into future reduces expected future demand E. Leads to unemployment F. Trade deficits, income inequality and accumulation III. Historical approach A. Underconsumption from Malthus to Keynes B. Walras and Hayek C. Production and consumption IV. Policy implications Return to Keynes' plan at Bretton Woods International clearing union 2. Useful and original contribution? I think it is useful to link overall stagnant economic performance with possible causes, as the decline in growth rates, at least in the United States, has been going since the early 1970s. Trade will continue to be a factor, and the rise in inequality is one of the more pressing economic and social problems of contemporary society. The new idea is that accumulation (always capitalized as Accumulation in the proposal) consists of savings that are not intended to be spent for a long time (if at all.) This needs development, as it may run counter to the profit motive. The source of future profits in capitalizing current profits by means of investment, and investment consists primarily of net capital formation. I am not yet convinced that the motivation of wealth people want to bequeath the income to their heirs is sufficient to explain the source of stagnation. There is a difference between savings that are not intended to be spent, and savings that are unable to be spent due to lack of profitable investment outlets. This should be delineated more fully in the manuscript, and the author should make an effort to review prior theories of accumulation and spell out how they differ with his. 3. Engagement with recent scholarship. This area is my greatest source of concern with the manuscript. The author states the project is original because '... nobody, to my knowledge, has proposed the possibility of a structural insufficiency of demand...' This literature is important because the bulk of theory regarding secular stagnation occurred after Keynes published The General Theory. It would be a shame to leave it out. A good place to deal with the literature would be in the as-yet-unspecified chapter 11 The problem, to my knowledge is that there is a large body of literature, mostly on the left, that addresses structural insufficiency of demand, that the author seems unaware of. Let me propose an initial set of recommended readings, starting with Alvin Hansen, the man who coined the term secular stagnation and, by the way, my academic grandfather. Hansen was the dissertation supervisor of my own dissertation supervisor, Sam Rosen, so I read a great deal of his work in grad school. Hansen, Alvin. 1938. Full Recovery or Stagnation? New York: WW Norton & Co. Both Roy Harrod, and especially Evesy Domar. Deal with chronic instability and secular stagnation in their classic papers. Harrod, Roy, 1939. An essay on dynamic theory. Economic Journal. Domar, Evesy. 1947. Expansion and employment. American Economic Review. Kalecki, Michal. 1965. Theory of Economic Dynamics. New York: Monthly Review Press. Kalecki, Michal. 1971. Selected Essays on the Dynamics of the Capitalist Economy. Cambridge: Cambridge University Press. Steindl, Josef. 1952. Maturity and Stagnation in American Capitalism. New York: Monthly Review Press. Baran, Paul and Paul Sweezy. 1966. Monopoly Capital. New York: Monthly Review Press Foster, Joh Bellamy and Robert McChesney. 2012. The Endless Crisis. New York: Monthly Review Press. Foster and McChesney reference a great number of papers written in the 1970s-1990s by Paul Sweezy and Harry Magdoff on the relation between the financial explosion and the underlying stagnation of a mature (monopolized) capitalist economy. 4. Strengths and Weaknesses Besides the aforementioned lack of attention to the literature after Keynes, I think the author's strength is in raising the important topic of secular stagnation, and in finding its roots in measurable, contemporary events. The proposal did not specify the sources of data, but I assume that these will be forthcoming in the manuscript. Since secular stagnation will be an ongoing feature of the economy and of society I expect the project to have a long shelf life. In re-working, or more precisely, working out the details of the history chapter (11) the author should also make mention, and provide some detailed analysis that every classical political economist (Physiocrats, Smith, Ricardo, Malthus, Mill) all believed that the growth economy would eventually end, being replaced by the stationary state. They had different reasons (Ricardo-diminishing returns, Malthus-excessive population growth) but the outcome was always a stagnant economy. I would like the author to provide some detail on these historical arguments, and place his own approach in this context. I think the addition of the broad literature on secular stagnation mentioned above and a survey of the stationary stage in classical political economy is crucial to the proposal. The author should consider the role that energy plays in driving economic growth, and the great possibilities for stagnation apparent in the age of peak oil. A starting point could be: Hall, Charles and Kent Klitgaard. 2011. Energy and the Wealth of Nations. New York: Springer. There is also an emerging field of 'Degrowth' that the author might find useful. A google search will turn up many results. 5. Qualifications An author who may be finishing a PhD at MIT, and who blogs about the economy, never mind knowing the meaning of 'catallactic' seems qualified to me. 6. N/A 7. It should have some international appeal as it deals with the balance of trade. It might have some interdisciplinary appeal, but much of growth theory can become quite esoteric. It depends how the manuscript is written, but from the author's past as a blogger, and from the proposal it does not seem to turn immediately into incomprehensible mathematical growth theory. 8. Comparison books I have read Piketty, Ackerlof, and Sidelsky, all of which are well written. It would be excellent if the manuscript were in this class. I am unfamiliar with the other works. 9. Recommendation I recommend that the author revises the manuscript to include the post-Keynes secular stagnation theories, and to discuss the role of the stationary state in classical political economy. Otherwise I think the book has promise and should be pursued.

Author Information

Daniel Aronoff is President of Landon Companies, USA. He has served as Vice Chairman of the Board of Trustees of Grand Valley State University, USA. Throughout several decades of participation in the professional world, Aronoff has been a frequent contributor to many media outlets including the Financial Times.

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