CAPACITY UTILISATION IN THE LONG RUN: SOME FURTHER CONSIDERATIONS

Abstract

The variability of long-run capacity utilisation has to be considered as an expression of the determining role played by aggregate demand in the process of growth. This paper discusses the model proposed by Serrano in which such a determining role is apparently reconciled with the condition of normal utilisation of existing capacity in the long run. It is shown that Serrano's conclusions lie on the hypothesis of the constancy of the growth rate of autonomous demand, an assumption which seems to originate from an erroneous interpretation of the property of ‘relative persistence’ of ‘normal’ magnitudes. The paper argues that if that assumption is abandoned, the autonomy of aggregate demand necessarily shows itself through the variability of capacity utilisation in the long run as well as in the short run.

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