Nicholas Kaldor and Cumulative Causation: Public Policy Implications

Abstract

:This paper shows how cumulative causation supports Kaldor’s main policy proposals. Kaldor advocated an expenditure tax to encourage savings, which would lead to technological advancement, productivity growth, income growth, and more savings. Second, Kaldor argued that tax policy should favor the manufacturing sector. Because productivity growth is greater there, this would lead to greater aggregate productivity growth and income growth, which increases the demand for manufactured goods and leads to a virtuous cycle of growth and improved living standards. Finally, Kaldor used cumulative causation arguments against monetarism and to support an incomes policy to stop the inflationary wage-price spiral.

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