Distribution Between the Private and the Public Sector

Abstract

Given that the Free Market does not provide a mechanism which adjusts the short term needs of individual enterprises to their long term collective requirements, and assuming that the state can perform this coordinating task, the question arises in what proportions the national product must be divided between the private sector and the state. The simple answer is in such manner that, with full employment, increasing productivity is precisely matched by increasing effective demand for goods and services. Under conditions of perfect competition this would be more or less the outcome of the income effect of falling prices. Increasing productivity would reduce production cost and competition would decrease prices and thus raise overall demand. In the real world of imperfect competition this is the exception rather than the rule.