Income Distribution in Keynesian Growth Models and Financing of Development Plans

In the usual format of Keynesian growth models investment governs saving: higher investment causes more profits either through greater capacity utilization (normal 'multiplier') or through rising prices ('profit inflation') which, in turn, generates the matching level of savings. The present paper argues that such methods of financing higher investment plans are neither socially desirable nor even sustainable over time in an underdeveloped mixed economy. Consequently, alternative institutional and fmancial arrangements, where a crucial role is assigned to a public distribution system of essential goods and profits of public enterprises, becomes imperative.