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The notion of dynamic instability of demand driven growth put forward by Harrod (1939) has triggered several responses in the history of economic thought. The modern Kaleckian solution, including Bhaduri/Marglin (1990) among several others, considers the rate of capacity utilisation to be endogenous beyond the short run, thus assuming, explicitly or implicitly, that Harrod's warranted rate of growth is either irrelevant or endogenous in the long run, eliminating the problem of Harrodian instability. In the modern debate several authors have criticised this Kaleckian approach, as reviewed in Hein/Lavoie/van Treeck (2011, 2012). In this debate, however, two arguments proposed by Steindl (1979, 1985) in favour of at least partial endogeneity of the warranted rate of growth have received little attention. The first is related to the endogeneity of the capital output ratio through endogenous capital scrapping (Steindl 1979); the second refers to government budget balances and the related effects on the aggregate propensity to save (Steindl 1979, 1985). In this paper we will therefore discuss in particular the two Steindlian arguments. For this purpose the model framework proposed by Hein/Lavoie/van Treeck (2011, 2012) will be extended in order to allow for endogenous capital scrapping and endogenous overall propensities to save through variations in the government financial balance.

The principle of effective demand, and the claim of its validity for a monetary production economy in the short and in the long run, is the core of heterodox macroeconomics, as currently found in all the different strands of post-Keynesian economics (Fundamentalists, Kaleckians, Sraffians, Kaldorians, Institutionalists) and also in some strands of neo-Marxian economics, particularly in the monopoly capitalism and underconsumptionist school In this contribution, we will therefore outline the foundations of the principle of effective demand and its relationship with the respective notion of a capitalist or a monetary production economy in the works of Marx, Kalecki and Keynes. Then we will deal with heterodox short-run macroeconomics and it will provide a simple short-run model which is built on the principle of effective demand, as well as on distribution conflict between different social groups (or classes): rentiers, managers and workers. Finally, we will move to the long run and we will review the integration of the principle of effective demand into heterodox/post-Keynesian approaches towards distribution and growth.

We tackle the issue of the possible instability of the Kaleckian distribution and growth model and the consequences for the endogeneity of the equilibrium rate of capacity utilization and for the paradox of thrift and the paradox of costs. Distinguishing between Keynesian and Harrodian instability, we review various mechanisms that have been proposed to tame Harrodian instability while bringing back the rate of utilization to its normal rate. We find that the mechanisms that have been suggested are far from being convincing. We thus review some approaches arguing that the adjustment towards a predetermined normal rate should not be expected at all, either because the normal rate reacts to the actual rate, or because of other constraints on the behaviour of entrepreneurs. We conclude that Kaleckian models are more flexible than their Harrodian and Marxian critics suppose when attacking the simple textbook version.