The CGP Model

The theoretical basis of the CGP model was eclectic: The economy is seen as a complex system and the role of economic theory was to suggest relationships between variables in the system, but under assumptions, such as fixed consumer preferences and industrial technologies, that are recognised as unrealistic but which simplify the problem. Both extremes of free market and central planning are rejected in favour of consumer sovereignty and planning by government and industry to achieve social and political objectives. A context of Keynesian fiscal policy to maintain full employment and low inflation from year to year is assumed, but additional policies are seen as necessary to influence the long-term growth rate. The model is Keynesian with some neoclassical components but distinguished by being structural. The model was highly disaggregated compared to the macroeconomic models being developed at the same time.^[1] The first version had 253 accounts arranged as a matrix to embody the double-entry characteristic of the accounts, with outgoings down the columns and incomings along the rows [86]. An aggregate consumption function is replaced by an assumption about the growth of total private consumers’ expenditure, with detailed consumer spending given by the Linear Expenditure System. Aggregate income is replaced by neoclassical production functions for 31 industries, with a modified Cobb-Douglas functional form, an assumed average wage rate, and a common rate of marginal physical product for labour and capital across all industries. Clearly, the solutions could be unbalanced in that they could show unemployment of labour or insufficient labour to meet the demands of industry.

• [1] See for example the work of the Brookings Institution reported in Duesenberry et al. (1965).