This chapter discusses the “utilization controversy,” the debate on whether or not demand plays a role in the determination of the rate of utilization in the long run. First, it explains why utilization has a central role in the various theories of growth and distribution. Second, it examines the theory of utilization and explains how the standard model does not recognize a role of demand and outlines recent theoretical advancements that justify an endogenous-to-demand long-run rate of utilization. Finally, it examines different estimates of utilization. It argues that the Federal Reserve measure of utilization, commonly employed in the debate, is inappropriate to capture long-run variations in utilization. Other measures such as the Average Workweek of Capital or the National Emergency Utilization Rate are better suited. These estimates provide empirical support for a utilization rate which is endogenous to demand in the long run.
Keywords: Accumulation; Growth; Distribution; Utilization
JEL classification: B22 D20 D30 O40
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