The mechanism of the growth of a capitalist economy has already been analyzed by many. In this short chapter we sketch some of the well-known models of economic growth and discuss what is new with our model and its raison d'être.

Models of economic growth

It is usually said that the work of Harrod (1939) opened the door to the modern theories of economic growth. This need not mean, however, that the analysis of the dynamic movement of a capitalist economy has not been previously made. Particularly, the names of Marx and Schumpeter cannot be forgotten as the great creators of dynamic theories of capitalism. Marx regarded economic growth as the process by which capitalists continue to accumulate their wealth by exploiting workers, whereas Schumpeter regarded it as the process by which enterpreneurs engage in “creative destruction.”

Since Harrod's work appeared many models of economic growth have been proposed. Among these growth models perhaps the most well-known controversy is the one between the two Cambridges. The neoclassical model – whose main advocates are in Cambridge, Massachusetts – envisions economic growth as the process such that, thanks to the invisible hand, investment of exactly the amount required to sustain full employment of all resources is always realized. The Keynesian model – mainly proposed by economists in Cambridge, England – claims that the investment behavior of firms is the determining force of the dynamic equilibrium of the economy and the level of investment is determined by, say, animal spirits.