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Recent Contributions to the Theory of Economic Growth

Published online by Cambridge University Press:  07 November 2014

H. A. John Green
H. A. John Green*
Affiliation:
University of Toronto
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Extract

The theory of economic growth is concerned with the behaviour over time of the major economic aggregates—among them consumption and investment, wages and profits. At the present time growth theory is the field of a methodological dispute between the so-called “neo-classical” and “neo-Keynesian” schools of thought. In this paper, in the course of a brief consideration of recent major works in this area, an attempt is made to discover the nature of the disagreement.

Let us begin with Meade's Neo-classical Theory of Economic Growth. In a lucid introductory chapter, the assumptions common to the two sides in the dispute are set forth. We are to consider a closed economy, with no government expenditure or taxation. There are two types of goods: machines and a homogeneous consumption good, each produced by means of machines and labour (and perhaps land). The assumption of competitive conditions throughout the economy is interpreted somewhat differently by different authors. To Mrs. Robinson in her Essays (p. 8), it means that in long-run equilibrium a uniform rate of profit rules in all sectors of the economy. To Meade it means, in addition, that each factor of production receives as payment the value of its marginal product.

Type
Review Articles
Information
Canadian Journal of Economics and Political Science/Revue canadienne de economiques et science politique , Volume 29 , Issue 3 , August 1963 , pp. 386 - 392
Copyright
Copyright © Canadian Political Science Association 1963

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References

1 Meade, J. E., A Neo-classical Theory of Economic Growth (London, 1st ed., 1961; 2nd rev. ed., 1962)Google Scholar; Lutz, F. A., and Hague, D. C., eds., The Theory of Capital, Proceedings of a Conference held by the International Economic Association (London, 1961)Google Scholar; “Symposium on Production Functions and Economic Growth,” Review of Economic Studies, XXIX(3), no. 80, 06 1962 Google Scholar; Robinson, Joan, Essays in the Theory of Economic Growth (London, 1962).CrossRefGoogle Scholar

2 Samuelson has questioned the appropriateness of “national income” as an index of economic well-being in this context; see below, p. 389.

3 See Kaldor, N., “Alternative Theories of Distribution,” Review of Economic Studies, XXIII(2), 1955–1956, 83–100 CrossRefGoogle Scholar, and an important modification of the argument by L. L. Pasinetti, “The Rate of Profit and Income Distribution in Relation to the Rate of Economic Growth” in ibid., XXIX(4), Oct. 1962, 267–79.

4 I hope that an explanation of the failure of the surrogate production function in the case where input proportions differ between sectors will soon be given (see “Symposium,” p. 202, n. 1).

5 See “Symposium,” 226.

6 A simple neo-classical proof, for the case where technical progress is absent, is as follows. Let the production function, homogeneous of degree one, be Q = F(K, L), where Q, K, and L stand for output, capital, and labour. All three are growing at the rate g. Consumption is given by C = Q − dK/dt = Q − gK. Given L, C (and therefore C/L) will be maximized when ∂C/∂K = ∂Q/∂K − g = 0, so long as ∂ 2 Q/∂K 2 < 0. In this case ∂Q/∂K (the rate of profit) equals g (the rate of growth of K) and K(∂Q/∂K) (profits) equals gK (investment). Q.E.D.

7 See her Accumulation of Capital, 117.

8 Professor Hague deserves the reader's thanks for his excellent “Summary Record of the Debate.”

9 XXIII(2), 1955–6, 101–8.

10 “Symposium,” 258–66.

11 The inclusion of this word seems to imply that Mrs. Robinson's “golden age,” which is typically not stationary, is ruled out.

12 “Symposium,” 174.

13 See ibid., 205. Kaldor also rejects the assumption that technical progress affects equally the productivity of workers using old and new equipment. His view of technical progress as chiefly “embodied” in new equipment is shared by some neo-classical writers. Arrow's paper in the RES “Symposium,” suggests that the “embodied” school may not have all the truth on their side. But cf. Kaldor, ibid., 176, n. 1.

14 Theory of Capital, 210.

15 Ibid., 342–7.

16 “Symposium,” 187.

17 Neo-classical Theory, 2nd ed., x.