The model of growth

The ricardian model of growth can be illustrated by Figure A4.01. Grain is measured on the vertical axis, labor on the horizontal. The curve illustrates the quantity of grain produced by a given number of agricultural workers. It is a standard production function, characterized by diminishing returns to labor because land is given. As the agricultural labor force increases, therefore, grain output increases but less than proportionately: labor's marginal product (the slope of the curve) decreases, and so does its average product (the slope of the ray from the origin to the relevant point on the curve). The illustrated ray out of the origin is in a sense the inverse of the curve. It illustrates the number of workers “produced” by a given quantity of grain; its slope corresponds to the “subsistence” wage, that is, the wage that keeps the labor force constant. The labor force would increase with a higher wage, and decrease with a lower one; in long-run equilibrium, wages must be at “subsistence,” so defined.

The intersection of the illustrated curves (G3, L3) identifies the equilibrium of a communist society (which distributes the total product equally among the people, and if necessary forces them to work), and also of a society with private property, so long as it is equally distributed (so that the per-capita return to land tops up the less-than-subsistence per-capita return to labor, and everybody again winds up consuming the average product).