Recent Contributions to the Theory of Economic Growth

Abstract

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.