Abstract
A fixed-proportion growth model is developed to explore when Ricardo was correct in his famous assertion that disembodied technological progress can both reduce full capacity, real output, and the demand for labor even if the new machines are more profitable. Real output may decline if the capital-output ratio rises. The resulting unemployment is different in kind from cyclical or structural unemployment because it is caused by declining aggregate supply. As Ricardo also claimed, higher savings and investment caused by the higher rate of profits will eventually lead to a higher rate of growth. Copyright 1989 by The London School of Economics and Political Science.
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