Mainstream Growth Economists and Capital Theorists

Mainstream Growth Economists and Capital Theorists: A Survey

Copyright Date: 2014
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    Mainstream Growth Economists and Capital Theorists
    Book Description:

    Mainstream Growth Economists and Capital Theorists provides a historical survey and ideal introduction to modern economics, arguing that due to significant changes in recent years, a re-evaluation is in order. Marin Muzhani presents an informed study of the debates regarding economic growth and development that began in the 1930s in response to the Great Depression. He argues that in the wake of that crisis, the challenge for economists was to understand how to generate stable economic growth in order to prevent future crises. The theories of John Maynard Keynes, in particular, sought to explain the reasons for unemployment and recessions, paving the way for the field of macroeconomics and challenging the basic premises of neoclassical economics. In the late 1930s and 1940s, economists began to extend Keynes' ideas, synthesizing them with neoclassical ideas in order to explain economic growth. This "neoclassical synthesis" would dominate mainstream macroeconomic thought for the next forty years until the mid-1980s with the introduction of endogenous growth theories. Taking into account the historical background, the multitude of interpretations of modern growth models, and the geography of mainstream economists, Mainstream Growth Economists and Capital Theorists will simplify the structure of growth theory for the next generation of economists.

    eISBN: 978-0-7735-9210-0
    Subjects: Economics

Table of Contents

  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-viii)
  3. Figures and Tables
    (pp. ix-2)
  4. Introduction
    (pp. 3-18)

    In the wake of the Second World War, and for a number of reasons, the problematic aspects of economic change – that is, economic growth and economic development – attracted increased attention. This research consumed enough space in the economic literature to form two distinguished families of theories and models: one concerned with growth and one with development. The distinction between these two streams of literature is uncertain and often widely empirical.Growthis the term applied to those countries where the gross domestic product (gdp) per capita is greater than a determined level of income reached by a pool...

    • 1 Growth, Technological Progress, and Unemployment in the Thought of the Classical Economists
      (pp. 21-34)

      The theory of growth is central in the thought of great classical economists like Smith, Ricardo, and Marx. The study of economic growth concentrates mainly on a dynamic economy able to reproduce and develop itself. The common idea of classical economists is that, in an economic system, there is surplus value, which, if accumulated or transformed into capital, nourishes the growth of the system. The surplus value is what remains of the social product once incorporated into the consumption goods necessary for subsistence and reproduction of labour. For Smith, Ricardo, and Marx, the role of technological progress in the society...

    • 2 The Beginning of the Modern Theory of Growth: The Neo-Keynesians
      (pp. 35-68)

      Harrod (1939, 1948) and Domar (1946) were the first Keynesians to develop macroeconomic models capable of formalizing the problems of growth. They emphasized in particular the relationship between the consumption-saving behaviour by households and the investment decision by entrepreneurs, although theories about these behaviours were not fully developed. In fact, the consumption-saving decision is defined, following the Keynesian approach, by an exogenously given propensity to consume, while the investment decision is defined by the multiplier coefficient.¹

      Harrod and Domar, following Keynes, believed that the market mechanisms would not be able to create full employment, so they chose to develop a...

    • 3 Theory of Distribution and Growth: The Old Keynesians
      (pp. 69-98)

      Harrod and Domar did not take into consideration the relation between growth and distribution, as they were more concerned with the determination of the growth rate in a depressed economy rather than the distribution of income among different groups in the society. For many post-Keynesian economists, the relation between distribution and growth has been too close, and one such approach was investigated by a number of scholars from Cambridge in the United Kingdom, particularly Kaldor, Pasinetti, Mirrlees, and Robinson. The view of the Cambridge school is that the theory of growth is indivisible from the theory of distribution.

      The contribution...

    • 4 Neoclassical Theory of Growth: Factor Substitution, Optimal Growth, and Money Growth
      (pp. 101-174)

      A few years later, it seemed that the conclusion from the Harrod-Domar model might appear overly pessimistic. Growth theory was given a new dimension. A different attempt to resolve the stability of full employment is the steady state, developed by Solow (1956) and Swan (1956), and this theory is often called the Solow-Swan model, although the two economists contributed independently from one another. The work of both economists consists in the introduction of a neoclassical production function able to analyze the process of growth. The assumption of substitution between productive factors gives the growth process an adjustability that is extensively...

    • 5 Technological Progress and Growth in Neoclassical Perception
      (pp. 175-228)

      In the modern theory of growth, it is common to assert that most of the output increase is due to technological change. Growth of input alone, of course, cannot explain the growth of output. Most of the classical economists put the accumulation of capital in the centre of their attention rather than technological revolution of their time. Smith, Marx, and Mill discussed the contribution of knowledge and skills of a nation’s labour force to its aggregate output and often assigned to discoveries and inventions a vital role in development. Similarly, the protection of domestic infant industry was based on the...

    • 6 Some Accounts of Capital Controversy and Growth
      (pp. 229-268)

      The neoclassical “vision” of economic growth, together with many specific concepts and methods employed in its elaboration, has been subjected to a series of attacks from a group of distinguished economists collectively known as the “Cambridge School” because of their association with the faculty of economics at the University of Cambridge in the United Kingdom. The school rotates around the works of D.G. Champernowne, R.F. Kahn, Nicholas Kaldor, Luigi Pasinetti, Pierangelo Garegnani, and Joan Robinson. On the other side of Atlantic Ocean, there is the neoclassical school of Cambridge, Massachusetts in the United States, represented by the work of Robert...

    • 7 Theories of Growth and Convergence between Poor and Rich Countries: The Early Development Theories
      (pp. 269-310)

      Many ideas in economic theory by and large try to filter through gradually from the world of intellectual construct to the world of practical decision. Those who maintained that growth models have contributed very little or nothing to the formulation of economic policy would benefit from reading the policy proclamations and analyses of the late 1950s and early 1960s. Comparing present-day economic policies with those of the first two decades after the Second World War demonstrates clearly the improved standard of reasoning with regard to the problems of economic growth. Formal models of economic growth in the 1950s and 1960s...

    • Intermezzo: Overall Conclusions about the Evolution of Growth Theories in the First Four Decades of the Postwar Period
      (pp. 311-322)

      Here we should be able to draw some conclusions regarding the evolution of growth theories in the first three or four decades after the Second World War as things stood in about the 1970s and early 1980s. The primary objective posted at the beginning of this work was to show in a historical context the development of the modern theory of growth, and the second objective was to re-establish what really determines growth in the economy. In other words, what are the variables, determinants, and factors that most affect (directly or indirectly) the rate of growth?

      The classical economists, who...

    • 8 Toward the New Theory of Growth: Endogenous Growth and Technological Transformation
      (pp. 325-372)

      Modern endogenous growth theory embraces a broad structure of theoretical and empirical work that emerged in the 1980s. This research program distinguishes itself from neoclassical growth theory by underlining that economic growth is an endogenous process that is part of an economic system, not the result of forces coming from outside, like manna from heaven. Differently from neoclassical growth theory, the endogenous method does not focus on exogenous technological change to explain the increase of income per capita, but focuses instead on research and knowledge at the level of industry or firm, which also affects the behaviour of the economy...

    • 9 Endogenous Growth: Innovation and New Consumer Goods
      (pp. 373-423)

      This chapter presents a discussion of some alternative models of intentional industrial innovation. Unlike Romer, for whom growth is mainly obtained through the production of a variety of intermediate goods, Grossman and Helpman (1991a and 1991b) deal with innovation that serves to expand the range and the quality of finished goods available on the market. Firms devote resources to research and development in order to invent new goods that substitute imperfectly for the existing ones, and producers earn monopoly rents, which serve as the reward for their prior r&d investment and efforts. Growth then comes as a result of the...

    • 10 Endogenous Growth and the New Schumpeterian Approach of “Creative Destruction”
      (pp. 424-469)

      “Creative destruction” refers to the constant process of the innovation mechanism by which new production units replace obsolete ones. This idea was invented by Joseph Schumpeter (1942), who considered it “the essential fact about capitalism.” The process of creative destruction infuses major aspects of macroeconomic activities – not only long-run growth but also short-run economic fluctuations, structural adjustment, and the functioning of factor markets. At the microeconomic level, several decisions in different organizations are chacterized by restructuring and reorganizing the production arrangements. These decisions involve multiple parties as well as strategic and technological considerations. The efficiency of these decisions not...

    • Overall Conclusions about the Survey on Growth Economists and Capital Theorists
      (pp. 470-480)

      The debate about growth and development that began after the Second World War has become the most challenging and frequently discussed one in economic forums, conferences, and literature. Growth modeling has attracted an astonishing concentration of research talent and effort, yielding results of great interest and value. Growth is a phenomenon that involves the whole economy and intersects with many important issues, such as capital, labour, technological change, unemployment, environmental constraints, institutional arrangements, and organizations. As such, examinations of the relationships between these factors have raised many still-unresolved questions that have challenged growth theorists and policy makers to develop new...

  8. Notes
    (pp. 481-522)
  9. Bibliography
    (pp. 523-552)
  10. Index
    (pp. 553-558)