Profits and Growth

  • W. A. Eltis


THE various threads of the argument can now be brought together to show how the equilibrium values of the major economic variables will be determined. In Chapter 2 it was pointed out that where an economy is on a steady growth path, there must be microeconomic equilibrium with producers and consumers satisfied that they are investing, innovating and consuming at the right rates, as well as macroeconomic equilibrium. The relevant microeconomic conditions for equilibrium were analysed in Chapters 6 and 8 where it was argued that these will be satisfied where the investment and technical progress functions take particular forms. The macroeconomic conditions were analysed in Chapters 2, 3, 4 and 7, which provide further equations which must be satisfied if there is to be steady growth. The equilibrium values of the major economic variables can be found if these equations can be solved.


Real Wage Capital Accumulation Technical Progress Equilibrium Rate Saving Ratio 
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  1. 2.
    The diagrammatic representation of Malthus’s theory of population which follows is an extension of the diagram in T. Sowell, ‘The general glut controversy reconsidered’, Oxford Economic Papers, vol. xv (Nov 1963). I am also indebted to an unpublished paper on Malthus by Mr J. F. Wright.Google Scholar
  2. 1.
    The quoted passages are from Malthus’s Principles of Political Economy (1820) pp. 373-4.Google Scholar
  3. 2.
    J. Schumpeter, The Theory of Economic Development (Cambridge, Mass.: Harvard U.P., 1934).Google Scholar
  4. 1.
    Among the other possible explanations of the close connection between g and S that is illustrated in Table 9.1 are the following, (i) The connection may be entirely short-term, when all would agree that higher investment will produce faster growth. However, with this argument, higher investment should increase the growth rate, at most, proportionately (see pp. 42-4 above), while Table 9.1 shows that higher investment is associated with a more than proportionally higher growth rate, (ii) The evidence is compatible with the life-cycle hypothesis of savings behaviour, where faster growth produces a higher share of saving. Modigliani suggests that this may provide a good explanation of inter-country savings data in ‘The life cycle hypothesis of saving and inter-country differences in the saving ratio’, published in Induction, Growth and Trade: Essays in Honour of Sir Roy Harrod, ed. W. A. Eltis, M. FG. Scott and J. N. Wolfe (Oxford U.P., 1970).Google Scholar

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© W. A. Eltis 1973

Authors and Affiliations

  • W. A. Eltis
    • 1
  1. 1.Exeter CollegeOxfordUK

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