On Putty-Clay

Abstract

Following on the work of Johansen [3] and Salter [8] a number of writers (e.g. [2], [4], [6], [7] and [10]) have investigated various properties of a model of economic growth which is characterized by a variable capital-labour ratio at the moment that investment occurs (putty), and a fixed capital-labour ratio thereafter (clay). Technical progress takes the form of a flow of new ideas for the construction of investments, but it does not include any new ideas for the more efficient employment of existing investments. In the now standard terminology, technical change is all “ embodied ”. The term “ putty-clay ”, coined by Phelps [7], neatly describes these assumptions. The aim of this paper is to provide a fairly complete and rigorous treatment of the balanced and the efficient growth paths of the model without recourse to unnecessarily restrictive assumptions such as Cobb-Douglas. This task, among others, has already been completed by Solow, Tobin, von Weizsäcker and Yaari [9] for the case in which the capital-labour ratio is fixed even at the moment of investment. Such a case is a limiting and special case of the model of this paper, so that the results of Solow and his colleagues have provided a useful check on my results. The same is true of Phelps’ results on the Cobb-Douglas case.

I am greatly indebted to D. G. Champernowne, F. M. Fisher, F. H.Hahn and J. A. Mirrlees for helpful advice and criticism of earlier drafts. None of these bear any responsibility for errors in this version.