Classical growth models and minimal factor rewards

Abstract

In chapter 2, we encountered no stationary solutions for labor, capital and output, except for the trivial axes solutions. However, the inevitable tendency of the economy to approach in the long run a stationary state was the prevalent vision of the classical writers. From an intuitive economic point of view, we are not, on the background of chapter 2, surprised to learn that the classical vision will be confirmed when the growth model of chapter 2.1–2.4, with decreasing returning to scale, is also supplemented with the existence of some positive minimal factor rewards. The latter eventually halts the steady decline of factor prices which, in turn, terminates also the process of factor growth and hence output growth.