Economic Growth, Theories of

Economic Growth, Theories of

 

the bourgeois concepts designed to validate the interrelationship and interdependence of the basic categories and rates of expansion of reproduction. Economic growth theories represent the bourgeois alternative to the Marxist theory of reproduction.

Economic growth theories are concerned with (1) the factors that determine potential economic growth, (2) the interdependence of the macroeconomic categories (such as consumption and accumulation) that ensure stable economic growth, and (3) the manner in which stable growth is achieved—that is, whether it is achieved automatically or can only be ensured through state intervention.

The theory of economic growth developed in the 1950’s by R. Harrod (Great Britain) and E. Domar (USA) was based on Keynesian premises. In the Keynesian approach to the analysis of economic growth, demand does not automatically equal supply, nor do savings automatically equal investments; demand—especially the demand for capital investment—plays a key role in economic growth; and the basic technological coefficients (for example, the relationship of capital to product, and of labor to capital) remain unchanged because of the rigidity of prices and are determined by the neutral quality of technological progress—that is, by such technological progress as does not influence the effectiveness of production factors.

According to Keynesian models of economic growth, the rate of accumulation is the main strategic factor and the basic parameter of regulation of long-range economic growth. Such growth is stable when savings are a stable proportion of income and capital is in stable relationship to output, creating what is known as a guaranteed rate of growth. Stability, however, is not achieved automatically. Deviations of the actual rates of growth from the guaranteed rate give rise to cyclical fluctuations; deviations of the guaranteed rate of growth from the natural rate (that is, from the rate of growth corresponding to the rate of growth of the population) cause protracted negative trends in the form of economic stagnation or inflation. The maintenance of stable economic growth requires state intervention and the use of tax and budget policies to regulate accumulation and consumption.

Since the late 1950’s, the problems of economic growth have engaged the attention of economists of the neoclassical school, including J. Hicks and J. E. Meade in Great Britain and R. Solow and M. Brown in the USA. Their premises were that demand automatically equals supply; that the supply and effective utilization of economic resources play the major role in economic growth; and that the basic technological coefficients are subject to change depending on the prices of production factors and on the nature of technological advances. The chief premise of the neoclassical theory of economic growth was the idea of free competition, with the prices of production factors established at the level of their marginal products, thus supposedly ensuring a stable economic equilibrium.

On the basis of these assumptions, the economists of the neoclassical school proposed their own model of economic growth. The Cobb-Douglas production function was such a model; together with more complex production functions, it was the basis of a system of indicators that showed the dependence between expenditures and production output (coefficients of the elasticity of output based on resources) as well as the interdependence of the expenditures themselves (maximum rate and elasticity of replacement of resources). A system of quantitative characteristics was devised to show the economic influence of technological progress—such progress being either neutral or not (that is, influencing the effectiveness of production factors), and either materialized (that is, embodied in the means of production) or nonmaterialized (that is, not embodied in the means of production).

Empirical evaluations of the parameters of the production function play an important role in the analysis of the quantitative interrelationships that determine maximum potential output. Specifically, these evaluations were a basis for the conclusion that the main strategic factors of long-term economic growth were technological progress and its determinants—namely, improvements in the quality of equipment, in the level of skills of the work force, and in the organization of production. The economists of the neoclassical school, however, did not use the production function simply to arrive at empirical evaluations; they used it instead as a suitable mathematical form for interpreting the problems of dynamic economic equilibrium on the basis of the vulgar apologetic premises of neoclassical theory. The neoclassical theory of economic growth is designed to prove that the capitalist economic system is internally stable and possesses the necessary mechanisms for automatic restoration in the event of disturbance of the equilibrium. According to this school of thought, state intervention in the economy must be reduced to a minimum and be confined primarily to monetary and credit policies.

The neoclassical theory of economic growth also provides an explanation of the mechanics of distribution of national income. According to the theory, each production factor (that is, labor and capital) receives a share of the output corresponding to its own proportion and marginal productivity. Any change in this share is supposedly due solely to the influence of “nonneutral” technological progress. This theory of growth is thus aimed at distorting and concealing the genuine relations of production and distribution under capitalism.

Both Keynesian and neoclassical theories of economic growth are currently in a state of profound crisis, which results from their failure to conform to reality given the increasingly pronounced contradictions of capitalism. The methodological principles of these theories are the object of heated criticism even within the framework of their own bourgeois political economy.

REFERENCES

Osadchaia, I. “K otsenke osnovnykh napravlenii v teorii ekonomicheskogo rosta.” In the collection Sovremennyi kapitalizm i burzhuaznaia politicheskaia ekonomiia. Moscow, 1967.
Osadchaia, I. Sovremennoe keinsianstvo. Moscow, 1971.
Al’ter, L. B. Kritika sovremennoi burzhuaznoi politicheskoi ekonomii. Moscow, 1972.
Harrod, R. F. K teorii ekonomicheskoi dinamiki. Moscow, 1959. [Translated from English.]
Domar, E. D. Essays in the Theory of Economic Growth. New York, 1957.
Meade, J. A Neoclassical Theory of Economic Growth. London [1961].
Solow, R. M. Growth Theory: An Exposition. Oxford, 1970.

I. M. OSADCHAIA

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