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A New Model of Economic Growth

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  • Nicholas Kaldor
  • James A. Mirrlees

Abstract

The purpose of this paper is to present a “Keynesian” model of economic growth which is an amended version of previous attempts put forward by one of the authors in three former publications.1 This new theory differs from earlier theories mainly in the following respects: (1) it gives more explicit recognition to the fact that technical progress is infused into the economic system through the creation of new equipment, which depends on current (gross) investment expenditure. Hence the “technical progress function” has been re-defined so as to exhibit a relationship between the rate of change of gross (fixed) investment per operative and the rate of increase in labour productivity on newly installed equipment; (2) it takes explicit account of obsolescence, caused by the fact that the profitability of plant and equipment of any particular “ vintage ” must continually diminish in time owing to the competition of equipment of superior efficiency installed at subsequent dates; and it assumes that this continuing obsolescence is broadly foreseen by entrepreneurs who take it into account in framing their investment decision. The model also assumes that, irrespective of whether plant and equipment has a finite physical life-time or not, its operative life-time is determined by a complex of economic factors which govern the rate of obsolescence, and not by physical wear and tear; (3) in accordance with this, the behavioural assumptions concerning the investors’ attitudes to uncertainty in connection with investment decisions and which arc set out below, differ in important respects from those made in the earlier models; (4) account is also taken, in the present model, of the fact that some proportion of the existing stock of equipment disappears each year through physical causes—accidents, fire, explosions, etc.—and this gives rise to some “ radioactive ” physical depreciation in addition to obsolescence; (5) since, under continuous technical progress and obsolescence, ther
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Nicholas Kaldor & James A. Mirrlees, 1962. "A New Model of Economic Growth," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 29(3), pages 174-192.
    • Handle: RePEc:oup:restud:v:29:y:1962:i:3:p:174-192.
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    File URL: http://hdl.handle.net/10.2307/2295953
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