The Two-sector Model without Technical Progress

Abstract

The one-good assumption of the last three chapters may be interpreted in two ways. First, it may be regarded as an assumption that there is a single all-purpose commodity which, in particular, is both consumed and accumulated as capital. For an advanced industrial economy this may seem an enormous simplification. It may, however, suggest itself more naturally in the analysis of a pre-industrial economy based on agriculture: agricultural products are both consumed (as food and clothing) and invested in future production (i.e. reproduced), and other forms of capital which are not consumed (machinery, buildings, etc.) may be sufficiently unimportant to be neglected. Thus some writers have illustrated their single-good models with a ‘parable’ of ‘corn’ being produced by labour and ‘corn’ (in the form of seed), for consumption (as food) and investment (as seed). Meade’s (1962, p. 6) model is embroidered with a similar story: ‘The economy produces cows which may be eaten as meat or used as instruments of production to produce more cows.’ But modern growth theory is not meant to be about preindustrial economies or agricultural production.