The Golden Rule and the Gain from Trade

Abstract

The object of this essay is to compare the per worker consumption possibility set in a closed economy with that in an open economy, when both economies are growing at a steady rate, g, and have a uniform and constant rate of profit, r. We shall assume that the same constant returns to scale methods of production are available in each country and that there is only one primary input, homogeneous labour.¹ (Capital is thus not regarded as a primary input.) We shall assume, further, that only consumption commodities are traded, that the open economy can trade at given terms of trade and that there is no govemment.² Our analysis will be a comparative dynamic one and we shall not consider the transition between no-trade and with-trade steady growth paths.³

This essay was first published (in French) in C. Berthomieu and J. and L. Cartelier (eds.), Ricardiens, Keynésiens et Marxistes, Presses Universitaires de Grenoble, 1974.