A Comparison with Results of Neoclassical Capital and Growth Theory

Abstract

In this chapter we will use the two-sector-model with n period horizon, presented in Section 5.2, to show how some of the results of neoclassical growth theory can be derived with our neo-Austrian approach. First we assume that the amount of labor is no more constant, but grows at a constant rate. Restricting attention to the class of proportional production programs will enable us to compare our model with neoclassical ones of balanced growth. In particular, we will concentrate on the neoclassical result that the rate of growth is smaller than or equal to the rate of interest for every (dynamically) efficient steady state. We will demonstrate that

• 1. superiority and roundaboutness are necessary conditions for a production program to be an efficient steady state with positive growth rate;

• 2. in an efficient steady state with a positive or zero growth rate only greater productivity of roundabout methods of production determines the positive difference between interest rate and growth rate;

• 3. even if the growth rate is negative, superiority of roundabout techniques can explain a positive interest rate;

• 4. in a golden rule steady state, which is defined by maximal per capita consumption, the rate of interest is equal to the rate of growth only if there is neutrality of time preference.