Growth, Distribution, and Prices Stephen A. Margin HARVARD UNVERSITY PRESS (Care, esses, ans Londo, ErgFer Mare, Dai ae Biabeth‘Acknowledgments "have incurred many debts along dhe way to writing these words, which although appearing Sst inthe text are the lsat of long dram Masthiko Aoki and Tsuneo Ihikawa cllaborsed nearly teaching ventures om which this book grew. am especialy indbeed to then 2s wellas to successive generations of dents at Harvard Universi ‘over the past decade and «group of surdents t Concordia Univer ‘during 1976-~77. Among the Harvard student, Moka Rao and ‘Klaus Nehring made particularly important sbnevatons. Tn addition vo forming the bs for a cour in economic theory, ‘entra ideas ofthis book were presented in serminars sn lectres oe which I received crucial feedback. Even though many years have [sed the strategic comments and questions interjected by Kenner ‘Arrow, Galen Burkbarat, Tiling Koopsoans, and Asa Lisdbeck ‘remain fre in my mind. Rober Dorfman, Her Cin, David Cor- don, Zvi Grilches, Frank Han, Edwin Kuh, Willam Lazonhs Ni flac! Mandel, Andreu MaeColel, Alfredo Medi, Laigi Faint Hashim Pesan, Jonn Robinson, Berra Scheffe, Robert Scion, Lance Taylor, and two anonymous referees end pars ofthe book raf. The final produc has benefited from tir obervaions My biggest debe was incurred in connection withthe econometrics of Chapter 18 Mark Watson provided instruction and intton nto the mysteries of statses and’ econometic, and Daniel O'Relly gave invaluable help in puting the theory into practice could nce Rave ‘arried out the texts desrbed inthe appendix to Chapter 18 without their help, which ment well Beyond the norms of eolegilty and professional cures) 1 shoold add that Chater 18 uted! data that ‘Chates Scie! Kindly made vaiable rom his thes.ACINOMLEDSNENTS {hate beenecremeyfrtnate in the stance Ihave received in ‘rearing the bok for pubeaton. Andrew Nevwsan as xemplry tn correcting bh galley and page proto well sn preparing dhe Index He ms ably ated nb Se edenors by Rebeca ae 1 Inaddon, Mr. Newman read through the ent bok in serch technical and maternal mishaps and confsons Hi pausing ‘fir sayed me om ceria emburatment and you fom coraig ‘ugraration, Many people combed ver the years to tanlting Various versons of the manu to tpecrpe Ul sgl aut Bevel Petre, isnot becae Lam unaprecinire ofthc cn tions of many eter Willa Mind the igre ann any ees ‘edd hem to core eros in ny iia spain to seco ‘oda changes inthe text. ‘The cay of his craving hs ned immessurably to the expostion. Thomas Brash ssid inthe ey ‘ages ofthe regreson aly desrbed in Chapter 18 "Various delim detvering copy and ast minut changesin he tex complicated the Iver of my elo I rere hat Mice! Aronsoa, Marla Ascher, and Mary Elen Geer had pay for ny prope to sid wa mayor may be i. ‘The National Science Foundation supported my research in 1979, 4980 and 1981 and again in 1983, The Harvard tte for eo nomic Reach provided support for secretarial and computonl sistance in 1981 1982, and 1088 Tam rtf to bath organi Froderque Apfel Margin provided inter ale an anthropologi perpetve tht has helped me underand the lite of oman $l, Having twite elated the competion of ths bok prema {ately te wa the second mos happy pero nthe word when as Fray done Contents Q rwoaietin 1 Growth and Distribution with Homogeneous Capital and Ouput @ rrenecceeselAnpeacn 23 D Pereotenien sopoach 2 (@ Mreneokejrdn Aopen 8 (Bi neoterananateoKeynesin ConcentineotbeLabor Me 98 (B ’cererateng th Cars: Te Cares Sang Eaton 110 tssfT Fudan te Cabide Savrg Eaten 3 8 somes moss 155 @ wwiase repoters 67 10 Maryn Product nd Mages Peatay Thay 218 General Equlbrium: The Problems of Heterogeneous Capital and Output 11 TheBese Model inthe Mtge Good Content 201 12 Mille Tecoiogos: Tha Reowtcing Debate 275 13 Connuous Subemuten 704 114 Menopsy and DegeeetNenopaly Tesry 297od cconrens @ 16 7 8 js ‘0 @ Toward an Understanding of Capitalism An Overt Suenary 311 Testing tha Mode: Enegy and Emeloyment 237 ‘erate Tenies of Satng 261 Disngusting Sang Taores Empey 269 (Gis and Evahaton 456 [ASyrines of Marx anc Keynes 487 ral Weds 526 Notes onthe Ltetine 529 Feleencas 548 edo 561 Fro tho tems ofthe endowment of the Hol Professor of Mahe ‘mack and Natal Piosophy at Hervard Cage, 1726 “That is Proves bat nbs the tentsn Sto of Natal Pricsopy in wtih fe] © be comprehended. the motors of ‘he Heavenly Body accoring tote cere Hypathesas of Play, ‘yeho Brae, ana Cope”1 introduction “There iss fundamental paradox inthe Westem word that escapes our ‘tention only because ofthe inconvenience and discomfort of eer ing tA vitor from Mars, however, could hardy fail o note the djuncion between the high degre of egalitarian hat character tzesbothourrelgioand il bt ad neque inthe economic sphere Allinay be equal before Gel (Remas 211) and the United Sates Conatuton, bat those who do the ies ast | Pleasant, and mon exhausting work in gencral receive the west 1 Frcomes, while thoe a the opposite end ofthe income crbton do | the moa pleat work—wotk involving mental rather than physical a ‘exertion ofien a2 not the work of organising and diving cher | Peoples work. Indeed at the upper intone need ot work tal the Unite Stats the top one percent of wean holder receive corpo. ‘ate divdends, notto mention other formset property income that sre ‘equate to spores andar origins tt esoqed oy ‘mos ofthe population conomi, slong wih theologians, have strugled with the pra- jam and reward, although mich of he fffrt ofboth groups i tore accurately described ax an temp to explain the paredox away than a5 an atempt to understand Tit SUE fas cmeer of BA eypanaton a apdlogy alough es obs rosy that racer il diferatioehch hhc ent nodal, neosMarsan, and neo-Keynsan approaches {he pene of how dirbuton dcermined ander pean ‘second focus of his book, ined a for of economics ince the daj-oF Ada Sith the causes of growths How have expat ures seen ssa aly Germany, and France managed to0 rpialyover the pot Worl War I period wile Great iin Sad the United States ave now Filly, his book anaes serie views ofthe determination of scaihe foes Deny en nena Sse a ‘face tothe “paradox of rau,” the quesion of why the prc of ‘ces ie wnter ow rene tothe pice of xr he mond ‘There isconsderae agreement in he ethoal tthe nowe, ba thisagremens more the product ofthe domiance of «prt theory tana cet of want aco here lac aren {Geral approaches ach very deren role tothe conte He scree ofthe neon reso tbe Banes vex who dom Mates the neoReynenan word; andthe talon of cls power on thik neo Maran theory tre (These; then ae the concerns of his book: What determines the ition atthe economic pe between propery ince Sd mage income’ How dation feed economic yaw What Te onthip does the strate of comoy pres fe to ra tron? Te hat exe does cone dean fucer growth ‘tribution, and price? Behind these queso era problem hat has speed economist well moral pisos for cena Why oes propery income ex an econo ‘ted? The een swe ahi make cle once ils be ara addresed. The sent of ths bok m to examine gona, ‘aribson, andl prics Tom + dexrpive rather ta 3 Rotatte ‘eng iwi bee The adoro su morales ‘eam sugges shel probaby deal vith aterninclogcal point before geting any further ito the dcusion. Property ine conventional Sep fated rent, ners. and prof Bicthroughowt tbo brat fom anda an input to production an ents src fo fet, So ‘elae le ith terest and pron te snes ward pros Sona ene ite rn oeqe captains a {fe earn to deb capa bt bon sage fom the mening hse rane in tonometer. Neocles the United ae, ef neren ih acompetive rare ad eats the turn tothe pla morgane of producto, innovate, apd rik bearers wage, expt or impli. Prot 3 ‘epee consquenee of mart inperecione somewhat odd fetminologial ese in ve of the importance om Adam Smith to “Aled Marsal ofthe den f “watt or “norma pots the Competitive revard of capitalist ces ater fo he see ‘ordcption of the captain ss wells tere on cpa In eos iwrmooUCTON al ie rum andr ast to ae _shayacterzed by a postive neret ate and sro prois- Neo Marsan ‘and neo Keynesian usage, paradonclly, rue othe spirit of Sith Sd Marshall profi identified with capitis income; imeet is Simply one component of profi. Under competitive conditions, the ‘neo Marxian and neo Keynesan rate of profi ices both the Cm babe invert ratesnd he capt "wage th ote ‘feta peas cormsponds to zero upernonmal profisinno-Marsan and neo-Keynesan tetminology “This book uses noneocasial language: daibution i eharacer Jed a problem of determining profi and wages. Since product markesare generally reatedas competitive, theneocasicaly nclined tay be tempted to subse the word “interes” whenever they se “profit” and forthe mest part hiss harmless substation. But sme care must be exercied in working through both the neo Marxian ‘model, where the organization of production is the outcome of lst Straggle rather than of 3 competitive market proces, and the Neo Keynesian model, where the diferene between prof ats retin capitalists and imerest asa cost of expt playran important role The Problem becomes more scious in models ia which workers re a ‘med to own a sigieant portion of the capital sock, ‘Basic Differences between the Three Approaches “he tne fleeces Between hee thoi en the way thy 2perach pal scumeline ante to ke nthe aaa | ‘HE Santon canal determin ye ete ‘ily anno ethos, whve umergoe akeoge- Tuy ger rue, Englopmestn deermned bye ier of, ‘nun —temined yaaa snd chloy and ‘Serine nthe fr tance by pps and coy oy Keone aren ih rnp ar and on thal woe jc ded and mpi ech oer and arenes ul emp Ii ora leat ob er very wing wore Tn oli tnt age vat tt make he gro Te of pal died by uate equi eogemuly gen ano pondos gow ‘That nthe neo ven an eeu gen ate of pom combines wih hobs ppl proton cog ‘eine ein lino Doon hema they cal pai of pe incense sel profi rates te thse tht Gear labor and capital markets The baie Sora ea erent dl wih te ate ay