MARKET ALLOCATION AND OPTIMUM GROWTH.

The theory of optimum economic growth that has been developed in the past few years is concerned primarily with the division of the national product between consumption and investment in order to attain the pattern of capital accumulation which the society as a whole prefers to all the alternative schedules. It has been discussed within the conceptual framework originated with Frank Ramsey's classic work, where the basic premises are those of a planned economy within which decisions concerning the allocation of scarce resources are made by central planning authorities. The emphasis placed upon the role of centralized planning is partly due to the growing awareness, based upon both the prewar experiences of the more advanced countries and the postwar experiences of the less developed countries, of the inadequacy of the market mechanism to bring about the desired pattern of economic growth. In a static environment, the (Pareto-) optimality of the allocation achieved in a perfectly competitive market has long been established as one of the basic propositions in welfare economics, but the analysis has not been extended to the case of a greying economy, except for a number of studies originating with Samuelson and Lerner. The purpose of the present paper is to compare the relationships of the growth pattern achieved under the market mechanism with these of optimum growth, in terms of the analytical apparatus recently developed by Koopmans, Cass and others. The concept of optimum economic growth adopted here, however, differs from that commonly used in the optimum growth literature, where the welfare criterion by which various time-paths of consumption are compared with each other is assumed to be exogenously given, in general independently of the preference schedule of the members of the society. In the present paper, we shall instead postulate that the aggregative behavior of the economy may be described by that of the representative individual unit, possessing a... [ABSTRACT FROM AUTHOR]