MODELS OF ECONOMIC GROWTH.

The purpose of this paper is to explore the theoretical possibility of equilibrating adjustments in the capital coefficient in a growing economy. In an automatically and fully adjusting economy, the capital output ratio would always assume the value corresponding to the postulate that all voluntary savings plus whatever tax payments there are must be absorbed by the planned private capital formation plus whatever government expenditures are made. The economy is not fully adjusting in this sense. But it should not be assumed that the economy is fully non-adjusting in the same sense. In general theory of economic growth, we could not simply take it for granted that the atomistic decisions of individual entrepreneurs would provide all increments to the labor force with equipment in the optimum ratio. Indeed, this might constitute a major part of the adjustment problem in an automatically adjusting economy. But an adjustment in the capital coefficient is not the appropriate remedy when unbalanced growth results from a failure of capital widening to proceed at the rate warranted by the growth of the labor force. If, for example, in an otherwise balanced situation, the actual rate of widening fell short of the warranted rate, resulting in a chronic deficiency of demand, a rise in the capital-labor ratio would reduce the deficiency of demand without eliminating growing unemployment.