Economic Progress in a Stable Environment

Abstract

IN actual life the process of economic change is dominated by technical developments resulting from scientific discoveries and is closely associated with changes in the size of the population of working age. In what follows I shall rule both these things out of account. I shall assume, moreover, that the stock of money circulating outside the banks is fixed and that the Government does not attempt to control investment with a view to regulating employment. Finally, I shall assume that the State nowhere intervenes by fixing maximum prices below, or minimum prices above, those which would rule in a free market. This implies that at the ruling prices there are no unsatisfied demands or unwanted supplies; in other words that markets are everywhere cleared, or, if we will, that all parts of the economic system are always in market equilibrium-to be sharply distinguished from what I shall call in a moment thorough-going equilibrium. The theme I propose is this. Let us imagine ourselves situated in an initial year in which some investment is taking place, and let us ask what thereafter, subject to the conditions set out in the last paragraph, will happen. The enquiry is most conveniently conducted in two divisions; first on the assumption that people make net savings --I use this term as equivalent to net investment-solely on account of the material returns which they expect them presently to yield, so that, if these expected returns were nil, there would be no net saving; and, secondly, on the more realistic assumption that saving is partly motivated by a desire to hold capital wealth as such as a source of prestige, individual security and so on. On the first assumption the analysis is straightforward, but on the second some awkward puzzles may-not must-present themselves.