ECON414 Chapter Notes -Strategy Of Unbalanced Growth, Robert Solow, Thomas Robert Malthus
Document Summary
Where classical and neoclassical theories do overlap and share characteristics, they are distinct, as shown in chapter 4. Classical theory was concerned not only with the production of income, but also with how that income was distributed. A classical theorist, adam smith believed the invisible hand" of supply and demand would push economies toward equilibrium if and only if competition, upheld by governments, prevented monopolies. Smith also put forward the idea that division of labor and the accumulation of capital would increase output, which would benefit the whole economy. Ricardo"s law of diminishing return and theory of comparative advantage showed some of the same principles; namely, that economies would benefit from specialization and the accumulation of capital. However, thomas malthus" population theory proposed that as economic growth rate rose, low income families would have more children, which would raise the population; per capita income would then fall below subsistence levels and people would die.