Capitalism and Democracy

Capitalism and Democracy

A Fragile Alliance

New Horizons in Institutional and Evolutionary Economics series

Theo C.M.J. van de Klundert

Capitalism is driven by technological revolutions, leading to alternating periods of regulation and deregulation in leading economies. Technologically backward countries face a different situation as they have to catch up with the leaders. Against this backdrop, Theo van de Klundert examines the relationship between capitalism and democracy, combining economic theory and historical description to analyse long-run economic development. Emphasis is placed on the interrelation between economic and political power, and a robust state-of-the-art overview of today’s political economy is presented.

Chapter 3: Engines of growth

Theo C.M.J. van de Klundert

Subjects: economics and finance, economic psychology, institutional economics, political economy


Growth theory has assumed large proportions since the 1950s. Amongst others, Acemoglu (2009) provides a detailed survey of the state-of-the-art. Evidently, technological progress takes a dominant position in growth theory. Remarkably, the position of technological progress has changed substantially in this body of thought. First, it was taken as given, as something that simply had to be taken into account. In a later stage, technological progress itself is completely explained from economic factors. From exogenous to endogenous, as the title of this section indicates. In the standard neoclassical theory, economic growth follows from three explanatory factors, viz. capital accumulation, population growth and technological progress. The latter two factors are assumed to be exogenous. It is assumed that population and employment expand at the same rate. Therefore, the growth of output is explained by the growth of employment (number of workers), the growth rate of the capital stock and the rate of technological change. The relation is obtained by differentiation of a standard neoclassical production function with respect to time. Capital accumulation depends on the saving ratio.

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