International Trade and Economic Growth in Open Economies

International Trade and Economic Growth in Open Economies

The Classical Dynamics of Hume, Smith, Ricardo and Malthus

John Berdell

In this enlightening book, John Berdell addresses the widely-held belief that classical economics distanced itself from policy issues and public debates regarding the effects of international trade on economic growth in advanced economies. He argues, through a detailed consideration of the evolution and structure of Hume’s, Smith’s, Ricardo’s and Malthus’ analyses, that it is not only contemporary international economic theory which takes account of these issues.

Chapter 7: Effective Demand and Technical Change in the Ricardo–Malthus Debate

John Berdell

Subjects: economics and finance, economic psychology, history of economic thought, international economics

Extract

7 Effective Demand and Technical Change in the Ricardo-Malthus Debate I Debating Technology, Distribution, and Demand This chapter develops a non-linear dynamic model o f economic and demographic growth which aims to embody the most essential elements of Malthus's policy-oriented analysis of advanced economies. T h e model and its results are then compared with a very simple model of Ricardian growth so as to contrast their approaches to economic dynamics, and identify the basis of their competing policy prescriptions . I s 3 I draw several elements from the wealth of existing Malthus models and place them within a non-linear, continuous-time dynamic model in which the accumulation of capital, the growth of population, the distribution of income, and technical change participate in a process of circular and cumulative causation in which trend and cycle are inseparable. Each element of the model is developed and discussed individually before their joint action across time is examined. Capital accumulation is developed in section I1 which presents a formulation of Malthus's ever-contentious principle of effective demand. This formulation follows a line of interpretation and modeling in which the dispute between Malthus and Ricardo is seen as one over the determinants of the rate ofgrowth of output and employment at any moment in time, rather than with their levelat that moment in time.I5' T h e formulation o f the principle of effective demand used here renders the profit rate and rate of economic growth as functions of class-specific spending behavior, the distribution of income...

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