Showing papers by "Robert M. Solow published in 1974"

Intergenerational equity and exhaustible resources

Abstract: The theory of optimal economic growth, in the form given it by Frank Ramsey and developed by many others, is thoroughly utilitarian in conception. It is utilitarian in the broad sense that social states are valued as a function of the utilities of individuals (individual moments of time, in this case, since individual persons are usually taken as identical and identically treated) with the possibility that a loss of utility to one individual (or generation) can be more than offset by an increment to another. It is also utilitarian in the narrow sense that social welfare is (usually 3) defined as the sum of the utilities of different individuals or generations. Recently the whole utilitarian approach to social choice has come under fundamental attack by John Rawls [9]. One particular view advanced by Rawls concerns me here. He argues, in effect, that inequality in the distribution of wealth or utility is justified only if it is a necessary condition for improvement in the position of the poorest individual or individuals. In other words, if social welfare, W, is to be written as a function of individual utilities U1, ..., U,, then Rawls argues for the particular function W = min (U1, ..., Un), so that maximizing social welfare amounts to maximizing the smallest Ui.4 This welfare function is sensitive only to gains and losses of utility by the poorest person. A Theory of Justice contains a section 5 explicitly devoted to equity between generations, i.e. the question that arises in the theory of optimal capital accumulation. Remarkably, the one thing this chapter does not do is to advocate unequivocally the max-min criterion espoused elsewhere in the book. In this context Rawls settles for such ambivalent statements as the following: " . . . the question of justice between generations.. . subjects any ethical theory to severe if not impossible tests.... I believe that it is not possible, at present anyway, to define precise limits on what the rate of savings should be. How the burden of capital accumulation and of raising the standard of civilization is to be shared between generations seems to admit of no definite answer. It does not follow, however, that certain bounds which impose significant ethical constraints cannot be formulated.... Thus it seems evident, for example, that the classical principle of utility leads in the wrong direction for questions of justice between generations. . . . Thus the utilitarian doctrine may direct us to demand heavy sacrifices of the poorer generations for the sake of greater advantages for later ones that are far better off. But this calculus of advantages which balances the

Output and Labor Input in Manufacturing

Abstract: THE RELATION between output and labor input in manufacturing is important in quantitative analysis of economic fluctuations. Empirical work on this topic generally supports the conclusion that labor inputs respond with a delay, and not in full proportion, to changes in output. Thus, variations in output are accompanied by corresponding variations in average labor productivity. This phenomenon is something of a paradox, for shortrun increasing returns to labor, or SRIRL, are difficult to rationalize if the sector being explained is assumed to operate on a static production function in which labor is the most variable factor. One need not make this assumption, and a variety of plausible deviations from it, which can explain the qualitative empirical results, have been advanced. It also seems possible that some of the apparent SRIRL reported in previous studies reflects statistical bias in estimating the labor-output relation.

The Economics of Resources or the Resources of Economics

Abstract: It is easy to choose a subject for a distinguished lecture like this, before a large and critical audience with a wide range of interests. You need a topic that is absolutely contemporary, but somehow perennial. It should survey a broad field, without being superficial or vague. It should probably bear some relation to economic policy, but of course it must have some serious analytical foundations. It is nice if the topic has an important literature in the past of our subject – a literature which you can summarize brilliantly in about eleven minutes – but it better be something in which economists are interested today, and it should appropriately be a subject you have worked on yourself. The lecture should have some technical interest, because you can’t waffle for a whole hour to a room full of professionals, but it is hardly the occasion to use a blackboard.

John Hicks. Capital and Time. A Neo-Austrian Theory

Abstract: This book, first published in 1973, takes up an important approach to capital which had gone out of fashion. It is being reissued in paperback in recognition of the recent renewed interest in this approach. The 'Austrian' theory of capital concentrates on the inputs and outputs in the productive process, and has an advantage over more modern theories of economic dynamics in that it is more naturally expressible in economic terms: the production process over time is taken as a whole, rather than disintegrated. However, this approach had been largely abandoned because it seemed to be unable to deal with fixed capital. Sir John overcomes this problem here by allowing for a sequence of outputs, and the consequences for dynamic economics are profound and novel.