Chapter

Oscillations Due to Consumer's Choice

Michio Morishima

in Theory of Economic Growth

Published in print December 1969 | ISBN: 9780198281641
Published online November 2003 | e-ISBN: 9780191596667 | DOI: http://dx.doi.org/10.1093/0198281641.003.0011
 Oscillations Due to Consumer's Choice

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Earlier chapters in the book have: introduced consumer's choice into the conventional framework of economic growth originated by J. von Neumann, and assumed that consumers are classified into two broad groups of persons—the worker and the capitalist (Ch. 6 ); observed that a balanced growth equilibrium obtained when only the worker consumes and only the capitalist saves is distinguished as the ‘best’ one from all other possible states of balanced growth and is, therefore, referred to as the Golden Equilibrium (Ch. 10); and concentrated on a particular economy where the capitalist is thrifty enough to carry out no consumption of goods at all while the worker is well paid so that he/she can buy goods in the Golden Equilibrium amounts, thus enabling the establishment of convergence to the Turnpike (Ch. 10). The following question is then naturally asked: Is the Golden Equilibrium still stable when the assumption of rigid consumption is replaced by the more realistic one that the worker's demand for consumption goods depends on prices and the wage income? In association with the assumption of rigid consumption, Ch. 10 made another powerful assumption that there is no shortage at all in the supply of labour; an economy was considered where the labour force grows at a constant rate, which is exogenously determined, and it was found that a state of balanced growth is compatible with such a flexible demand schedule. Therefore, it is suspected that the flexible demand for consumption goods is an additional cause of the cyclic behaviour of the Hicks–Malinvaud competitive equilibrium path and the DOSSO‐efficient growth path. The different sections of this chapter look at the possibility that flexible demand for consumption goods may cause cycles, the possibility of a Hicks–Malinvaud path in this case (and a numerical example), the DOSSO efficiency in the case of flexible consumption, and a DOSSO zigzag.

Keywords: balanced growth equilibrium; capitalists; competitive equilibrium; competitive equilibrium path; consumer choice; consumption; convergence; cyclic behaviour; demand; DOSSO efficiency; economic growth; equilibrium growth; flexible consumption; flexible demand; Golden Equilibrium; J. R. Hicks; Hicks–Malinvaud competitive equilibrium path; income; labour supply; E. Malvinaud; J. von Neumann; prices; savings; Turnpike Theorems; wages; workers

Chapter.  6677 words.  Illustrated.

Subjects: Economic Development and Growth

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