Chapter_6_Malthusian_Model - The Malthusian Model After...

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1 The Malthusian Model After reviewing the key development and growth facts, it is clear that we need a theory that can generate a period of constant living standards, followed by a transition period with modest increases in the living standard, followed by a period of modern economic growth. We already have a model that can account for the period of modern economic growth; the Solow Model with technological change generates constant growth of per capita output. It is true that the Solow Model can generate a steady state with a constant level of per capita output. This is the Solow Model absent technological change. One possibility is to interpret the pre-1700 era of constant livings standards as the steady state of the Solow Model absent technological change. The problem with this interpretation is that technology was not stagnant before 1700. Joel Mokyr a noted economic historian at Northwestern University has documented in his book The Lever of Riches that numerous and important technological innovations occurred well before 1700. In light of the historical record on technological change, we proceed to alternative theory and model of this pre-1700 era. This is the Malthusian model that goes back to David Ricardo and the classical economists. There are two key components of the model. The first is a production function with a fixed factor of production. By fixed, we mean that its supply cannot be changed over time. Labor and capital are not fixed factors as both can be increased over time. In the Malthusian model, the fixed factor is land. The second key component is a population growth function that is an increasing function of per capita consumption. These two elements ensure that the steady state is characterized by a constant living standard even when there is technological change. We first proceed by studying the Malthusian model with no capital and absent technological change to help develop intuition for the model. We solve the equilibrium of the model graphically. We then follow this up with an algebraic study of the Malthusian model with capital accumulation and exogenous technological change.
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2 Figure (1) below is a plot of per capita income from 3000 BC to 2000 AD. The feature of the plot is that the standard of living displayed no trend for the first 4800 years (this period includes Malthusian and Post-Malthusian regimes) and then exploded subsequent to 1800 (Modern regime). These notes are concerned with a theory of the period prior to 1800. Figure 1 I. Model with No Capital or Technological Change People. Initially, there are N 0 people alive. We use N t to denote the number of people in the economy at date t. People prefer more consumption to less.
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This note was uploaded on 04/13/2011 for the course ECON 509 taught by Professor Villamil during the Fall '08 term at University of Illinois, Urbana Champaign.

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Chapter_6_Malthusian_Model - The Malthusian Model After...

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