The American Economic Review June 1988 [antikvár]

Growth Theory and After+ By Robert M. Solow* I have been told that everybody has dreams, but that some people habitually forget them even before they wake up. That seems to be what happens to me. So I do not know if I have ever dreamed about giving this lecture. I know I have been in this room before, but that was in real life, and I was awake. If I have given this lecture in my dreams, there is no doubt that the topic was the theory of economic growth. I am told that the subject of the lecture should be "on or associated with the work for which the Prize was awarded." That is pretty unambiguous. But I would not even wish to use the leeway offered by the phrase "associated with." Growth theory is exactly what I want to talk about: for itself, for its achievements, for the gaps that remain to be filled, and also as a vehicle for some thoughts about the nature of theoretical research in macroeconomics, and empirical research as well. Growth theory did not begin with my articles of 1956 and 1957, and it certainly did not end there. Maybe it began with The Weahh of Nations', and probably even Adam Smith had predecessors. More to the point, in the 1950s I was following a trail that had been marked out by Roy Harrod and by Evsey Domar, and also by Arthur Lewis in a slightly different context. Actually I was trying to track down and reheve a certain discomfort that I felt with their work. I shall try to explain what I mean in a few words. Harrod and Domar seemed to be answering a straightforward question: When is an economy capable of steady growth at a con- ^This is the lecture Robert Solow delivered in Stockholm, Sweden, December 8, 1987, when he received the Nobel Prize in Economic Science. The article is copyright ® The Nobel Foundation 1987, and published here with the permission of The Nobel Foundation. •Department of Economics, Massachusetts Institute of Technology, Cambridge, MA 02139. stant rate? They arrived by noticeably different routes, at a classically simple answer: the national saving rate (the fraction of income saved) has to be equal to the product of the capital-output ratio and the rate of growth of the (effective) labor force. Then and only then could the economy keep its stock of plant and equipment in balance with its supply of labor, so that steady growth could go on without the appearance of labor shortage on one side or labor surplus and growing unemployment on the other side. They were right about that general conclusion. Discomfort arose because they worked this out on the assumption that all three of the key ingredients—the saving rate, the rate of growth of the labor force, and the capital-output ratio—were given constants, facts of nature. The saving rate was a fact about preferences; the growth rate of labor supply was a demographic-sociological fact; the capital-output ratio was a technological fact. All of them were understood to be capable of changing from time to time, but sporadically and more or less independently. In that case, however, the possibility of steady growth would be a miraculous stroke of luck. Most economies, most of the time, would have no equihbrium growth path. The history of capitaUst economies should be an alternation of long periods of worsening unemployment and long periods of worsening labor shortage. The theory actually suggested something even more dramatic. Harrod's writings, especially, were full of incompletely worked out claims that steady growth was in any case a very unstable sort of equihbrium: any httle departure from it would be magnified indefinitely by a process that seemed to depend mainly on vague generahzations about entrepreneurial behavior. You may remember that John Hicks's Trade Cycle book, which was based on Harrod's growth model, needed to invoke a full employment ceiling to generate downturns and a zero-gross-investment 307