Optimality and Decentralization in Infinite Horizon Economies

Abstract

The problem of economic growth was a major preoccupation of Joan Robinson. She was a major contributor to the post-Keynesian theory of economic growth that followed the publication of Harrod’s seminal dynamic model. She wrote extensively and critically on the foundations of neoclassical growth theory; her concern for logically sound argument lay behind her extensive writings questioning the validity of an aggregate capital concept and the corresponding notion of an aggregate production function. Her critique of neoclassical theory placed her at the forefront of the still raging ‘Cambridge controversy’ in capital theory. Joan Robinson’s work on capital and growth also showed a real concern that economic dynamics be studied as a process in real time. The dynamics of the stationary state might be a useful starting point, but the more serious concerns were the relationship between the short- and long-run periods in the process of accumulation and growth. She also stressed the importance of understanding the evolution of economies outside equilibrium positions.

Analysis of current problems cannot wait until models … have been properly worked out, the appropriate mixture selected and the interaction between them properly diagnosed. More rough-and-ready methods have to be used. All the same, simplified models can perhaps help towards an understanding of the nature of real problems, provided that their own nature is properly understood. They can certainly hinder when not properly understood. (Joan Robinson, Essays in the Theory of Economic Growth,1968)

Robert Becker acknowledges the partial support of NSF Grant SES 85–20180. Mukul Majumdar acknowledges the partial support of NSF Grant SES 86–05503. Discussions with John H. Boyd III were helpful during the writing of this article. We thank Marilyn Neff for research assistance in the preparation of the paper.