Summary

Having set the general scene for urban conservation we now concentrate on the process for one particular element in the system, the cultural built heritage (CBH): that part of the built environment selected by Government for conservation into the future. In order to explore the nature of the CBH (Chapter 4), we first link it with the general heritage of man of which the CBH is but a small part (4.1), emphasising that such general heritage also has proprietary interests (4.2). We then bring out the distinction between the general and cultural heritage (4.3) in order to concentrate on the CBH (4.4), bringing out its characteristics as property and commodity (4.5) and then return to the question (1.8 above): why do we conserve it? (4.6). We then show how such conservation relates back to the process of obsolescence, renewal and conservation, discussed in 1.6 (4.7). We then bring out the distinctive features in property management for the conservation of the CBH (4.8).

If we are to conserve the CBH in any meaningful way, we need to identify just what that heritage is and how the protection against erosion is to be carried out (Chapter 5). This needs the foundation of some coherent philosophy and theory of conservation and logical answers as to the why of conservation (5.1).

Introduction

In a previous paper, I have analyzed the structure of a two-sector model of neoclassical growth, in which it has been assumed that labor consumes all, while capital only saves. The present paper is concerned with replacing this hypothesis with one which postulates that the propensity to save depends upon the rate of interest and the gross income per capita currently received. The fundamental character of the model remains the same as in, except for the determination of investment and of rate of interest. At any moment of time, capital goods will be newly-produced at the rate at which the marginal efficiency of that capital is equated to the prevailing rate of interest. The prospective rentals to capital goods, which together with expected rates of discount determine the marginal efficiency of capital, are assumed to depend upon current rentals and quantities of newly produced and existing capital goods. The rate of interest, on the other hand, is determined at the level which equates the value, at the current market price, of newly-produced capital goods to the amount of savings forthcoming at that level of the rate of interest.

It is assumed that prospective rentals to capital are positively correlated with current rentals, while they decrease as the quantity of new capital goods increases (with the elasticity less than unity). The average propensity to save is assumed to increase as rate of interest or current income per capita increases, and the marginal propensity to save is assumed less than or equal to unity.

Introduction

Whether or not the dynamic allocation of scarce resources through the market mechanism can achieve stable economic growth is not simply a matter of theoretical interest, but also is indispensable in the consideration of the effects of public policy. However, there are two opposing approaches to the problem of the dynamic stability of the market mechanism. One approach bases its analysis on the neoclassical economic theory, the other considers the problem within the framework developed in Keynes's General Theory. The approach based on neoclassical theory concludes that the process of market growth is usually stable, and, but for exceptional situations, prices change stably and full-employment growth obtains. Keynesian theory, on the other hand, comes to the conclusion that the market allocation of scarce resources is an inherent cause of instability in a modern capitalistic system and that maintaining stable economic growth is akin to walking on the edge of a knife.

The primary purpose of this paper is to examine the kind of assumptions on which these two conclusions concerning the stability of the growth process in a market economy are based, and, if possible, to ferret out some of the more fundamental differences between the neoclassical and Keynesian approaches.

Basic assumptions of the neoclassical growth theory

The neoclassical theory of economic growth was first formulated in the works of Tobin, Solow, and Swan.

Introduction

This paper deals with the properties of demand functions derived from utility maximization. Such properties may be either “finite” (involving finite sets of points) or “infinitesimal” (involving the derivatives of the demand functions). The “revealed preference” approach, pioneered by P. A. Samuelson and developed by H. S. Houthakker, is of the “finite” type. In what follows, we shall confine ourselves to the “infinitesimal” type of analysis, dealing with “substitution terms.” This analysis has been carried out in terms of the “direct” demand functions (quantities taken as functions of prices and incomes) by Slutsky, Hicks, Allen, Samuelson, and the “indirect” demand function (relative prices as functions of the quantities taken) by the “rediscovered” Antonelli, and also by Samuelson. The present paper deals only with the “direct” demand functions.

Perhaps the most familiar result, found in Hicks's Appendix in Value and Capital as well as in Samuelson's Foundations, is the fact that utility maximization (subject, of course, to the budget constraint) implies the symmetry and negative semidefiniteness of the Slutsky–Hicks substitution term matrix (derived from the “direct” demand functions). But much more remarkable is the converse proposition that, under certain regularity assumptions, if the demand function has a symmetric, negative semidefinite substitution term matrix, then it is generated by the maximization of a utility function.

In his Foundations of Economic Analysis, p. 116, Samuelson formulates the converse proposition and provides suggestions for a proof.

Introduction

In the theory of economic growth, we are concerned with the analysis of those economic factors which crucially determine the process of growth for a national economy. Our primary interest is in the mechanisms by which aggregate variables such as national income, aggregate stock of capital, and others are interrelated and in how they change as time passes. Since Harrod (1948) first laid down the fundamental theorems for a dynamic economics, we have seen the emergence of an increasing number of aggregate growth models to clarify and extend these theorems, as aptly described in Hahn and Matthews's (1964) survey article. These growth models, however, have been mostly built upon premises directly involving aggregate variables, without specifying the postulates which govern the behavior of individual units comprising the national economy. In particular, the specifications of aggregate savings are seldom based upon analysis of individual behavior concerning savings and consumption; instead, they have been merely hypothesized in terms of historical and statistical observations. Similarly, the aggregative behavior of investment has been either entirely neglected, as has been typically the case with the so-called neoclassical models, or it has been postulated in terms of somewhat ad hoc relations involving market rate of interest, rate of profit, and other variables.

In the present paper, I should like to pay closer attention to the behavior of individual units concerning consumption, saving, and investment, and to build a formal model of economic growth for which the aggregate variables are described in terms of these microeconomic analyses.

Introduction

In criticizing Hicks's classification of technical inventions, Harrod has proposed a new definition of neutral inventions primarily intended for applications to the problem of economic growth. According to Harrod, a technical invention is defined as neutral if at a constant rate of interest it does not affect the value of the capital coefficient. Harrod's classification has been discussed by J. Robinson who showed graphically that a neutral invention is equivalent to “an all-round increase in the efficiency of labor” (p. 140). The first part of the present article is concerned with precisely formulating Robinson's proposition and characterizing analytically those inventions that are neutral in Harrod's sense.

Harrod's definition of neutral inventions, as indicated above, has been introduced to handle the problem of economic growth. Recent contributions, however, in particular those of Solow and Swan, are discussed for the case in which technical inventions are neutral in Hicks's sense. In the second part of this article we consider a neoclassical growth model with neutral inventions in Harrod's sense, and prove the stability of the growth equilibrium in such a model. The aggregate production function underlying the model is assumed only to be subject to constant returns to scale and to diminishing marginal rates of substitution; the Cobb-Douglas condition, as is customarily imposed in recent literature, is not required.

Introduction

In his discussion on the Marshallian theory of barter, Edgeworth had a precise formulation of barter process for the simple two-good economy. The process of barter dealt with by Marshall and Edgeworth consisted of successive bartering between individuals until the position was reached at which no barter was possible for each individual to become better off. Edgeworth graphically showed that the equilibrium reached by the process depended upon the path of bartering as well as the amount of goods initially held by each individual. The process of barter, therefore, constitutes a strong contrast to Walras's tâtonnement process. Walras's process is a provisional market process by which competitive equilibria are attained, and the equilibrium reached by it is determined solely by the initial holdings, independently of the path of the process. (It is customary in economic literature to say that a market process is determinate if the equilibrium reached by that process is determined only by the initial holdings.) However, the markets, of which the tâtonnement process represents the working of exchange, are restricted to those in which either Edgeworth's recontracting is permitted or Walras's device of bons is introduced.

In a recent work, Hurwicz has attempted to formulate the process of barter in a more general model, and various optimality criteria have been discussed. However, the problem of whether or not the process of barter thus formulated actually reaches (or asymptotically approaches) equilibrium states has not been handled.

The purpose of this paper is to study the logical foundations of the theory of consumer behavior. Preference relations, in terms of which the rationality of consumer behavior is postulated, are precisely defined as irreflexive, transitive, monotone, convex, and continuous relations over the set of all conceivable commodity bundles. A demand function associates with prices and incomes those commodity bundles that the consumer chooses subject to budgetary restraints. It will be shown that if a demand function with certain qualitative regularity conditions satisfies Samuelson's Weak Axiom of Consumer Behavior, there exists a preference relation from which the demand function is derived. On the other hand, the demand functions derived from preference relations satisfy Samuelson's Weak Axiom and those regularity conditions other than the Lipschitz condition with respect to income.

Introduction

The pure theory of consumer behavior is concerned with the structure of choices of commodity bundles made by a rational consumer when he is confronted with various prices and incomes. A large part of the theory is devoted to explaining the contents in which the rationality of a consumer's behavior is understood (e.g., Hicks, Chap. 1), Samuelson (Chap. 5), Wold and Juréen (Part 2), and Robertson (Part 1, especially pp. 13–20). According to the contributions of Pareto, Slutsky, Hicks and Allen, Wold, and others, it is now fairly generally agreed that the rationality of a consumer's behavior may be described by postulating that the consumer has a definite preference over all conceivable commodity bundles and that he chooses those commodity bundles that are optimum with respect to his preference subject to budgetary constraints.

Introduction

In analyzing the effect of international trade on the prices of the factors of production, E. Heckscher found that the equalization of the absolute as well as the relative prices of factors of production is an inescapable consequence of international trade, provided that the same techniques of production are used in both countries and the supplies of the factors of production are fixed. Differences in techniques, however, lead to differences in factor prices ([4, p. 291]). (Following the tradition of the theory of international trade, he considers the two-commodity, two-factor, two-country case in which finished goods are traded between countries without any transport costs and in which factors of production are completely immobile.)

In this paper, the problem of optimum fiscal policy is discussed in terms of the techniques of optimum economic growth. The model is a simple extension of the aggregative growth model of the type introduced by Solow, Swan, and Tobin. It consists of private and public sectors, both employing labor and private capital to produce goods and services. Private goods may be either consumed or accumulated as capital, while public goods are all consumed. The public sector raises revenues by levying income taxes or by issuing money to pay wages and rentals to the labor and capital it hires to produce goods. The private sector decides how much is to be consumed and invested and how to allocate portfolio balances between real capital and money. These decisions are based upon certain behavioristic assumptions and are made in a perfectly competitive institutional setting. It will then be shown that by a proper choice of dynamic fiscal policy, which consists of income tax rates and growth rates of money supply through time, it is possible to achieve an optimal growth path corresponding to any form of social utility function and any rate of discount.

Introduction

In the postwar period, many countries, both advanced and less advanced, have come to regard fiscal policy both as an instrument to achieve short-run goals and to implement long-run objectives, such as economic growth.

Introduction

The problem of demand for money and other assets has been recently studied by Douglas (1966) and Sidrauski (1965) within the framework of a rational individual faced with the choice of a consumption schedule which is optimal with respect to the individual's time preference structure. In both papers, the intertemporal utility function upon which the consumer's choice is based is represented by a discounted integral of the stream of instantaneous utility levels, where future utilities are discounted by a rate which is kept constant independently of time profile of the utility stream associated with each consumption schedule. Thus, if a consumer is permitted to hold his assets either in the form of real cash balances or in the form of perpetuities yielding a constant rate of interest and if his instantaneous utility function is linear and homogeneous, he will either postpone his consumption until the very last moment or will consume as much as possible, according to whether the subject rate of discount is lower than the rate of interest. The only case in which the individual would desire to possess two types of assets simultaneously is one where his subject rate of discount is precisely equal to the rate of interest. Douglas has avoided this difficulty by having the level of bond holdings as one of the components for instantaneous utility level, while Sidrauski has introduced real capital as an alternative asset for which the rate of return varies with the amount held.