Neoclassical Growth Theory
Categories: Econ
A key part of neoclassical economics, neoclassical growth theory theorizes that economic growth comes from the trifecta of capital, labor, and technology.
We need capital, like resources and equipment, and labor, to do things with the capital. Technology makes the limited resources of labor and capital more efficient over time, and increases the possibility for new goods and services to be produced.
In nerd-terms, the function representing this relationship for an economy is Y = F (K, AL) where Y is GDP, which is a function (F) of K (capital) and A (technology) times L (labor). Labor and capital have diminishing marginal returns, meaning we get less and less out of them, even if the total output is growing (it’s just growing slooowerrrr and sloooooowwwwerrrr). Technology, on the other hand, is a late-stage economy’s saving grace, as it’s considered boundless.
Oh hai, Silicon Valley.
See: Neoclassical Economics.