Development and Underdevelopment in the History of Economic Thought

The Dynamics of Capital Accumulation in Marx and Solow

Chatzarakis Nikolaos Chatzarakis, Department of Economics, Aristotle University of Thessloniki
Tsaliki Persefoni, Aristotle University of Thessaloniki

This work deals with issues arising in Solow’s growth model when contrasted with Marx’s schemes of expanded reproduction. More specifically, we argue that Solow’s growth model lacks the crucial dynamic features of capital accumulation, which are derived from the long-term movement of the rate of profit and they are well integrated in classical political economy in general and Marx in particular. Classical economists discussed the attainment of the stationary state of the economy in the distant future as a result of a falling rate of profit that gives rise to zero net investment. The same is not true with Solow’s growth model whose seemingly stationary state is in fact a ‘saddle’ point when the movement of the rate of profit is accounted for. This is an aspect of Solow’s model that has not received the attention that it deserves in the extant economic growth literature. By contrast, in Marx’s analysis of absolute overaccumulation resulting from the falling profit rate drives the system to a turning point and sets up the conditions for major institutional changes promoting innovative activities that may lead to a new period of economic expansion, features that are totally absent in Solow's growth model.

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Keywords: Capital Accumulation, Solow’s Growth Model, Schemes of Reproduction, Law of Falling Rate of Profit

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