RT @EconReimu: If we draw lines from the "Apex" of the Hayekian Triangle to EVERY point on AB (spending on final good), EACH LINE must all….

RT @Insane_Econ: "Do you like peaches? How came you to like them? How came you to have two hands instead of three? What can you do about th….

Roundabout methods of travel.

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Teddy Roosevelt was shot in the chest while giving a speech. He only survived because his copy of George Reisman's Capitalism was in his pocket.

Exactly

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Happy Fourth of July.

Errata: in [2/13], the capital stock should change according to:.ΔK = (1+c) × K.

The only way to actually increase the rate of economy growth is to increase the rate at which the capital stock grows 'c'. Trying to improve fertility is futile and has no long-term effects. [13/13]

Therefore, any increase in the fraction of resources dedicated to human reproduction (r) will have only TEMPORARY effects on economic growth. In the long-term, total output grows at the capital stock growth rate 'c', regardless of the size of r. [12/13]

In the Steady State, people are still being born thanks to the resources dedicated to reproduction, but output-per-capital f(l) does not change. Since output-per-capital f(l) is fixed, total output F(L,K) increases UNIQUELY according to rate rate of growth of capital c. [11/13].

Notice that the economy converges towards l*. When l < l*, then l increases. When l > l*, then l decreases. When l = l*, then l does not change. Because of this tendency, we say that the economy ends up in the Steady State in the long-term. [10/13]

When r×f(l) = (c+δ)×f(l), then labor-per-capital stays constant. We will call this level of labor-per-capital: l*. At the level l*, the economy is in a "Steady State": labor-per-capital stops increasing or decreasing, and a fortiori output-per-capital also stops changing. [9/13]

and (2) replace the fraction of the labor force that died, which is the rate δ. When r×f(l) < (c+δ)×f(l), then labor-per-capital increases. When r×f(l) > (c+δ)×f(l), then labor-per-capital decreases. [8/13].

This line represents the number of resources that must be dedicated to reproduction (r) to keeps labor-per-capital (l) constant. Labor-per-capital will not change if the number of new people is just sufficient to (1) furnish the new capital, which grows at the rate c . [7/13].

Therefore, the labor force evolves each year according to the number of births minus the number of deaths. Mathematically:.ΔL = r×f(l) - δ×L. Now, lets draw a line using the formula: (c+δ) × f(l). [6/13]

For simplicity, lets assume that 1 unit of resource dedicated to reproduction corresponds to 1 birth. annual births = r × f(l). People are not immortal, so let δ represent the fraction of the labor force that dies each year. annual deaths = δ × L.[5/13].

Malthus says that higher economic productivity increases the fertility rate. Indeed, more economic output means more resources dedicated to human reproduction. Let 'r' to represent the annual fraction of resources dedicated to reproduction. Dedicated resources = r × f(l).[4/13]

We can rewrite the production function in "per-capital" terms. K drops out of the equation and we have output-per-capital as a function uniquely of labor-per-capital. (Using lowercase for per-capital). The function becomes: f(l), where increasing l has diminishing returns. [3/13]