What Could the 'New' Growth Theory Teach Smith or Ricardo?

Abstract

The paper contains a report of a discussion between Adam Smith and David Ricardo serving on a newly installed research evaluation committee `On the Advancement of Knowledge in Growth Economics, Paying Special Attention to the Contribution of "New" Growth Theory'. The two economists screen some of the most prominent `new' growth models and assess their original novelties. These argue that the main contribution of these models boils down to the suggestion that there is a technology producing a surrogate for what used to be called `labour'. That factor has been given new names and enters the stage as `human capital' or `knowledge'. In this way, labour is rendered an accumulable factor, generated endogenously, and thus cannot constrain economic growth via a falling rate of profit due to diminishing returns to capital as capital accumulates.