Capital Requirements for Economic Growth

by James Tobin



The article presents information on capital requirement for economic growth. The road to complete business recovery and faster economic growth for the United States is not the path of tax cuts and heavy stimulus to consumption. It is built instead upon a combination of expanded public and private investment resulting in a deepening of capital investment in new plants, technologies and productive facilities that will increase this nation's future capacity to produce. Experience both in the United States and in other advanced economies strongly suggests that an increase in capital formation in the form of plant and equipment, as a percentage of Gross National Product, is prerequisite to increasing the rate of economic growth. The basic question is this: Is the annual rate of growth at productivity per man-hour something that can be affected by public policy? Or is it given to us by nature and remains the same no matter what we do? In the thirties and forties there was a general tacit assumption that built into the system, without anyone's needing to do anything about it and beyond anybody's power to change up or down, was a certain average annual rate of growth of productivity.

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