chapter  21
The Effect of Savings on Consumption in a State of Steady Growth (1962)
Pages 9

Assume an economy with one product (Y) and three factors of production (capital K , labour L, and land N), capital being an accumu­ lated stock of Y. Assume neutral technical progress at a constant rate r. Assume constant proportional marginal products of the factors in the sense indicated below. We have then a production function of the form:—

Y = R K U LQNz ert (1)

where R, U, Q, Z, and r are all constant. U = ( dY/dK) / ( Y/K) and represents the (constant) proportional marginal product of K or the (constant) proportion of income which will go to profits if capital is paid a reward equal to its marginal product; and similarly for Q and Z. There are constant returns to scale i f U + Q + Z = l and increasing returns to scale i f U + Q + Z > 1 .