ABSTRACT
This chapter presents a simplified model of growth in the Classical tradition of Adam Smith, David Ricardo, and Karl Marx. Two features that distinguish this model from similar efforts in the neoclassical tradition are its attention to the class structure of saving, and its recognition that capital, not labor, and may be the chief constraint on long-run growth. The capital stock growth generates demand for additional workers to keep production at full capacity levels. The Classical model of exogenous growth takes the growth of the labor supply and capital to be determined exogenously, while the distribution of income between wages and profits is determined endogenously. The chapter assumes that the labor supply is endogenous in order to leave open the possibility that fiscal policy affects growth. Even though the fiscal surplus does not affect the steady state growth rate, it raises the capital stock and level of employment above the level that prevails in the absence of the fiscal policy.
