Full text: Distribution and Growth

= A- 
K A K 
where A is measured at full utilisation of capacity. 
Since utilisation is variable it is reasonable to split 
the capital to output ratio up into two factors, the 
capital to capacity ratio v and the utilisation of 
capacity u. Instead of (1) we have then in view of 
Y Y . "1 u 
t K 
= A 
K v 
The capital to capacity ratio will be assumed constant 
for the purposes of the discussion. The theory behind it 
is that the capital to capacity ratio is largely 
independent of the income distribution and profit rate, 
in contrast to the assumptions of neo-classical theory. 
The above equation (3) may be transformed further by 
introducing the concept of an incremental capital to 
capacity ratio v' which in principle is different from 
the average capital to capacity ratio v. 
K = v Y 
AK = v' • 
Inserting this in (3) we obtain 
v $ 
A t 
= A 
The advantage of this formulation is that we get rid of 
the stock of capital and instead base the whole statement 
on the growth of capacity. This concept may be problematic, 
too, in the context of long term structural change, but it 
is rather less problematic than the stock of capital. 
The incremental capital to capacity ratio is definitely 
more amenable to measurement than the average ratio.

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