“Love of wealth” and economic growth |
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| Authors: | Günther Rehme |
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| Affiliation: | Technische Universit?t Darmstadt, GermanyI thank Sabine Eschenhof‐Kammer and Steffen Roch for valuable help and comments. I have also benefited from feedback from Chandranath Amarasekara, Constantine Angyridis, Shesadri Banerjee, Parantap Basu, Michael Burda, Nayana Bose, Giacomo Corneo, Roland Eisen, Byeongju Jeong, Chad Jones, Johanna Krenz, Sugata Gosh, Volker Grossmann, Alexander Meyer‐Gohde, Enrique Neder, Daniel Neuhoff, Yasuyuki Osumi, Mehdi Senouci, Simon Voigts, Lutz Weinke, Nikolaus Wolf, Xiaopeng Yin, Martin Zagler, and precious comments by an anonymous referee and the editor Andy McKay, as well as presentations at Humboldt University Berlin, the Royal Economic Society meeting in Cambridge, in 2012, the Econometric Society European meeting in Gothenburg, the 9th Annual Conference on Economic Growth and Development, New Delhi, in 2013, the meetings of the Austrian (NOeG) and German (VfS) Economic Associations in Vienna and Hamburg in 2014, the Taipei International Conference on “Growth, Trade, and Dynamics” (GTD), the Asian Meeting of the Econometric Society in Kyoto, the Rimini Conference in Economics and Finance (RCEF2016) in Waterloo, Ontario, the Arnoldshain Seminar XIV “Institutions, Trade, and Economic Policy,” Córdoba and La Cumbre, Argentina, the 9th International Research Conference of the Central Bank of Sri Lanka, Colombo, in 2016, and the 43rd Conference of the Eastern Economic Association (EEA) in New York City in 2017. |
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| Abstract: | In a Ramsey–Cass–Koopmans growth framework it is shown that for an optimum a benevolent social planner cannot have an excessive “love of wealth”. With a “right” “love of wealth” an optimum exists and implies higher long‐run per‐capita capital, income, and consumption relative to the standard model. This has important implications for comparative development trajectories. The optimum implies dynamic efficiency with the possibility of getting arbitrarily close to the golden rule where long‐run per‐capita consumption is maximal. It is shown that the optimal path attains its steady state more slowly. Thus, the beneficial effects of love of wealth materialize later than in the standard model. Furthermore, the economy can be decentralized as a competitive private ownership economy. One can then identify “love of wealth” with the “spirit of capitalism.” The paper thus implies that one needs a “right” level of the “spirit of capitalism” to realize any beneficial effects for the long run. |
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