OLD WINE FOR NEW BOTTLES: PUTTING OLD GROWTH THEORY BACK IN THE NEW

This paper shows how the mechanisms of endogenous growth can readily be incorporated within old growth theory, thereby resolving the principal impasse that stymied old growth theory. The key mechanism is the technological progress function which was originally developed by Kaldor (1957). The growth effects of monetary and fiscal policy operate through three channels. The first is the 'portfolio composition' channel, with policy serving to alter the money-capital mix of portfolios; the second is the money in the production function channel, with policy serving to alter the relative use of money and capital as inputs; the third is the money in the technological progress function channel, with policy affecting the dynamic allocative efficiency of investment via its impact on the level of financial intermediation. Since money and capital both enter the technological progress function. policies that affect the demands for money and capital affect the steady state rate of growth.