Golden Age versus Golden Rule: Capitalists versus Workers in Growth Theory

Abstract

Golden Age steady states determined by saving rates maximizing profit are contrasted with the Golden Rule, that is, consumption maximizing, steady states highlighted in standard economic growth theory. Golden Rule steady states exemplify the classical socialist principle of distribution: to each according to work. Under the Golden Rule, consumption equals labor income, and given stationary class capital ownership shares, all profit must be invested and none consumed. In contrast, in Golden Age steady states, some profit can be freed for consumption, although the levels of investment, output, and most notably consumption are then all lower. These relationships are explored in models initially without, and then with, labor force growth and technical change.