A Capital-based Theory of Secular Growth: Reply to Engelhardt

Lucas Engelhardt 1 does not point out anything incorrect in my “Capital-Based Theory of Secular Growth” (2009). Rather, he implicates me in a violation of Occam’s razor. My discussion of nonrivalry, external effects, and intangible capital contains, but obscures, the fundamental ingredient for secular growth: nondepreciating capital. Engelhardt purports to demonstrate how nondepreciating capital is sufficient for secular growth in a simple Crusoean economy. With appreciated wit, Engelhardt begins his comment by quoting Murray Rothbard ([1962] 2009, p. 11): “The distinguishing feature of a recipe is that, once learned, it generally does not have to be learned again.” At once, Rothbard (and Engelhardt) recognize the importance of nondepreciating capital and chide me for trying to reinvent the wheel. Unfortunately, Engelhardt’s analysis implicitly assumes away the presence of diminishing returns. Diminishing returns have long been at the heart of growth theory—from Thomas Malthus’s ([1803] 2003) prediction of starvation as the result of population growth to Robert Solow’s (1956) conclusion that technological change is a necessary condition for secular growth. An account of secular growth in the presence of diminishing returns is featured prominently in both my critique of Roger Garrison’s (2001) theory of growth through capital accumulation and my alternative theory based on intangible, nonrivalrous capital. Consider the numerical example provided by Engelhardt (2009, p. 1):