y interpret “economic growth” to mean a sustained increase in per capita output (income) accompanied by reduction in existing inequalities and economic betterment of the masses.
As per Classical Economists, Capital accumulation is the core of economic development of a country. It is the main factor that helps economic growth of a country. Capital Accumulation (M.L. Seth 2003) is the outcome of savings. The profits earned by businessmen constitute the major source of savings of a community. Larger the profits, larger the savings of the community. The classical economists assumed that whatever was saved was invested. Larger the profits, larger the savings. Larger the savings, larger the investment. Larger the investment, higher the rate of growth of the economy. The rate of growth of the economy, thus, ultimately depended upon the level of profits. It is on account of this realization that classical economists looked upon profits as the pace-setters of economic growth.
The development of technology is another important determinant of Economic Growth. It accelerates the process of growth in the economy. Classical economists were aware of the role of technology as a stimulant of economic growth. Classical thinkers like Adam Smith and David Ricardo also realized the importance of technological improvement. According to Karl Marx, the adoption of improved technology causes the displacement of labor, increasing unemployment, decline in consumption, fall in effective demand, reduction in profits and ultimately slows down the process of economic growth. Despite the adverse effect of improved technology, capitalists, according to Marx, continue to opt for it because:
George Rosen defined the Capital-Output Ratio as “the relationship of investment in a given economy or industry for a given time period to the output of the economy or industry for a similar time period.” The Capital-Output Ratio, thus, determines the rate at which the output grows as a result of a