The Lucasian Mechanics of Economic Development and its Extension to Nonmaterial Values

The Lucas growth theory (Lucas, 1988) has a particular structure that reflects the idea of rational expectations. First there is a situation, in which the households and firms react to what is generally expected to be common knowledge, i.e. a sort of average level of human capital in society. In the theory this level is exogeneously given, just as the exogeneous factor of technological progress in the Solow model. The fundamental equations of the theory are constructed in this situation, which will be here called the “reaction of the market to common knowledge”. Then market clearing creates a second situation, in which the exogeneously given and the endogeneously produced average levels of human capital coincide. The solution of the fundamental equations has to take place in the second phase, to be called here the “market clearing”.