Underutilized Resources

The main task of the first chapter was to describe the ceiling growth path of the economy, with particular attention to the allocation of resources and outputs. Supply forces pushed in the direction of the international sector, while demand forces pulled toward the domestic sector. The tendency was for domestic goods to rise in relative price and for supply spillovers of iritemational goods to be absorbed by an increasing trade balance. Allocation with underemployed resources was given more cursory treatment, with innovation playing a dominant role in new investment, output growth, and allocation of labor. Scarcities of factors played little role in this case because both labor and the capital stock were underemployed.