Stationary state

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The steady state consists of reaching a constant amount of capital and population size. For this reason, once this point is reached, the economy of that territory does not suffer any type of growth.

The steady state occurs in the field of macroeconomics. It is a long-term assumption in which it is stated that an economy will achieve a constant amount of capital and population size. For this reason, economic growth will disappear once the steady state is reached.

On the other hand, an economy that is in the steady state is supposed to make the most efficient use of its resources. Arrived at this situation, both saving and investment are equal to the depreciation of the capital. In the models that incorporate this theory, it is stated that a given economy will always tend to reach its steady state.

Finally, the further the economy of a territory is from its steady state, the greater its growth or decrease.

Graphical representation of the steady state

In the following graph we can see how the steady state is represented, which we have noted as K *.

Defenders of the steady state

Throughout history we can find different authors who are for or against the steady state theory. Among those economists who defend it, we mention the following:

  • Adam Smith: In your theory, you explain that economic growth would be limited due to increasing population and scarcity of natural resources. In this way, he indicated that within 200 years the steady state would be reached.
  • Robert Merton Solow: Considered one of the leading proponents of the steady state. Robert was the creator of the Solow Model, which tried to answer the question of why there are income differences between countries.
  • Herman Daly: He coined the concept of the normative steady state. This state was the one desired by any country, since it guaranteed the sustainability of the economy in the long term.
  • John Stuart Mill: This author stated that once the steady state was reached, society would have met its essential needs and could focus on solving other types of problems. Therefore, you could avoid the stressful life that business activities entail.

In modern economics, the main defenders of the steady state are those economists who favor a green economy. These authors state that a sustainable and stable population and capital stock must be achieved over time.

Models that include the steady state

Different macroeconomic models include the steady state among their premises. Here are some of them:

  • Solow.
  • AK with externalities.
  • Overlapping generations.
  • CER.
  • OA / DA.

In conclusion, the steady state is the situation in which a certain economy finds itself when it reaches a constant amount of capital and population. This circumstance implies that there is no economic growth within that territory.

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