Show the destruction of capital, Macroeconomics

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Q. Show the Destruction of capital?

Destruction of capital, for instance, through a war, works in the opposite way. Marginal product of labor falls, GDP per capita falls and population decreases. This will again result in an increase in the marginal product of labor and GDP per capita return to the 'survival rate'.  

The core point of the model is that population growth would always eliminate the positive effects of technological development and GDP per capita will always return to survival level. This very ‘dismal' growth theory was prominent in the early 1800s and economics to this day is sometimes known as the ‘dismal science'.

Today we know that predictions of the model where incorrect. During rest of the 1800s Europe experienced a growth in GDP per capita. While the population growth was high, it was not nearly sufficient to eliminate the positive effects of technological development.


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