THE THEORY OF ECONOMIC GROWTH that it shows constant returns to scale. Hence the production func- tion is homogeneous of first degree. This amounts to assuming that there is no scarce nonaugmentable resource like land. Constant returns to scale seems the natural assumption to make in a theory of growth. The scarce-land case would lead to decreasing returns to scale in capital and labor and the model would become more Inserting()in(1)we get K=sF(K,L) This is one equation in two unknowns. One way to close the system would be to add a demand-for-labor equation: marginal physical productivity of labor equals real wage rate; and a supply-of-labor equation, The latter could take the general form of making labor supply a function of the real wage or more classically of putting the real wage equal to a conventional subsistence level. In any case there would be three equations in the three unknowns K, L, real wage Instead we proceed more in the spirit of the Harrod model esult of exogenous population growth the labor force increases at a constant relative rate n. In the absence of technological change n is Harrod' s natural rate of growth. Thus (4) L(o= Loe In (3)L stands for total employment; in(4)L stands for the available supply of labor. By identifying the two we are assuming that ful employment is perpetually maintained. When we insert(4)in( 3) K= 8F(K, Loe") re have the basic equation which determines the time path of capital accumulation that must be followed if all available labor is to be Iternatively(4)can be looked at as a supply curve of labor. It says that the exponentially growing labor force is offered for employ- ment completely inelastically. The labor supply curve is a vertical 2. See, for example, Haavelmo: A Study in the Theory of Economic Evolutin (Amsterdam, 1954), pp 9-11. Not all "underdeveloped"countries are areas of land shortage. Ethiopia is a counterexample. One can imagine the theory as applying as long as arable land can be hacked out of the wilderness at essentially onstant cost