Paul Baran’s economic surplus concept, the Baran Ratio, and the decline of feudalism

Abstract

In The Political Economy of Growth and in an article he wrote several years earlier, the economist Paul A. Baran noted how, in an economic system characterized by a hierarchy of classes where economic and political power is concentrated at the top, the output and income beyond what is consumed by most people (food, clothing, housing, public safety, education, and so on) mostly goes to the highest class. This extra portion is what he called the economic surplus, a form of savings or income left over after consumption. In a feudalistic system, there is little incentive to use the proceeds of this type of surplus to buy more tools and equipment for more production of output and income. The lord or baron has little incentive to lend or give serfs money because he may not benefit from any increased productivity. It is with capitalism that such incentives to reinvest in production become important.