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ST
UIE
S IN
EC
ON
OM
IC H
IST
OR
Y A
ND
PO
LIC
YT
HE
UN
ITE
D S
TA
TE
S IN
TH
E T
WN
TIE
TH
CE
NT
UR
Y
Edi
ted
by
Loui
s G
alam
bos
and
Rob
ert G
allm
an
Oth
er b
ooks
in th
e se
ries
Pete
r D
, McC
lella
nd a
nd A
lan
L. M
agdo
vitz
: Cri
sis
in th
e m
akin
g: th
epo
litic
al e
cono
my
of N
ew Y
ork
Stat
e si
nce
1945
Hug
h R
ocko
ff: D
rast
ic m
easu
res:
a h
isto
ry o
f w
age
and
pric
e co
ntro
ls in
the
Uni
ted
Stat
esW
illia
m N
. Par
ker:
Eur
ope,
Am
eric
a, a
nd th
e w
ider
wor
ld: e
ssay
s on
the
econ
omic
his
tory
of
Wes
tern
cap
italis
mR
icha
rd H
. K. V
ieto
r: E
nerg
y po
licy
in A
mer
ica
sinc
e 19
45: a
stu
dy o
fbusiness-government relations .
Chr
isto
pher
L. T
omls
: The
sta
te a
nd th
e un
ions
: lab
or r
elat
ions
, law
, and
the
orga
nize
d la
bor
mov
emen
t in
Am
eric
a, 1
880-
1960
Leo
nard
S, R
eich
: The
mak
ing
of A
mer
ican
indu
stri
al r
esea
rch:
sci
ence
and
busi
ness
at G
E a
nd B
ell,
1876
-192
6M
arga
ret 1
3, W
, Gra
ham
: RC
A a
nd th
e V
ideo
Dis
c: th
e bu
sine
ss o
f re
sear
chM
icha
el A
. l3e
mst
ein:
The
Gre
at D
epre
ssio
n: d
elay
ed r
ecov
er a
nd e
co-
nom
ic c
hang
e in
Am
eric
a, 1
929-
1939
.M
icha
el J
. Hog
an: T
he M
arsh
all P
lan:
Am
eric
a, B
rita
in, a
nd th
e re
cons
truc
-tion of
Wes
tern
Eur
ope,
194
7-19
52D
avid
A. H
ouns
hell
and
John
Ken
ly S
mith
, Jr.
: Sci
ence
and
cor
pora
test
rate
gy: D
u Po
nt R
&D
, 190
2-19
80Simon Kuznets; edited by Robert Gallan: Economic development, the
fam
ily,
and
inco
me
dist
ribu
tion:
sel
ecte
d es
says
"
, i i-
c
EA
-~ .)
\lt~
Thi
nkin
g ab
out g
row
th
And
oth
er e
ssay
s on
eco
nom
ic g
row
th a
nd w
elfa
re
MO
SE
S A
BR
AM
OV
ITZ
Stan
ford
Uni
vers
ity
il; Ii ì' i
The
rig
ht o
f ihë
"U
niv~
f3ity
a/C
ambr
idge
'10
pri
nt a
nd s
ell
all m
anne
r of
boo
ksW
QS
gran
ted
byH
enry
VI/
I in
/534
.T
he U
nive
rsi'y
has
pri
nted
and
publ
ishe
d co
niin
uolU
lYsi
nce
1$84
.
CA
MB
RID
GE
UN
IVE
RSI
TY
PR
ESS
Cam
brid
geN
ew Y
ork
Port
Che
ster
Mel
bour
ne S
ydne
y
Publ
ishe
d by
the
Pres
s Sy
ndic
ate
of th
e U
nive
rsity
of
Cam
brid
geThe Pitt Building, Trumpington Street, Cambridge CB2 1RP
32 E
ast 5
7th
Str
eet,
New
Yor
k, N
Y 1
0022
, US
A10
Sta
mfo
rd R
oad,
Oak
leig
h, M
elbo
urne
316
6, A
ustr
alia
I! Cambridge University Press 1989
Firs
t pub
lishe
d 19
89
Prin
ted
in th
e U
nite
d St
ates
of
Am
eric
a
Lib
rary
of
Con
gres
s C
atal
ogin
g-in
-Pub
licat
ion
Dat
a
Abr
amov
itz, M
oses
.T
hink
ing
abou
t gro
wth
and
oth
er e
ssay
s on
eco
nom
ic g
row
th a
nd w
elfa
re.
(Stu
dies
in e
cono
mic
his
tory
and
pol
icy)
1. United States-Economic conditions, 2. Public
wel
fare
-U
nite
d St
ates
- H
isto
ry. i
. Titl
e.11
, Ser
ies,
HC
106,
A33
198
9 33
8.97
3 88
-189
02
To Carre, with love
Brit
ish
Libr
ary
Cat
alog
uing
in P
ublic
atio
n D
atà
Abr
amov
itz, M
oses
Thi
nkin
g ab
out g
row
th: a
nd o
ther
essa
ys o
n ec
onom
ic g
row
th a
ndw
elfa
re. -
(St
udie
s in
eco
nom
ichi
stor
y an
d po
licy;
the
Uni
ted
Stat
esin
the
twen
tieth
cen
tury
).1.
Eco
nom
ic g
row
thi.
Titl
e II
. Ser
ies
339.
5
ISBN 0 521 33396 2
l ~O
\Æl l
.~~
S \
\_
~ __
~i-~
ü: ,
Bib
l§ot
rH,~
R.U
JJln
burg
~. .
Â...
._. .
:l0\
0\b$
2
¡- I; L 1: \ I,.
i1'
iThinkig about growth
Eco
nom
ic g
row
th is
one
of
the
olde
st s
ubje
cts
in e
cono
mic
s an
d on
e of
the
youn
gest
. It w
as a
pric
ipal
con
cern
of t
he W
ealth
of N
atio
ns, a
nd it
file
d th
e th
ough
ts o
f ec
onom
ists
for
the
next
' thr
ee q
uart
ers
of a
cent
ury.
As
the
Vic
toria
n A
ge w
ore
on, h
owev
er, g
row
th lo
st it
s ho
ldon the attention and imagiation of the great body of academic econo-
mis
ts. I
t was
left
to M
arx
and
his
follo
wer
s, w
hose
pre
mat
ure
obse
s-si
on w
ith th
e de
mis
e of
cap
itals
m a
ppea
led
to n
eith
er th
e po
litic
alta
stes
nor
the
scie
ntif
ic b
ent o
f th
e di
scip
lie's
exp
onen
ts, A
nd th
en,
afer the Second World War, following a hundred years of compara-
tive
negl
ect,
ther
e w
as a
res
urge
nce
of in
tere
st a
nd s
tudy
that
has
been
pro
ceed
ing
with
vig
or f
or th
e la
st f
our
deca
des.
In th
e ne
w e
ffor
t, m
uch
that
had
bee
n kn
own
a ce
ntur
y an
d m
ore
ago
had
to b
e re
lear
ned.
The
new
eff
ort h
as h
ad th
e be
nefi
t, ho
wev
er,
of fa
r be
tter
and
mor
e ex
tens
ive
hist
oric
al a
nd s
tatis
tical
mat
eria
ls a
nda
mor
e so
phis
ticat
ed th
eore
tical
fra
mew
ork.
The
acc
ompl
ishm
ents
of
the
new
res
earc
h, h
owev
er, h
ave
been
mod
est,
whi
ch is
test
íony
both
to th
e co
mpl
exity
of
the
subj
ect a
nd to
the
litat
ions
of
econ
om-
ics
and
of th
e ot
her
soci
al s
cien
ces
as w
ell.
Yet
the
stud
y of
gro
wth
isgo
ing
on e
nerg
etic
ally
. It i
s in
tere
stig
, the
refo
re, t
o as
k w
hat t
hene
wer
wor
k ha
s ad
ded
to th
e ol
der
and
whe
re th
e su
bjec
t now
stands. ~
Thi
s sk
etch
of
the
erra
tic in
volv
emen
t of
econ
omis
ts w
ith e
cono
mic
grow
th, a
lthou
gh it
str
etch
es o
ver
man
y pa
ges,
is s
ti no
mor
e th
an a
sket
ch. I
t is
spar
e an
d un
shad
ed, a
s a
sket
ch m
ust b
e. I
t dea
ls m
ainy
with
the
caus
es o
f ec
onom
ic g
row
th, n
ot it
s co
nseq
uenc
es. I
t loo
ks a
t
I ackowledge with thanks the caeful review and encouragement of colleagues who
read
ear
ly d
raft
s of
this
pap
er. T
hey
incl
ude
Eli
Gin
zber
g, C
harl
es K
idle
berg
er, R
ich-
ard
Nel
son,
Nat
han
Ros
enbe
rg, W
alt R
osto
w a
nd th
e ed
itors
of t
his
volu
me,
Lou
isG
alam
bos
and
Rob
ert G
alln
. I o
we
a sp
ecia
l deb
t to
Pau
l Dav
id's
thor
ough
and
crtic
al r
eadi
g.
3
4T
hink
ing
abou
t gro
wth
past
wor
k la
rgel
y in
term
s of
wha
t it h
as c
ontr
bute
d to
our
pre
sent
unde
rsta
ndin
g. I
t dea
ls w
ith g
row
th o
nly
as th
is p
rese
nts
itsel
f in
adva
nced
cap
italis
t cou
ntre
s. I
t con
cent
rate
s on
the
incr
ease
of
pro-
duct
ivity
, the
pri
ncip
al c
ompo
nent
of
per
capi
ta o
utpu
t gro
wth
; and
itse
ts a
side
the
com
pani
on s
ubje
ct o
f po
pula
tion
grow
th. I
t is
con-
cern
ed m
ainl
y w
ith th
e ov
eral
pro
duct
ivity
gro
wth
of
natio
ns; i
t ne-
glects the strctural change that growth requires, except as a coun-
tr's
cap
acity
to a
ccom
plis
h su
ch c
hang
e lit
s its
rat
e of
agg
rega
tegr
owth
. In
all t
hese
way
s, th
is s
ketc
h of
the
terr
ain
is in
com
plet
e;ev
en s
o, it
ser
ves
a pu
rpos
e, p
artic
ular
ly if
mor
e co
mpl
ete
and
de-
taile
d m
aps
are
not a
t han
d.
IC,
!~ ~~ L
i. G
row
th a
nd th
e ol
der
econ
omis
ts
Ada
m S
mith
was
the
fath
er, n
ot o
iùy
of m
oder
n ec
onom
ics,
but
mor
epartcularly of the political economy of growth. The Wealth of Nations
in it
s ve
ry ti
tle a
nnou
nces
Sm
ith's
con
cern
with
the
forc
es th
at g
over
nth
e re
lativ
e le
vels
of
pros
peri
ty a
mon
g co
untr
es a
nd th
at c
ause
som
eto
for
ge a
head
and
oth
ers
to f
al b
ehin
d, H
is v
ery
firs
t cha
pter
s ar
ede
vote
d to
the
adva
ntag
es o
f th
e di
visi
on o
f la
bor
and
its d
epen
denc
eon
the
scal
e of
act
ivity
and
the
exte
nt o
f th
e m
arke
t. Sm
ith s
aw th
atla
rge-
scal
e ac
tivity
per
mtte
d a
spec
ializ
atio
n an
d si
mpl
icat
ion
oftr
ades
and
task
s th
at r
aise
d th
e sk
is o
f wor
kers
, sav
ed th
eir
time,
and
enab
led
clev
er a
rtsa
ns to
dev
ise
labo
r-sa
vig
tool
s an
d de
vice
s; it
enla
rged
the
outle
t for
cap
ital t
o em
body
the
impr
oved
met
hods
, and
affo
rded
bus
ines
smen
a p
rofi
tabl
e an
d pr
oduc
tive
way
to e
mpl
oyth
eir
savi
ngs,
In
Smith
's v
iew
, the
refo
re, t
he a
dvan
ce in
pro
duct
ivity
was
an
inte
ract
ive
proc
ess
that
ran
fro
m s
cale
of
mar
ket t
o th
e di
visi
onof
labo
r, th
ence
to th
e en
hanc
emen
t of
skis
, the
inve
ntio
n of
new
tool
s, a
nd th
e ac
cum
ulat
ion
of c
apita
l, fi
nally
fee
ding
bac
k to
mar
ket
scal
e. S
mith
saw
the
polit
ical
inst
itutio
ns u
nder
whi
ch p
eopl
~ liv
ed a
sth
e m
ain
dete
rmna
nt to
thei
r ab
ilty
to e
xplo
it th
e sc
ale
adva
ntag
esm
ade
poss
ible
by
trad
e an
d, th
eref
ore,
to th
eir
abilt
y to
mak
e fu
ll us
eof
thei
r ta
lent
s an
d na
tura
l res
ourc
es.
With
few
exc
eptio
ns, S
mith
thou
ght,
the
"pol
icy
of E
urop
e" s
houl
dbe
one
of l
aiss
ez-f
aire
. But
the
Wea
lth o
f Nat
ions
als
o di
spla
ys S
mith
'sliv
ely
sens
e of
the
tend
ency
of
peop
le to
mul
tiply
thei
r nu
mbe
rs a
ndto press on the physical
liits of a stationary supply of land. He
thou
ght a
nat
ion
best
off
and
mos
t pro
gres
sive
whe
n th
ere
was
sti
aga
p be
twee
n its
pop
ulat
ion
and
the
max
ium
num
ber
its la
nd c
ould
supp
ort.
Gro
wth
tend
ed to
be
rapi
d, th
eref
ore,
whe
n an
incr
easi
ngpo
pula
tion
and
a gr
owig
agg
rega
te in
com
e w
ere
expa
ndin
g m
arke
tsan
d op
enin
g th
e w
ay to
a s
ti m
ore
inte
nse
divi
sion
of
labo
r,
Thi
nkin
g ab
out g
row
th5
Smith
's th
eori
es w
ere
deve
lope
d an
d re
fine
d in
the
deca
des
afte
r th
eap
pear
ance
of
his
grea
t boo
k. M
alth
us's
fam
ous
essa
y on
pop
ulat
ion,
take
n to
geth
er w
ith R
icar
do's
trea
tmen
t of
dim
inis
hing
ret
urns
in th
eus
e of
land
, sha
rpen
ed th
e se
nse
of c
onfl
ct b
etw
een
popu
latio
n an
dre
sour
ces.
At t
hf' s
áme
tie, t
here
was
a g
row
ig a
ppre
ciat
ion
of th
epo
ssib
iltie
s of
pro
gres
s ba
sed
on th
e ad
vanc
e of
kno
wle
dge.
Joh
nSt
uart
Mi's
Pri
ncip
les
of P
oliti
cal E
cono
my
(184
8) g
ave
the
econ
omic
s of
grow
th it
s de
fini
tive
stat
emen
t at t
he h
ands
of
the
clas
sica
l eco
nom
ists
,T
he o
rgan
iing
them
e of
Mi's
trea
tise
has
a di
stic
tly m
odem
rin
g:
We
may
say
, the
n, .
. . th
at th
e re
quis
ites
of p
rodu
ctio
n ar
e La
bour
, Cap
ital,
and
Lan
d, T
he in
crea
se o
f pr
óduc
tion,
ther
efor
e, d
epen
ds o
n th
e pr
oper
ties
of th
ese
elem
ents
, It i
s a
resù
lt,of
the
incr
ease
eith
er o
f th
e el
emen
ts th
em-
selv
es, o
r of
thei
r pr
oduc
tiven
ess,
The
law
of
the
incr
ease
of
prod
uctio
n m
ust
be a
con
sequ
ence
of
the
law
s of
thes
e el
emen
ts; t
he li
mits
to th
e in
crea
se o
fpr
oduc
tion
mus
t be
the
liits
, wha
teve
r th
ey a
re, s
et b
y th
ese
law
s. (
Prin
ci-
ples
, Ash
ley
editi
on, p
. 156
) ,
Wha
t are
thes
e la
ws?
On
labo
r, M
i is
a M
alth
usia
n, F
ree
of r
e-st
rain
t, po
pula
tion
mul
tiplie
s ra
pidl
y so
long
as
outp
ut p
er h
ead
ex-
ceed
s so
me
min
imum
sta
ndar
d. "
The
use
(pe
ople
) co
mm
only
cho
ose
to m
ake
of a
ny a
dvan
tage
ous
chan
ge in
thei
r ci
rcum
stan
ces,
is to
, tak
eit
out i
n th
e fo
rm w
hich
, by
augm
entin
g th
e po
pula
tion,
dep
rive
s th
esu
ccee
ding
gen
erat
ion
of th
e be
nefit
" (p
. 161
). B
ut M
ill is
a r
eluc
tant
and
som
ewha
t qua
lied
Mal
thus
ian.
Con
ceiv
ably
peo
ple
can
com
e to
rais
e th
eir
min
ium
sta
ndar
d. "
Eve
ry a
dvan
ce th
ey m
ake
in e
duca
-tio
n, c
ivili
zatio
n an
d so
cial
impr
ovem
ent,
tend
s to
rai
se th
is s
tand
ard
and
ther
e is
no
doub
t tha
t it i
s gr
adua
lly, t
houg
h sl
owly
, ris
ing
in th
ead
vanc
ed c
ount
res
of W
este
rn E
urop
e" (
p. 1
61).
Mill
not
ed th
at p
opul
atio
n gr
owth
rat
es in
thes
e pr
ogre
ssiv
e co
un-
tres
had
bee
n de
clin
ing;
yet
he
did
not f
ully
trus
t suc
h ho
pefu
l sig
ns,
He
fear
ed th
e fo
rce
of p
eopl
e's
pow
er o
f na
tura
l inc
reas
e.C
apita
l too
tend
s to
incr
ease
und
er th
e im
puls
e of
its
earn
ing
pow
er,
As
with
the
earn
ngs
of la
bor,
how
ever
, the
pro
fit r
ate
mus
t e'tc
eed
am
iimum
sta
ndar
d, T
his
thre
shol
d le
vel i
s lo
w w
here
wea
lth is
abu
n-da
nt a
nd p
eopl
e's
"effe
ctiv
e de
sire
for
accu
mul
atio
n" is
str
ong.
It is
high
whe
re b
usin
ess
is r
isky
and
pro
pert
y in
secu
re.
If la
bor
wer
e th
e on
ly e
lem
ent i
n pr
oduc
tion,
out
put w
ould
incr
ease
prop
ortio
nate
ly w
ith p
opul
atio
n. B
ut c
apita
l, si
nce
it is
als
o an
ele
-m
ent i
n pr
oduc
tion,
impo
ses
a lim
it, u
nles
s it
grow
s at
the
sam
e ra
teas
labo
r; b
ut c
apita
l can
not l
ong
incr
ease
fas
ter
with
out s
wif
ty d
rivi
ngth
e pr
ofit
rate
dow
nwar
d. A
nd s
ince
land
, whi
ch is
by
defin
ition
infi
xed
supp
ly, i
s a
thir
d el
emen
t, th
e in
crea
se o
f bo
th c
apita
l and
labo
rm
ust d
eclin
e an
d ev
entu
ally
com
e to
a h
alt,
even
if th
ey th
emse
lves
6T
hink
ing
abou
t gro
wth
incr
ease
in s
tep
with
one
ano
ther
, The
y m
eet d
imni
shin
g re
turn
s as
they
are
em
ploy
ed to
geth
er w
ith a
fix
ed a
mou
nt o
f la
nd; t
he r
etur
n to
capi
tal i
s th
en d
nven
dow
n as
ren
ts in
crea
se a
t the
exp
ense
of
prof
it.T
he c
onse
quen
t dec
line
in th
e ra
te o
f cap
ital a
ccum
ulat
ion,
toge
ther
with
the
nse
in th
e pn
ce o
f fo
od, r
educ
es th
e re
al in
com
e of
wor
kers
,T
he r
ate
of p
opul
atio
n gr
owth
is a
lso
redu
ced.
The
re is
, the
refo
re, a
ninherent tendency for growth to cease: '
It m
ust a
lway
s ha
ve b
een
seen
, mor
e or
less
dis
tictly
by
polit
ical
eco
no-
mis
ts, t
hat t
he in
crea
se o
f w
ealth
is n
ot b
ound
less
: tha
t at t
he e
nd o
f w
hat
they
term
the
prog
ress
ive
stat
e lie
s th
e st
atio
nary
sta
te, t
hat a
ll pr
ogre
ss in
wea
lth is
but
a p
ostp
onem
ent o
f th
is, a
nd th
at e
ach
step
in a
dvan
ce is
an
appr
oach
to it
, (p.
746
)
Unl
ike
his
grea
t pre
dece
ssor
s, h
owev
er, M
il di
d no
t bel
ieve
that
the
"pro
gres
s of
soc
iety
mus
t 'en
d in
sha
low
s an
d in
mis
enes
' " (
p.74
7)' M
alth
us h
imse
lf ha
d re
cogn
ized
that
the
incr
ease
of p
opul
atio
nco
uld
be b
roug
ht to
a h
alt b
efor
e in
com
es f
ell t
o th
e ba
re m
imum
requ
ired
to s
uppo
rt li
fe. I
t mig
ht r
emai
n m
uch
high
er if
peo
ple
cam
eto
insi
st o
n a
high
er s
tand
ard
of li
vig.
Mill
arg
ued
that
res
trai
nts
onbi
rths
wer
e ne
cess
ary
even
in p
rogr
essi
ve c
ount
res
to p
reve
nt p
opul
a-tio
n fr
om o
utst
rppi
ng th
e in
crea
se o
f ca
pita
L. T
he s
ame
rest
rain
ts,
how
ever
, mig
ht m
aint
ain
a co
mfo
rtab
le c
onqi
tion
even
in a
sta
tiona
rst
ate,
whi
ch th
en w
ould
hol
d ou
t ver
y fa
vora
ble
pros
pect
s fo
r th
ein
telle
ctua
l and
mor
al d
evel
opm
ent o
f pe
ople
(B
ook
iv, C
h. V
i).
Whe
ther
the
stat
iona
ry s
tate
that
loom
s be
fore
nat
ions
is o
ne o
fco
mfo
rt o
r m
iser
y, h
owev
er, l
oom
it d
oes:
". .
. w
e ar
e al
way
s on
the
verg
e of
it, a
nd. ,
, if
we
have
not
rea
ched
it lo
ng a
go, i
t is
beca
use
the
goal
itse
lf f
les
befo
re u
s" (
p. 7
46),
The
for
ce th
at, i
n th
e la
st a
naly
sis,
kee
ps th
e st
atio
nary
sta
te a
t bay
is "
impr
ovem
ent i
n th
e pr
oduc
tive
arts
" -:
tech
nolo
gica
l pro
gres
s, w
ew
ould
say
. Mi's
dis
cuss
ion
redu
ces
the
emph
asis
that
Sm
ith h
adpl
aced
on
an e
xten
sion
of
the
mar
ket a
nd d
ivis
ion
of la
bor.
Mi
view
ed th
e ec
onom
ies
of s
cale
as
affo
rdin
g on
ly tr
ansi
tory
rel
ief
unti
popu
latio
n be
com
es d
ense
eno
ugh
"to
allo
w th
e pn
ncip
al b
enef
its o
fco
mbi
natio
n of
labo
r" (
pp. 1
91-9
2). T
here
afte
r, p
rogr
ess
beco
mes
ara
ce:
Whether, at the present or any other tie, the produce of industr proportion-
ally
to th
e la
bour
em
ploy
ed, i
s in
crea
sing
or
dim
nish
ig, .
. de
pend
s up
onw
heth
er p
opul
atio
n is
adv
anci
g fa
ster
than
impr
ovem
ent,
or im
prov
emen
tthan population. (p. 191)
Mill
's s
hift
of
emph
asis
ref
lect
s th
e se
vent
y-fi
ve y
ears
that
had
pass
ed b
etw
een
Smith
, who
wro
te o
nly
on th
e ev
e of
the
Indu
stra
lR
evol
utio
n, a
nd th
e m
id-n
inet
eent
h ce
ntur
y, w
hen
pow
ered
mac
hi-
i f t I ¡ .~- :'r l¡ , ¡
Thi
nkin
g ab
out g
row
th7
ery,
the
railr
oad,
the
stea
msh
ip, a
nd th
e el
ectr
omag
netic
tele
grap
hha
d be
gun
to c
reat
e a
sens
e of
the
furt
her
poss
ibilt
ies
of te
chno
logi
cal
prog
ress
.
Of t
he fe
atur
es w
hich
cha
ract
erie
this
pro
gres
sive
eco
nom
ical
mov
emen
t of
civi
lzéd
nat
ions
, tha
t whi
ch f
irst
exc
ites
atte
ntio
n, th
roug
h its
intim
ate
conn
exio
n w
ith th
e ph
enom
ena
of P
rodu
ctio
n, is
the
perp
etua
l, an
d so
far
as
human föresight can extend, the urited, growth of man's power over
nature. (p. 696)
Mi's
vie
w o
f th
e m
atte
r is
am
ple
and
spac
ious
, and
it h
as ta
ken
late
rec
onom
ists
som
e tim
e to
reg
ain
his
swee
ping
vie
w, i
f, in
deed
, the
yha
ve,
Impr
ovem
ent m
ust b
e un
ders
tood
. . .
in a
wid
e se
nse,
incl
udin
g no
t onl
yne
w in
dust
rial
inve
ntio
ns, o
r an
ext
ende
d us
e of
thos
e al
read
y kn
own,
but
impr
ovem
ents
in in
stitu
tions
, edu
catio
n, o
pini
ons
and
hum
an'a
ffai
rs g
ener
-al
ly, p
rovi
ded
they
tend
, as
alm
ost a
ll im
prov
emen
ts d
o, to
giv
e ne
w m
otiv
esor
new
fac
iltie
s to
pro
duct
ion.
(p.
192
)
Mil,
like
his
pre
dece
ssor
s, la
id g
reat
str
ess
on th
e in
stitu
tiona
l ar-
rang
emen
ts a
nd p
ublic
pol
icie
s of
nat
iona
l eco
nom
ies.
He
was
par
ticu-
larl
y co
ncer
ned
with
fou
r m
atte
rs: t
he s
ecun
ty o
f pr
oper
ty a
s a
cond
i-tio
n of
sav
ing
and
inve
stm
ent;
the
capa
city
of p
eopl
e fo
r ef
fect
ive
coop
erat
ion
as a
bas
is f
or th
e co
nduc
t of
indu
str
on a
larg
e sc
ale;
the
prop
er p
nnci
ples
of
taxa
tion
- to
mak
e ta
xes
as li
ttle
arbi
trar
y, b
urde
n-so
me,
and
dis
tort
onal
as
poss
ible
- a
nd fi
nally
, the
pro
per
exte
nt a
ndlim
its o
f th
e pn
ncip
le o
f la
isse
z-fa
ire.
As
to th
e la
st, M
ill f
elt t
om. H
e m
aint
aine
d th
e co
mm
on c
onvi
ctio
nof
pol
itica
l eco
nom
ists
fro
m H
ume
and
Smith
for
war
d th
at in
divi
du-
als
shou
ld e
njoy
the
grea
test
pos
sibl
e sc
ope
to e
ngag
e in
trad
e an
d to
cont
ract
free
ly w
ith o
ne a
noth
er. Y
et h
e in
sist
ed th
at th
is p
nnci
ple
was
itse
lf li
mite
d in
ext
ent a
nd a
dmitt
ed o
f ex
cept
ions
. He
trea
ted
the
subj
ect a
t len
gth;
but
in a
n es
say
on g
row
th, f
our
inst
ance
s of
des
ir-
able
pub
lic a
ctiv
ity o
r in
terv
entio
n st
and
out:
The
pro
tect
ion
of th
ose
kind
s' o
f goo
ds th
at b
elon
g to
peo
ple
inco
mm
on b
ut a
re u
sed
by a
ll in
divi
dual
ly -
the
envi
ronm
ent.
The
pro
visi
on o
f go
ods
or th
e su
ppor
t of
serv
ces
who
se s
ocia
l utii
tyex
ceed
s th
eir
priv
ate
- ed
ucat
ion
and
scie
ntif
ic r
esea
rch
(bes
ides
light
hous
es a
nd b
uoys
).T
he r
egul
atio
n of
act
iviti
es th
at c
an o
nly
be d
one
by "
dele
gate
dag
ency
" -
for
exam
ple,
by
join
t sto
ck c
ompa
nies
- a
nd th
e re
gula
-tio
n or
pub
lic p
rovi
sion
of
serv
ces
that
are
nat
ural
and
pra
ctic
alm
onop
olie
s- g
as a
nd w
ater
com
pani
es, r
ailr
oads
, can
als.
Mor
e ge
nera
lly, t
he p
rovi
sion
of
such
fac
iitie
s, im
port
ant t
o th
epu
blic
inte
rest
, tha
t pri
vate
indi
vidu
als
mig
ht p
rovi
de, b
ut w
ilnot because, "in the particular circumstances of a given age or
8T
hink
ing
abou
t gro
wth
nation," the public is either "too poor to command
the
nece
ssar
yre
sour
ces,
or
too
litte
adv
ance
d in
inte
llgen
ce to
app
reci
te th
een
ds, o
r no
t suf
fici
ently
pra
ctic
ed in
join
t act
ion
to b
e ca
pabl
e of
the
mea
ns"
(p. 9
78).
No
one
can
read
, or
rere
ad, M
i with
out f
eelin
g ho
w f
ar h
e an
d th
eot
her
clas
sica
l eco
nom
ists
had
ant
icip
ated
con
tem
pora
ry w
ork,
how
muc
h w
e m
ay le
arn
from
them
, and
als
o. h
ow m
uch
we
had
forg
otte
ndu
ring
the
cent
ury-
long
hia
tus
whe
n gr
owth
stu
dies
wer
e ne
glec
ted.
., , ~. f
II. G
row
th a
nd e
cono
mic
s du
ring
the
hiat
us
One
of
the
stro
ng im
pres
sion
s on
e ta
kes
from
Mi i
s hi
s am
biva
lenc
eab
out t
he b
alan
ce o
f gr
owth
for
ces.
He
sens
ed th
at p
opul
atio
n gr
owth
was
beg
inni
ng to
be
limte
d, b
ut h
e fe
ared
the
stre
ngth
of
the
hum
anca
paci
ty a
nd d
rive
to m
ultip
ly, H
e pe
rcei
ved
the
poss
ibilt
ies
of h
u-m
an k
id's
gro
win
g m
aste
ry o
ver
natu
re a
nd o
f th
e cu
mul
ativ
e ad
-va
nce
of th
e in
dust
ral a
rts,
but
he
was
uns
ure
of th
eir
pace
and
cont
inui
ty. T
he r
esul
t was
his
vis
ion
of a
rac
e be
twee
n po
pula
tion
and
impr
ovem
ent w
hose
win
ner
was
unc
erta
in.
Thi
s am
biva
lent
attt
ude
grad
ualy
dis
appe
ared
as
the
last
cen
tury
wore on. In Britain,
in th
e U
nite
d St
ates
, and
in a
gra
dual
ly w
iden
ing
sphe
re in
Eur
ope
inco
mes
ros
e fr
om d
ecad
e to
dec
ade,
Pow
er a
ndm
achi
nery
app
lied
to in
dust
r in
crea
sed
prod
uctiv
ity in
agr
cultu
re a
sw
ell a
s m
anuf
actu
ring
. App
lied
to tr
ansp
orta
tion,
it o
penè
d ne
wla
nds
and
brou
ght f
ood
and
raw
mat
eria
ls c
heap
ly to
mor
e po
pulo
usco
untr
es, T
he p
opul
atio
n re
spon
se b
ecam
e w
eake
r w
hile
tech
nolo
gi-
cal advance continued at a rapid pace. Even the dismal science
lear
ned
to s
mile
; it a
bsor
bed
the
cent
ury'
s w
ider
fai
th in
unb
ound
edPr
ogre
ss,
Yet
the
plac
e of
gro
wth
in th
e st
udie
s an
d w
ritig
s of
eco
nom
ists
did not expand. Quite the contrary! Perhaps because economic
grow
th h
ad b
ecom
e ab
sorb
ed in
to a
mor
e ge
nera
l vis
ion
of h
uman
prog
ress
, it w
as n
O lo
nger
see
n as
a p
robl
em. O
r pe
rhap
s it
was
disp
lace
d by
oth
er p
ress
ing
conc
erns
. Hig
her
inco
mes
, mor
e w
ide-
spre
ad e
duca
tion,
and
the
exte
nsio
n of
suf
frag
e -
all c
onco
mita
nts
ofec
onom
ic g
row
th it
self
- m
ade
wor
kig
peop
le a
str
onge
r po
litic
alfo
rce.
Cor
resp
ondi
ngly
, the
cla
ims
of la
bor
and,
mor
e ge
nera
lly, t
hequ
estio
n of
inco
me
dist
rbut
ion
beca
me
mor
e ur
gent
issu
es. O
r pe
r-ha
ps e
cono
mis
ts w
ere
sedu
ced
by th
e lo
gica
l coh
eren
ce o
f the
neo
clas
-si
cal t
heor
y of
rel
ativ
e pr
ices
and
res
ourc
e al
loca
tion,
whi
ch c
ame
tose
em s
uch
a so
lid c
onst
rctio
n on
its
stat
ic f
ound
atio
ns. T
he th
eory
trea
ted
a na
tion'
s in
stitu
tions
, its
pop
ulat
ion,
and
its
tech
nolo
gy, t
he
Thi
nkin
g ab
out g
row
th9
cent
ral e
lem
ents
of
the
grow
Üi p
roce
ss, a
s au
tono
mou
s da
ta. T
hey
wer
e vi
ewed
as
the
cOns
trai
nts
and
cond
ition
s to
whi
ch p
rices
and
reso
urce
allo
catio
n ad
just
ed. B
ut th
e ca
uses
of
thei
r ch
ange
s w
ere
not
subj
ects
for
, eco
nom
ists
to in
vest
igat
e, a
nd th
eir
impl
icat
ions
wer
em
ainl
~ n
egle
cted
. Neo
clas
sica
l the
ory,
ther
efor
e, im
pose
d bo
unda
ries
On
econ
omic
s, a
t lea
st O
n th
e sc
ienc
e th
at e
cono
mis
ts h
ad th
e am
bi-
tion
to b
uild
. It l
eft g
row
th o
utsi
de it
s bo
rder
s, E
ven
the
subj
ect o
fsc
ale,
the
divi
sion
of l
abor
and
incr
easi
ng r
etur
ns -
Ada
m S
mith
'sba
sic
insi
ght -
cam
e to
be
view
ed a
s ju
st a
pro
blem
for
the
theo
ry o
fth
e eq
uilb
rium
of
rela
tive
pric
es, A
nd A
lyn
You
ng h
ad to
wrt
e a
fam
ous
essa
y (1
928)
to r
emid
eco
nom
ists
that
it w
as s
omet
hig
mor
e, p
art o
f an
inte
ract
ive
and
cum
ulat
ive
proc
ess
invo
lvig
cap
ital
accu
mul
atio
n, p
rodu
ctiv
ity g
row
th, r
isin
g in
com
es, a
nd th
e ex
tens
ion
of m
arke
ts, a
n el
emen
t in
econ
omic
gro
wth
as
wel
l as
a pr
oble
m fo
rst
atic
theo
ry. f
inal
ly, w
hate
ver
impu
lse
ther
e w
as to
bre
ak o
ut o
f th
ebo
rder
s of
sta
tic th
eory
was
abs
orbe
d by
the
trou
bles
that
eng
ulfe
dthe industralworId after 1914, Two great wars, the postwar hyperin-
£lat
ions
, an
d th
e G
reat
Dep
ress
ion
prov
ided
a q
uart
er-c
entu
ry o
f dis
-tr
actio
ns fo
r th
ose
econ
omis
ts w
ho w
ere
mid
ed to
'stu
dy s
omet
hing
othe
r th
an th
e co
nditi
ons
of g
ener
al e
quilb
rium
.T
o al
l thi
s Jo
seph
Sch
umpe
ter
was
an
hono
rabl
e an
d no
tabl
e ex
cep-
tion, His early classic, The Theory of Economic Development (1911), ar-
gued
that
in th
e ab
senc
e of
pop
ulat
ion
grow
th a
nd te
chno
logi
cal a
d-, v
ance
nei
ther
a p
ositi
ve in
tere
st r
ate
nor
net p
rofi
t wou
ld p
ersi
st.
Pro
fit is
, ind
eed,
the
rew
ard
for
the
succ
essf
ul in
trod
uctio
n of
new
met
hods
and
pro
duct
s. If
' eco
nom
ic a
ctiv
ity fo
llow
ed a
n un
ceas
ing
repe
titiv
e ro
und,
ther
e w
ould
be
nO f
unct
ion
for
entr
epre
neur
s an
dnO
occ
asio
n fo
r pr
ofit,
And
inte
rest
wou
ld d
isap
pear
as
cont
inue
dac
cum
ulat
ion
embo
dyin
g an
unc
hang
ig te
chno
logy
dro
ve th
e m
ar-
gial
pro
duct
of
capi
tal t
o ze
ro. i
Schu
mpe
ter's
arg
umen
ts w
ere
inte
nded
fir
st o
f al
l to
enla
rge
the
foun
datio
ns o
f th
e ne
ocla
ssic
al th
eory
of
fact
or p
rice
s. A
s a
posi
tive
cont
rbut
ion
to th
e ec
onom
ics
of g
row
th, t
hey
repe
ated
and
re-
info
rced
the
olde
r vi
ews
abou
t the
, ten
denc
y of
gro
ss p
rofi
t '(n
tere
stpl
us n
et p
rofi
t) to
a m
inim
UI
and
the
depe
nden
ce o
f ne
t cap
ital
accu
mul
atio
n an
d th
e re
turn
to c
apita
l On
the
rate
of i
mpr
ovem
ent.
Schu
mpe
ter
wen
t fur
ther
. He
dist
igui
shed
bet
wee
n "i
nven
tion,
"or
the
adva
nce
of k
now
ledg
e us
eful
in p
rodu
ctio
n, a
nd "
inno
vatio
n,"
which was the exploitation of such
know
ledg
e, th
e ac
tual
intr
oduc
-tio
n of
new
pro
duct
s or
new
met
hods
in c
omm
erci
al o
pera
tions
. The
olde
r ec
onom
ists
had
trea
ted
both
as
auto
nom
ous
deve
lopm
ents
, but
Sch
umpe
ter
argu
ed th
at in
ovat
ion
was
an
econ
omic
act
ivity
, the
pecu
iar
func
tion
of e
ntre
pren
eurs
. His
vie
w im
plie
d th
at m
arke
t com
-..
10T
hink
ing
abou
t gro
wth
petit
ion
incl
uded
riv
alr
in th
e in
tfod
uctio
n of
new
pro
duct
s an
dpr
oces
ses.
Rel
ativ
e pr
ices
, the
refo
re, w
ere
in f
lux,
con
stan
tly d
is-
turb
ed b
y th
e sa
me
mar
ket c
ompe
titio
n th
at in
the
rece
ived
theo
ryw
as th
ough
t to
esta
blis
h th
eir
equi
lbri
um.
Schu
mpe
ter
taug
ht th
at in
nova
tion
was
the
cent
ral e
lem
ent i
n th
eec
onom
ics
of g
rQw
th. A
s su
ch, h
e st
ress
ed th
e re
quire
men
ts fo
r su
c-ce
ssfu
l inn
ovat
ion:
ope
n m
arke
ts to
per
mt.
the
appe
aran
ce o
f "n
ewm
en"
and
"new
fir
ms,
" ac
cess
to c
redi
t, an
d su
ffci
ently
sta
ble
mac
ro-
econ
omic
con
ditio
ns s
o th
at b
usin
essm
en c
ould
gau
ge th
eir
mar
kets
and
thei
r pr
ices
and
cos
ts w
ithou
t an
undu
e se
nse
of r
isk.
Sch
umpe
ter
saw business cycles, particularly the longer waves of accelerated
grow
th a
nd r
etar
datio
n an
d th
e fin
anci
al d
isto
rtio
ns th
ey b
roug
ht in
thei
r tr
ain,
as
part
of
the
inno
vato
ry p
roce
ss, H
e w
as a
mon
g th
e fi
rst t
osu
gges
t tha
t the
unc
erta
intie
s ac
com
pany
ig in
flat
ion
and
othe
r fi
nan-
cial
dis
turb
ance
s co
uld
pose
a la
stig
obs
tacl
e to
inno
vatio
n an
d pr
o-du
ctiv
ity g
row
th -
a le
sson
for
the
cont
empo
rary
sce
ne a
nd s
easo
n.Sc
hum
pete
r w
as w
idel
y ad
med
for
his
bri
ance
and
long
neg
lect
edfo
r hi
s or
igin
ality
. His
inno
vativ
e th
eori
es w
ere
not e
asily
acc
omm
o-dated within the domiant neoclassical modeL.
Whe
n in
tere
st in
eco
nom
ic g
row
th fi
naly
rev
ived
afte
r W
orld
War
II, e
cono
mis
ts s
tudi
ed S
chum
pete
r ag
ain.
The
y w
ere
atta
cted
esp
e-cially by the theses of his later work, Capitalism, Socialism, and Democ-
racy
(19
42).
Her
e he
enl
arge
d on
his
ear
lier
idea
s ab
out t
he r
ole
ofpr
ofits
, He
now
arg
ued
that
inov
atio
n re
sted
not
onl
y on
the
lure
of
high
but
com
petit
ive
prof
its; o
ften
it a
lso
conf
erre
d m
onop
oly
pow
eran
d its
con
com
itant
mon
opol
y pr
ofits
, Al t
hese
he
view
ed a
s ne
ces-
sary
, the
refo
re u
sefu
l, in
duce
men
ts a
nd r
ewar
ds -
an
acce
ptab
lepr
ice
for
the
bene
fits
of
inno
vatio
n an
d gr
owth
. Mor
eove
r, th
ese
pries were transient, being diluted and eventually eliinated by the
imita
tive
inro
ads
and
furt
her
inno
vatio
ns o
f ri
val e
ntre
pren
eurs
.Some degree of monopoly power,
ther
efor
e, w
as a
reg
ular
feat
ure
of a
progressive economy - constantly lited, but also constantly re-
new
ed b
y th
e in
nova
tive
activ
ity o
f ent
repr
eneu
rs.
Schu
mpe
ter
now
als
o ab
ando
ned
the
shar
p di
stin
ctio
n th
at h
isea
rly w
ritin
gs h
ad d
raw
n be
twee
n in
vent
ion,
the
prod
uct o
f act
iviti
esou
tsid
e th
e ec
onom
ic s
yste
m, a
nd in
nova
tion,
whi
ch w
as r
egar
ded
asbu
sine
ss in
vest
men
t of a
bol
d an
d ris
ky s
ort.
Rec
ogni
zing
that
larg
ean
d lo
ng-l
ived
cor
pora
tions
had
dis
plac
ed th
e in
divi
dual
ent
repr
e-ne
ur, h
e su
gges
ted
that
bot
h th
e se
arch
for
new
tech
nolo
gy a
nd it
sco
mm
erci
al e
xplo
itatio
n ha
d be
com
e "r
outin
e" a
spec
ts o
f bu
sine
ssac
tivity
. Eco
nom
ists
' pre
sent
mod
els
of te
chno
logi
cal p
rogr
ess
inco
r-po
rate
ver
sion
s of
the
sam
e id
eas;
but
that
rev
ival
of
Schu
mpe
teri
anec
onom
ics
rem
aine
d fo
r th
e fu
tue.
Whi
le th
eir
atte
ntio
n w
as d
irec
ted
Thi
nkin
g ab
out g
row
th11
else
whe
re, e
cono
mis
ts' v
iew
s ,a
bout
eco
nom
ic g
row
th r
emai
ned
un-
form
ed. G
uide
d by
neo
clas
sica
l the
ory,
they
trea
ted
tech
nolo
gica
l ad-
vanc
e -
as in
depe
nden
t of
econ
omic
ince
ntiv
es a
nd s
aw o
nly
capi
tal
accu
mul
atio
n as
a s
ourc
e of
pro
duct
ivity
gro
wth
res
pons
ive
to e
co-
nom
ic c
ause
s,i
III.
The
pos
twar
rev
ival
of
inte
rest
in g
row
th a
nd th
ere
spon
se o
f ec
onom
ics
Tha
t was
how
mat
ters
sto
od a
s W
orld
War
II c
ame
to a
n en
d, In
tere
st,
how
ever
, qui
ckly
shi
fted
. Gro
wth
bec
ame
a pr
imar
y go
al o
f na
tiona
lpo
licy
and
cons
eque
ntly
an
abso
rbin
g su
bjec
t of
stud
y by
eco
nom
ists
.T
here
wer
e co
nsid
erat
ions
of
natio
nal s
ecur
ity a
nd r
ival
ry, o
f th
eco
nque
st o
f po
vert
y, a
nd o
f ad
vanc
es to
war
d pr
ospe
rity
, and
ther
ew
ere
pres
sure
s fo
r gr
owth
to a
chie
ve o
ther
urg
ent s
ocia
l obj
ectiv
es.
Peop
le, i
nclu
ding
pol
itici
ans,
rea
lized
that
the
outc
ome
of th
e w
arha
d be
en d
eter
min
ed b
y G
NP.
Mor
e th
an e
ver
befo
re, n
atio
ns v
iew
edth
eir
secu
rity
and
pow
er a
s re
stig
on
an e
cono
mic
bas
e. T
o en
sure
thei
r in
depe
nden
ce a
nd s
afet
y, th
ey' c
oncl
uded
they
mus
t gro
w; i
fah
ead,
sta
y ah
ead;
if b
ehid
~ ca
tch
up,
Eur
opea
ns b
ecam
e aw
are
that
they
had
lost
gro
und
to th
e U
nite
dSt
ates
in le
vels
of
livig
not
onl
y du
rig
the
war
but
sin
ce 1
913
and
even
ear
lier.
The
y co
rrec
tly f
elt t
hat t
heir
leve
ls o
f sc
ient
ific
and
gen
-er
al e
duca
tion,
thei
r ex
peri
ence
with
mod
ern
com
mer
ce, i
ndus
tr,
and
fina
nce,
and
thei
r po
litic
al in
stitu
tions
sho
uld
be a
ble
to s
uppo
rt a
muc
h hi
gher
rel
ativ
e st
atus
,Si
mila
rly,
the
new
ly in
depe
nden
t cou
ntre
s, th
e fo
rmer
col
onie
s,sa
w e
cono
mic
gro
wth
not
onl
y as
the
mea
ns o
f ri
sing
fro
m p
over
tybu
t as
a ne
cess
ary
cond
ition
for
cons
olid
atin
g th
eir
new
pol
itica
lre
gies
.O
n an
othe
r le
vel,
the
riva
lr b
etw
èen
the
US?
R a
nd th
e U
nite
dSt
ates
mad
e ea
ch c
ount
r an
xiou
s to
pro
ve th
at it
s sy
stem
was
cap
a-bl
e of
p'ad
ucin
g ev
er h
ighe
r m
ater
ial c
ondi
tions
and
was
ther
efor
ew
orth
y of
em
ulat
ion,
fre
ndsh
ip, o
r ev
en a
llanc
e.In
tern
al p
oliti
cal f
orce
s al
so p
ress
ed f
or g
row
th. T
he e
nlar
gem
ent o
fthe democratic suffrage in the industralied countres, a stronger
egal
itaria
n se
ntim
ent,
and
peop
le's
hei
ghte
ned
appr
ecia
tion
of th
eri
sks
and
cost
s of
adv
ance
d ca
pita
list l
ife
drov
e co
untr
es to
dev
elop
syst
ems
of p
rote
ctio
n an
d be
nefi
t - th
e w
elfa
re s
tate
. It w
as q
uick
lyap
prec
iate
d th
at it
wou
ld b
e ea
sier
to p
ay f
or th
ese
syst
ems
from
risi
ng in
com
es th
an f
rom
red
istr
butiv
e ta
xes.
The
pol
itica
l ten
sion
san
d so
cial
con
flict
inhe
rent
in r
edis
trbu
tion
wou
ld b
e m
itiga
ted
bygr
owth
.
12T
hink
ing
abou
t gro
wth
Eco
nom
ists
res
pond
ed to
the
chal
leng
es o
f new
pub
lic p
robl
ems
and
polit
ical
inte
rest
by
open
ing
thre
ee la
rge
bran
ches
of
rese
arch
.O
ne w
as th
e st
udy
of s
ecul
ar d
evel
opm
ent i
n th
ose
coun
tres
that
wer
e al
read
y fa
r ad
vanc
ed o
n th
e pa
th o
f in
dust
ralia
tion
and
wer
eca
pabl
e of
ope
ratig
at o
r ne
ar th
e fr
ontie
rs o
f mod
em te
chno
logy
,A
noth
er w
as th
e st
udy
of d
evel
opm
ent i
n po
or c
ount
res
sti e
mer
g-ing from a preindustral condition, the countres in which the basic
inst
itutio
ns a
nd c
apab
iltie
s fo
r ex
ploi
tig c
onte
mpo
rary
tech
nolo
gyre
mai
ned
to b
e es
tabl
ishe
d. A
thir
d co
ncer
ned
the
com
mun
ist c
oun-
tres
, whe
re a
new
set
of i
nstit
utio
ns b
ased
on
the
stat
e,ow
ners
hip
ofre
sour
ces
and
a sy
stem
of
cent
ral p
lann
ig a
nd c
ontr
ol h
ad b
een
esta
blis
hed.
Thi
s es
say
deal
s w
ith th
e fi
rst o
f th
ese,
gro
wth
in th
epr
esen
tly in
dust
raliz
ed c
ount
res
who
se e
cono
mie
s de
pend
mai
nly
on p
rivat
e en
terp
rise
and
mar
ket g
udan
ce.
The
gro
wth
stu
dies
fell
Ilto
two
divi
sion
s. T
he fi
rst w
as p
rinci
pally
hist
oric
al a
nd d
escr
iptiv
e. 'I
ts a
im a
nd, i
ndee
d, it
s so
lid a
ccom
plis
h-ment was to establish the
obse
rvab
le c
hara
cter
istic
s of
gro
wth
on
the
basi
s of
a w
ide
surv
ey o
f ex
peri
ence
ove
r lo
ng p
erio
ds a
nd a
cros
s a
cons
ider
able
num
ber
of c
ount
res,
Sim
on K
uzne
ts's
wor
k is
the
grea
texemplar of such studies, although
in s
ome
resp
ects
Col
in C
lark
was
his
prec
urso
r.K
uzne
ts's
gre
at a
chie
vem
ent w
as th
e fo
unda
tion
of th
e m
odem
na-
tiona
l pro
duct
and
nat
iona
l inc
ome
acco
unts
. He
wor
ked
out t
heir
conc
eptu
al b
ases
, mad
e th
e ea
rly
estia
tes
for
the
Uni
ted
Stat
es, a
ndex
tend
ed th
e U
,S. n
atio
nal p
rodu
ct s
erie
s ba
ck to
187
0. H
e en
cour
aged
the
com
pila
tion
of lo
ng-t
erm
sta
tistic
al d
ata
to s
uppl
emen
t the
nat
iona
lpr
oduc
t fig
ures
and
ass
embl
ed m
any
of th
em h
imse
lf -
popu
latio
nan
d ot
her
vita
l sta
tistic
s, la
bor
forc
e, w
ealth
, and
man
y ot
hers
. He
stiu
late
d an
d su
ppor
ted
sim
ilar
effo
rts
in o
ther
cou
ntre
s. T
he e
mpi
ri-ca
l gen
eral
izat
ions
that
he
and
his
colla
bora
tors
and
follo
wer
s es
tab-
lishe
d co
mpr
ise
man
y of
the
broa
d fa
cts
tow
ards
an
expl
anat
ion
ofwhich much analytical work
is d
irec
ted,
A li
st o
f su
ch g
ener
aliz
atio
ns,
inco
mpl
ete
but i
lust
rativ
e, in
clud
es th
e fo
llow
ig:
The
nse
of
aggr
egat
e an
d pe
r ca
pita
gro
wth
rat
es a
ssoc
iate
d w
ith th
eon
set o
f "m
odem
eco
nom
ic g
row
th."
The
dem
ogra
phic
tran
sitio
ns fr
om n
sing
to d
eclin
ing
rate
s of
pop
ula-
tion
grow
th in
the
cour
se o
f in
dusm
aliz
atio
n.T
he g
radu
al s
prea
d of
mod
ern
grow
th f
rom
Bnt
ain
to th
e U
nite
dSt
ates
, Eur
ope,
the
coun
mes
of
Eur
opea
n se
ttlem
ent,
and
Japa
n.T
he s
ecul
ar a
ccel
erat
ion
of p
rodu
ctiv
ity g
row
th; i
n pa
rtic
ular
the
pron
ounc
ed a
ccel
erat
ion
follo
win
g W
orld
War
II a
nd th
e re
tard
a-tio
n of
the
last
15
year
s,T
he q
ualif
ied
tend
ency
to c
onve
rgen
ce in
the
prod
uctiv
ity g
row
thra
tes
and
leve
ls o
f in
dust
naliz
ed c
ounm
es.
Thi
nkin
g ab
out g
row
th13
The
man
y st
rctu
ral c
hang
es a
ssoc
iate
d w
ith g
row
th, n
otab
ly th
esh
ifts
in o
utpu
t and
em
ploy
men
t fro
m a
gncu
lture
to m
anuf
actu
r-in
g an
d th
en to
the
serv
ces
and
gove
rnm
ent a
nd fr
om r
ural
tour
ban
loca
tion.
The
nse
of g
over
nent
as
an e
cono
mic
age
nt in
pro
duct
ion,
in-
vest
men
t, an
d in
com
e di
smbu
tion
and
as a
reg
ulat
or o
f pnv
ate
activ
ity.
The
tend
ency
tow
ards
ret
arda
tion
in th
e ou
tput
and
pro
duct
ivity
grow
th o
f pa
rtcu
lar
com
mod
ities
and
indu
smes
, com
bine
d w
ithco
nsta
nt o
r ev
en n
sing
gro
wth
rat
es o
f th
e pe
r ca
pita
out
put a
ndpr
oduc
tivity
of
all i
ndus
mes
com
bine
d; th
e as
soci
ated
shi
ft in
the
impo
rtan
ce o
f ind
usm
es fr
om o
lder
to y
oung
er,
The
se a
nd o
ther
em
pirc
al p
ener
aliz
atio
ns a
re th
e ne
cess
ary
fram
e-w
ork
with
in w
hich
eff
orts
to u
nder
stan
d hi
stor
ical
cha
nges
and
na-
tiona
l dif
fere
nces
in g
row
th ta
tes
mus
t pro
ceed
. Sin
ce th
eori
es o
fec
onom
ic g
row
th m
ust h
ave
impl
icat
ions
con
sist
ent w
ith th
ese
obse
r-va
tions
, the
y ar
e th
e in
disp
ensa
ble
back
grou
nd fo
r an
alyt
ical
wor
k.T
his
anal
ytic
al w
ork
is th
e se
cond
div
isio
n of
the
sùbj
ect,
and
it is
the
conc
ern
of th
e re
st o
f thi
s pa
per.
iV. T
he p
roxi
mat
e so
urce
s of
gro
wth
The
des
crip
tive
effo
rts
of C
olin
Cla
rk, S
imon
Kuz
nets
, and
the
othe
rpi
onee
rs in
the
mea
sure
men
t of
natio
nal i
ncom
e an
d pr
oduc
t and
of
asso
ciat
ed d
ata
on la
bor
forc
e an
d ca
pita
l sto
ck w
ere
not a
imes
s ex
cur-
sion
s in
to th
e st
atis
tical
cos
mos
, The
y w
ere
guid
ed b
y th
e co
ncep
tion
of a
pro
duct
ion
func
tion,
whi
ch is
to s
ay b
y th
e id
ea th
at o
utpu
t is
afu
nctio
n of
the
inpu
ts o
f la
bor,
acc
umul
ated
cap
ital,
and
land
and
of
the
prod
uctiv
ity o
f th
ese
fact
or in
puts
. Thi
s id
ea h
ad b
een
part
of
the
outlo
ok o
f the
cla
ssic
al e
cono
mis
ts, a
nd, a
s w
e ha
ve s
een,
it w
as th
eor
gani
zing
them
e of
Mi's
Pri
ncip
les.
The
sam
e fu
ndam
enta
l not
ion
was
take
n ov
er b
y th
e ne
ocla
ssic
al e
cono
mis
ts a
nd b
ecam
e a
cent
ral
feat
ue o
f the
ir st
atic
mod
els
of p
rice
and
inco
me
dist
rbut
ion,
It w
asth
eref
ore
as n
atur
al fo
r ec
onom
ists
, whe
n th
ey r
etur
ned
to th
e ¡,
tudy
of g
row
th, a
s it
had
been
for
Mil
him
self
to th
ink
that
the
"inc
reas
e of
prod
uctio
n. .
. is
a re
sult
of th
e in
crea
se o
f th
e (i
nput
s) th
emse
lves
,or
of
thei
r pr
oduc
tiven
ess,
" B
ut h
ow m
uch
was
due
to th
e in
crea
se o
fea
ch o
f th
e in
puts
and
how
muc
h to
that
of
thei
r pr
oduc
tiven
ess?
Tha
tw
as a
n ob
viou
s fi
rst q
uest
ion.
"G
row
th a
ccou
ntin
g" w
as th
e at
tem
ptto
ans
wer
it,
The
dis
cove
ry o
f the
Res
idua
lC
alcu
latio
ns th
at d
ecom
pose
d th
e gr
owth
of
outp
ut in
to th
eco
ntri
butio
ns o
f la
bor
inpu
t and
labo
r pr
oduc
tivity
had
bee
n m
ade
14Thinking about gro'lth
for
man
y ye
ars.
2 T
hey
left
ope
n th
e qu
estio
n, h
ow m
uch
of th
e ri
seof
labo
r pr
oduc
tivity
was
attb
utab
le to
the
incr
ease
of
capi
tal p
erw
orke
r. A
ser
ies
of s
tudi
es p
ublis
hed
over
just
a f
ew y
ears
fet
umed
a su
rpris
ing
answ
er a
nd r
evea
led
a gr
eat g
ap in
eco
nom
ists
' und
er-
stan
ding
. The
stu
dies
that
fir
st c
augh
t the
atte
ntio
n an
d ro
used
the
inte
rest
of e
cono
mis
ts w
ere
by th
e pr
esen
t writ
er (
1956
), J
ohn
Ken
-dr
ick
(195
6, 1
961)
and
Rob
ert S
olow
(19
57).
3T
he c
alcu
latio
ns p
roce
eded
from
the
assu
mpt
ion
that
the
wag
es o
fla
bor
and
the
retu
rns
to c
apita
l als
o re
pres
ente
d th
e ad
ditio
nal p
rod-
uct f
rom
incr
emen
ts o
f th
ese
fact
or in
puts
. Thi
s as
sum
ptio
n pe
rmit-
ted the deduction that the growth rate of output could be decom-
pose
d in
to a
por
tion
cont
rbut
ed b
y "t
otal
fact
or in
put,"
whi
ch w
asth
e jo
int c
ontr
butio
n of
labo
r an
d ca
pita
l (in
clud
ig la
nd),
and
apo
rtio
n co
ntrb
uted
by
"tot
al fa
ctor
pro
duct
ivity
," T
he fi
rst w
as th
esu
m o
f th
e gr
owth
rat
es o
f th
e fa
ctor
inpu
ts, e
ach
wei
ghte
d by
the
shar
e of
its
earn
ings
in n
atio
nal i
ncom
e. T
he s
econ
d w
as th
e di
ffer-
ence
bet
wee
n th
e gr
owth
rat
e of
out
put a
nd th
at o
f tot
al fa
ctor
inpu
t. Si
nce
it ha
d lo
ng b
een
know
n, h
owev
er, t
hat t
he g
row
th o
fou
tput
per
cap
ita w
as d
ue a
lmos
t ent
irely
to th
at o
f lab
or p
rodu
ctiv
-ity
, not
to th
at o
f la
bor
inpu
t per
hea
d, it
was
the
deco
mpo
sitio
n of
labo
r pr
oduc
tivity
gro
wth
that
was
the
mos
t int
eres
ting
mat
ter,
But
.th
e sa
me
assu
mpt
ion,
that
ear
nigs
= m
argi
nal p
rodu
ctiv
ity, l
ed to
the
conc
lusi
on th
at th
e gr
owth
rat
e, o
f lab
or p
rodu
ctiv
ity c
ould
be
reso
lved
into
a p
ortio
n co
ntrb
uted
by
the
grow
th r
ate
of th
e ca
pita
l-la
bor
ratio
wei
ghte
d by
cap
ital's
inco
me
shar
e an
d a
port
ion
cont
rb-
uted
by
tota
l fac
tor
prod
uctiv
ity,
Alth
ough
the
seve
ral e
arly
inve
stig
ator
s us
ed s
omew
hat d
iffe
rent
data and studied somewhat different
peri
ods,
they
rea
ched
iden
tical
qual
itativ
e co
nclu
sion
s, O
nly
a sm
all f
ract
ion
of U
,S. p
er c
apita
grow
th o
ver
man
y de
cade
s co
uld
be a
ttbut
ed to
tota
l inp
ut g
row
thpe
r ca
pita
. Onl
y a
smal
l fra
ctio
n of
labo
r pr
oduc
tivity
gro
wth
cou
ldbe
attr
bute
d to
gro
wth
of c
apita
l per
wor
ker
or p
er m
an h
our.
An
over
whe
lmin
gly
larg
e fr
actio
n (a
ppro
xim
atel
y 90
per
cent
) w
as d
ue to
the
adva
nce
of to
tal f
acto
r pr
oduc
tivity
, tha
t is,
to s
omet
hing
who
seco
nten
ts w
ere
as y
et u
nide
ntif
ied
and
unm
easu
red.
Per
haps
bec
ause
Sol
ow, w
hose
pap
er (
1957
) be
st r
evea
led
the
un-
derl
ying
theo
ry o
f th
e ca
lcul
atio
ns, c
alle
d th
e un
know
n fa
ctor
"te
chni
-ca
l cha
nge"
and
sho
wed
that
, in
his
theo
retic
al s
chem
e, it
cor
re-
spon
ded
to s
hifs
in a
n ag
greg
ate
prod
uctio
n fu
nctio
n, m
any
econ
o-m
ists
at f
irst
cam
e to
spe
ak o
f th
e un
kow
n el
emen
t as
"tec
hnol
ogic
alprogress." Sti more, they tended to view the progress so represented
as h
avin
g its
sou
rce
in th
e ad
vanc
e of
kno
wle
dge.
Non
e of
the
earl
ygr
owth
acc
ount
ants
, how
ever
, vie
wed
the
mat
ter
in th
is li
ght,
and
all
Thinking about growth'
15
expl
aine
d ca
refu
lly th
at th
e ve
ry la
rge
unm
easu
red
i:om
pone
nt m
ust
incl
ude
the
cont
rbut
ions
of
man
y el
emen
ts b
esid
es n
ew k
now
ledg
e.O
f th
ese
the
mor
e im
port
ant w
ere
the
follo
win
g:
1. G
row
th o
f "h
uman
cap
ital"
by
inve
stm
ent o
f re
sour
ces
in lo
nger
scho
olin
g, o
n-th
e-jo
b tr
aini
ng, n
utrt
ion