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-

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EA

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\lt~

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out g

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th

And

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eco

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rig

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1$84

.

CA

MB

RID

GE

UN

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PR

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Cam

brid

geN

ew Y

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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

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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