Classical and neoclassical theoriesAfter studying this chapter, you should understand:
|• Adam Smith's contribution to understanding how a capitalist market economy operates, including the importance of the invisible hand, competition, specialization, and the law of capital accumulation and how these interact to affect the rate of economic growth;|
|• Thomas Malthus' theory of population, how and why he believed rapid population growth was so likely and the implications of rapid population growth for the living standards of the poor;|
|• David Ricardo's theories of diminishing returns, of comparative advantage, the argument in favor of free trade and how these relate to the pace of economic expansion;|
|• Karl Marx's critique of capitalism and the theory behind his belief in the ultimate collapse of that system;|
|• the logic behind a Solow-type neoclassical growth model, the importance of saving and investment in determining the level of per capita income and why the neoclassical model predicts "conditional convergence" of income levels among nations over time;|
|• the Harrod-Domar model's importance to subsequent growth theories and strategies.|
As we learned in the previous chapter, the pursuit of economic growth and development as a socially desirable goal is of relatively recent origin, being more-or-less contemporaneous with the rise of capitalism as an economic system. The Industrial Revolution in England in the mid-eighteenth century provides a convenient if somewhat arbitrary date for the emergence of systematic and intellectual interest in understanding how and why economic development occurs. It also marks the emergence of economics-or political economy, as it was called at that time-as a separate sphere of scholarly inquiry. Not at all coincidentally some of the earliest, most distinguished and most enduring thinking about economics and the process of economic development was produced in Great Britain during and following the transition from feudalism to capitalism when long-term economic expansion and rising income per capita first materialized on an extended scale (Maddison 1982).
Questia, a part of Gale, Cengage Learning. www.questia.com
Book title: The Process of Economic Development.
Contributors: James M. Cypher - Author, James L. Dietz - Author.
Place of publication: New York.
Publication year: 2004.
Page number: 103.
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