Exchange, Economic Development,
and Social Variables
The classical approach to economic growth, development, and progress is generally premised on the initial idea of economics or (as called then) political economy as the science of the wealth of societies or nations, more precisely, as an inquiry into the nature, as well as the laws, of production, distribution, and consumption of wealth1 (Mill 1884). Thus, according to early classical economists (Smith 1939), the “great object” of political economy is to increase the wealth (as well as the power) of a society and thereby to promote economic growth. In this connection, the prime mover of economic growth is considered the (technical and social) division of labor. This is justified by the argument that the division of labor has been the main cause of the greatest improvement in the productive capacity as well as the “skill, dexterity, and judgment” of labor (Smith 1939). Whereas the division of labor, through a “large multiplication of productions of all different arts,” is assumed to cause “universal opulence” extending over the “lowest ranks of the populace,” it is seen as being limited by the extent of the market (Smith 1939:10–15).
At this juncture, early classical political economy postulates a positive association of economic growth with capital (also called stock), or saving, and a negative one with consumption, or income. Arguably, the numerical relationship between saving (capital) and consumption (revenue) governs the “proportion of industry and idleness,” in the sense that the predominance of capital causes industry to prevail, and that of income, idleness2 (Smith 1939:301). Non-private income or public consumption is deemed