The Keynesian Theory of Economic Development

DEVELOPMENT programming requires, first and above all, some central standard of reference, that is, some ideal index of economic progress as a general base of reference. This chapter therefore will explore the concept and determination of what might be called 'the socially optimal rate of growth'. Once such a target rate of growth is clearly defined and agreed upon, the rest will be matters of refinement and implementation. Specifically this chapter will discuss the socially optimal rate of growth with reference to (a) the relation of population growth and living standards, and (b) the rate of capital accumulation required for the realization and maintenance of an ideal line of advance consistent with the economic needs of a growing population as well as with the technological possibilities of a developing economy.

The population of any economy is at once the ultimate object of utility-satisfaction and a fundamental condition of utilitycreation. This double character of a population is inherent in the dual role of 'economic man' as a consumer and as a producer. In its capacity as a consuming public, a population desires a higher and higher standard of living. In its capacity as a working force, a population lays an economic basis for realizing the higher standard of living desired. Accordingly it is necessary to analyze the relation of population growth and living standards from the standpoint of both consumer welfare and labour productivity.

Let us begin with the broader question of the reasons why (a) the rate of population growth and (b) the proportion of

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