be argued in Chapter 3, however, that the Smithian distinction between those activities that produce a surplus and those that do not is vital to the analysis of the causes of economic growth.
This chapter has dealt with the theory of growth in Classical Political Economy. In this collection of theories, although complex and diverse, three features stand out as unifying. First is the assumption that it is possible to identify a surplus, defined as output that is not necessary for maintaining production at the current level and that this surplus is a necessary precondition for economic growth. Second is that only some activities are capable of generating a surplus; these are denoted "productive." Third is that the surplus can be disposed of in different ways only some of which are conducive for economic growth.
Although the theory and its assumptions were replaced in the late nineteenth century by marginalist theories emphasizing the allocation of given resources, it is important to realize that theories founded on classical thinking are not necessarily obsolete. The idea that the resources in the economy enter a circular flow, that markets are interlinked and that resources are not "given" but determined by the historical performance of the economy is still viable. Furthermore, it is important to recall that classical economists were all development economists, studying developing countries (in particular, Britain; cf. Bardhan 1993). This makes it difficult to escape the idea that the classical theory of economic growth with its assumptions on social classes, population growth and the like still has some relevance for developing countries.
The application of classical theory to the problems of today's developing countries requires a number of problems to be solved of which one is definitional: how should the concepts "subsistence" and "surplus" be given meaningful definitions and how should they be statistically interpreted? These issues are addressed in Chapter 3.