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The Theory of Economic Development
The Theory of Economic Development
IN THE
HISTORY OF ECONOMIC THOUGHT
By the same author
AN ESSAY ON THE NATURE AND SIGNIFICANCE
OF ECONOMIC SCIENCE
ECONOMIC PLANNING AND INTERNATIONAL ORDER
THE ECONOMIC BASIS OF CLASS CONFLICT AND
OTHER ESSAYS IN POLITICAL ECONOMY.
THE ECONOMIC CAUSES OF WAR
THE ECONOMIC PROBLEM IN PEACE AND WAR
THE THEORY OF ECONOMIC POLICY IN ENGLISH
CLASSICAL POLITICAL ECONOMY
THE ECONOMIST IN THE TWENTIETH CENTURY
ROBERT TORRENS AND THE EVOLUTION
OF CLASSICAL ECONOMICS
POLITICS AND ECONOMICS
THE UNIVERSITY IN THE MODERN WORLD
THE EVOLUTION OF MODERN
ECONOMIC THEORY
THE THEORY OF
ECONOMIC DEVELOPMENT
IN THE HISTORY OF
ECONOMIC THOUGHT
BEING THE CHICHELE LECTURES FOR 1966,
REVISED AND EXTENDED
LORD ROBBINS
MACMILLAN
ST MARTIN'S PRESS
Lord Robbins 1968
All rights reserved. No part of this publication
may be reproduced or transmitted, in any form
or by any means, without permission.
First edition 1968
Reprinted 1970
Published by
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TO JOHN AND URSULA HICKS
WITH AFFECTION AND ADMIRATION
CONTENTS
Foreword xi
LECTURE I: GENERAL VIEW I
I. Introductory I
2. The definition of Economic Development 3
3. Economic Development in the Literature of Mercantilism 5
4. Physiocracy as a Theory of Development 6
5 The Wealth of Nations 9
6. Nineteenth-Century Classical Economics 10
7. The Marginal Revolution 14
8. Marshall and Schumpeter 15
9 Trade Cycle Theory and Growth 18
10. Re-emergence of a Theory of Aggregates 19
11. Transitional 20
LECTURE II: POPULATION AND RETURNS 22
I. Introductory , 22
2. Alternative Christian Attitudes 22
3. Early Advocates of Increase 23
4. Anticipation of Malthus 25
5. The Essay on Population: The First Version 28
6. The Essay on Population: Second Thoughts 3I
7. Diminishing Returns and Population 34
8. Increasing Returns and the Size of the Market 36
9. The Conception of an Optimum Population 38
10. Limitations of this Conception 41
LECTURE III: ACCUMULATION AND 44
EFFECTIVE DEMAND
I. Introductory 44
2. Pre-Smithian Theories 45
3. Accumulation in the Smithian System 46
4. John Rae and Capital Theory 50
5. The Law of Markets 55
6. Malthus and Under-consumption 57
vii
viii The Theory of Economic Development
7. John Stuart Mill on The Influence of Consumption on
Production 60
8. The Neo-Classical Tradition 64
9. Stagnation Theory 66
LECTURE IV: EDUCATION AND THE
GROWTH OF KNOWLEDGE 70
I. Introductory 70
2. The Quality of the Population: Biological Theories 70
3. Education as Investment 73
4. Neighbourhood Effects 76
5. The State in Relation to Education 79
6. The Advancement of Knowledge: Bacon to Bentham 83
7. Babbage and Rae 87
8. The Place of Knowledge in the Classical Theory 89
LECTURE V: ORGANISATION AND POLICY 95
I. Introductory 95
2. The Policies of Mercantilism 95
3. The Anti-Mercantilist Protest 97
4. The System of Natural Liberty 99
5. The Entrepreneur and his Functions 102
6. The Joint Stock Principle 105
7. Public Enterprise in a System of Economic Freedom 108
8. Wakefield and Colonies 111
9. The Infant .Industries Argument 112
10. External Economies I 15
II. The Instability of Aggregate Demand 117
Note: Collectivism and Growth 119
LECTURE VI: THE PLACE OF MONEY IN THE
THEORY OF DEVELOPMENT 120
I. Introductory 120
2. Money as a Pre-requisite of Development 120
3. Credit as a Substitute for Cash
12
4
4. Mercantilism and the Supply of Money
12
9
5. The Anti-Mercantilist Reaction 13
1
6. Money and Employment 13
6
7. Money and the Volume of Trade 13
8
8. The Real Bills Doctrine 139
9. The Price Level and Development 14
2
10. Forced Saving 144
Contents
LECTURE VII: THE DESIRABILITY OF
ECONOMIC DEVELOPMENT
I. Introductory
2. The Meaning of Economic Development
3. The Greek Philosophers
4. Primitive Christianity
5. Mercantilism
6. Hume and Smith
7. Nineteenth Century Classicism
8. The Marginal Revolution
9. Antigrowth Attitudes
Select Index of Proper Names
IX
177
FOREWORD
T HIS book is the outcome of an invitation by the Warden and
Fellows of All Souls to deliver the Chichele Lectures for 19
66
.
The lectures as delivered were four in number. But since then I
have added three more in order to make the coverage more ade-
quate.
My objective is very limited. I concentrate solely on the history
of the main propositions of the theory of development as they
would apply to a closed economy: I make no attempt to deal with
international trade or finance in this connection. Moreover, even
within this area, there is a further limitation. As I explain at some
length in the opening lecture, the propositions which I discuss
relate to the broad problem of why development takes place: they
do not deal with the more detailed problem of the exact path that
it may follow. To use technical jargon, I am concerned with the
comparative statics, rather than the dynamics, of the subject.
The reasons for this limitation are twofold. First the lectures
were on a foundation traditionally dedicated to history; and
dynamic theories of growth are essentially a contemporary develop-
ment which to discuss in the requisite detail would have been
inappropriate in such a context. Secondly, while these develop-
ments are of great intellectual interest, at their present stage they
offer very little. guidance for broad speculation concerning human
progress, still less for practical policy. The statical parts of the
theory, however, which are the main substance of the historical
discussions, while clearly limited in immediate applicability, have
a more obvious reference to reality. Moreover, in the excitement
of current speculation, it is possible that they may be neglected.
Keynes once remarked that he did 'not know which makes a man
more conservative, to know nothing but the present or nothing
xi
xii The Theory of Economic Development
but the past'. I do not think that contempory economic thought
runs any danger whatever of the latter state of mind. ~ I con-
fess that the suspicion has sometimes corrie into my head that, in
certain quarters at least, there may be some slight risk of the
former.
In thus presenting an historical essay, I should liketo make it
clear that it makes no pretension to completeness. It is essentially
a selective discussion of famous propositions rather than an ex-
haustive study of the relevant literature; and it has no claim to
originality other than that of arrangement and appraisal. It is a
broad survey rather than a comprehensive history. I hope that
my retention of the lecture-form may help to keep this in mind.
As in my other works on the history of economic thought, I
have tried as far as possible to let the various authors dealt with
speak for themselves rather than make them the subject of impres-
sionistic description. This necessarily involves extensive quotation
which those who wish to read quickly may find somewhat fatiguing.
But I would claim at least for this method that, even if my inter-
pretations and assessments are erroneous, it does provide a body
of authentic information on which the reflective reader may form
an independent judgment.
I would like to take this opportunity of thanking my hosts at All
Souls both for the honour which they did me by their invitation
and for their generous hospitality during the weeks when the
lectures were being delivered.
ROBBINS
London School of Economics
December I967
LECTURE ONE
GENERAL VIEW
I. INTRODUCTORY
THE subject of these lectures is the Theory of Economic Develop-
ment. But, as befits the foundation under which they are delivered,
their object is historical rather than analytical. My intention is to
trace the evolution of ideas on this subject rather than to contribute
to contemporary speculation. My full title therefore is not The
Theory of Economic Development in Modern Economic Analysis,
but rather The Theory of ~ o n o m i Development in the History
of Economic Thought.
ThIs distinction of focus happens to coincide, more or less, with'
an analytical distinction. For the theory of economic development
addresses itself to two types of question. It asks what are the
fundamental causes or conditions of economic development and
it asks what path development will take, given any particular
configuration of these factors or fundamental conditions. If you
like to put things this way, we can say that it asks why questions
and how questions: it asks why development takes place and how
it happens. We must not make the distinction too sharp. Obvi-
ously there is an area in which the two types of question shade into
one another; and perhaps in the end the answers should be part
of a unified theory. But the -broad contrast is clear enough and
corresponds to differences in the literature of the subject.
In recent years the emphasis has tended to be chiefly on the
how questions. A substantial proportion. of current work in this
field consists in the analysis of the actual process of development
as exhibited in various abstract models. This type of inquiry has
already produced one masterpiece, Sir,john Hicks'Capittil and
I
The Theory of Economic Development
Growth. i But for the most part, it is still in a very inchoate state:
and the extent to which it can be used either as a guide to practice
or as an interpretation of history is very slender.
In the earlier literature the position is different. There the
emphasis is definitely on the why questions - the questions
relating to the fundamental conditions of development - and,
although it would be wrong to claim that even now the theory of
the subject is complete, there is a substantial body of generalisa-
tions which seem to have some bearing both on present problems
and past experience. At any rate, it is this field that I shall be
exploring - the evolution of ideas concerning the basic causes of
economic growth and decline. The history, as distinct from the
analysis, of theories of the path is so brief that it is not yet appro-
priate for this sort of treatment.
There are, however, in the historical literature two manifesta-
tions of what may perhaps be regarded as how theories which,
because I shall not be including them in this survey, deserve
mention at this stage.
The first is a certain aspect of Marxian theory. I do not think
it is to be denied that there is what may. be called a how theory of
development in the broader implications of Marxian analysis.
The theory of progressive impoverishment, of the increasing
severity of crises, of the intensification of class war and of the final
Messianic explosion in which the integument of capitalist society
is disrupted and the expropriators are expropriated, is certainly,
in a sense, a theory of development - even if the developments
described may not necessarily be viewed as tending in an upward
sense by all the parties concerned. But it is a type of theory which
clearly il1:volves psychological and sociological assumptions not
usually regarded as part and parcel of economics strictly so-called.
And since the results are so palpably out of harmony with the facts
of development since Marx wrote, it seems legitimate to leave it
out of this limited survey.
The other kind of theory which I do not intend to discuss, but
which might by some be regarded as dealing with how questions,
is that which the Germans call stage-theory. Economic develop-
General View
3
ment is conceived as taking place in different stages, the hunting
economy, the agrarian economy, the commercial economy, the
industrial economy and so on; and each ideal type is supposed to
have salient characteristics which it is the main business of this
kind of theory to describe. I will not deny that if this sort of thing
is well written up it has entertaining qualities, valuable perhaps
in after-dinner conversation. But I confess that, for me, the
greater part of it is very sterile, neither good history nor significant
theory. In my judgment it is no accident that much of the effort
of economic historians in the last few decades has had to be devoted
to the debunking of stage-theory as a guide to what has actually
happened. And, although at first sight it may seem to be a theory
of how development takes place, on closer inspection it proves
merely to be an account of how it is thought past history has taken
place) it is a description of results rather than causes. So far as
I can see, it carries with it little predictive power, nor does it
explain even the past in t,erms which marry easily with any
accepted categories of pure theory. I make no apology therefore
for leaving it out altogether. I
My treatment will fall into three parts. In this, my first lecture,
I shall try to give a general view of the subject. Then successively
in the next five lectures I shall discuss the role in economic
development of the number of the population; of accumulation, of
education and technical knowledge, of organisation and of money.
Finally I shall conclude with some appraisal of historic attitudes
to the desirability of development.
2. THE DEFINITION OF ECONOMIC DEVELOPMENT
Before setting out on these inquiries, I ought perhaps to state
explicitly what I intend to mean by development. This is a term
which quite obviously is capable of a variety of meanings. In
I For a powerful critique of stage-theory, see Walter Eucken,Die
Grundlagen der Nationaliikonomie (1947), especially pp. 63-111.
4
The Theory of Economic Developnzent
regard to economic systems it might mean increase in the absolute
size of, for instance, capital or annual production regardless of
the size of the population - the sense in which it was commonly
used before the rise of classical economics and in which it is
sometimes used in popular discussion today. It might mean
increase in complexity, in the articulation of various different
functions. It might mean progress towards some'ethically defined
goal. But I shall not use this term in any of these senses. The
sense in which I shall use it throughout will be the sense in which
it is used nowadays in the various comparative tables to which we
have recourse when we discuss degrees of development, and the
sense in which, since the days of Adam Smith's The Wealth of
Nations, it has been used in the so-called theory of production.
That is to say, I shall use it in relation to movements in real
income per head and to potential in this respect - real income
being conceived as a stream of availability of goods and services
as distinct from the experiences or satisfactions to which it gives
rise. In doing this, I am not at all unaware of the very consider-
able conceptual difficulties involved in measurements of this kind;
if need be I could at once elaborate a whole series of methodological
scruples and reservations. But my main business here is to give
an account of an evolution of thought; and at this stage I think
that we can defer considerations of this sort and proceed with the
good sense of the historical. perspective.
If we take the term development in this sense, it is surprising
what a considerable extent of the economic thought of the past can
be brought into the picture. Needless to say, it would be absurd
to claim that the whole corpus can be so classified. Thefundamen-
tal theories of structural relationships, the theories ofvalue and dis-
tribution, for instance, can be studied, as in modern equilibrium
analysis, quite independently of the idea of development. Yet
if we realise that development conceived algebraically - i.e. with
either a plus or a minus sign, is more or less the same as change
on an aggregate or near-aggregate scale, and if we realise the under-
lying normative urge of much of the speculation of the past, it is
not difficult to see what a l ~ r part of the field may be regarded
General View
5
as relevant. The search for causes of improvement of production
per head informs a great deal of the literature of the subject. It is
the object ofthis lecture to demonstrate this in some detail.
3. ECONOMIC DEVELOPMENT IN THE LITERATURE
OF MERCANTILISM
I begin with the literature of mercantilism. This term derives
from Adam Smith who depicted what he called the mercantile
theory of wealth as preoccupied with policies designed to produce
a favourable balance of trade; and if we take it in this sense, I do
not think there is' much to be said for associating it directly with
the idea of development. It is still a matter of controversy why
this particular objective was chosen. Was it because importance
was attached to the accumulation of the precious metals per se or
as a reserve against future contingencies? Or was it because of a
perception, inadequately explained, of the easerrlent to credit and
employment prevailing when the balance was favourable? There
is certainly more to be said for the latter hypothesis than the
nineteenth-century classical economists were prepared to recognise.
But it would be difficult to find any advocacy of a favourable
balance which specifically made it a prerequisite of development.
Rather the contrary indeed: the development of particular
industries was justified in terms of their favourable effects on the
balance.
If, however, we use the term mercantilism in the wider sense in
which it has been used by Schmoller and his school and - with
much. greater distinction - by Eli Heckscher, if, that is to say,
we use it to cover most of the economic literature in the period
between the end of the Middle Ages and the coming of classical
economics, I then there is certainly much to be found which bears
upon our subject even though it is aggregate production rather
than production per head which usually seems the object of
I Including what the Germans call Kameralism.
6 The Theory of Economic Development
discussion. For the raiso.n d'etre of this literature, \vhen it was not
merely the pursuit of special interests, was essentially national
policy, nation-building if you like to put it pretentiously; and
although this had many aspects other than economic development,
yet a great deal of it could quite reasonably be included under the
heading.
It would be difficult to claim, however, that from the point of
view of these lectures, this literature, vast as it is, offers very much
of general interest. The almost endless flood of pamphlets
advocating the development of this or that form of economic
activity - the fisheries, the woollen industry, shipping, the drain-
ing of fens, the creation of roads and waterways - were doubtless
often meritorious enough in their historical setting and have
interest too in that context. I But of general significance for the
theory of economic development, there is little of any value. Pre-
sumably some case can be made for the view that the argument
for the protection of infant industries has. its antecedents here
2
-
there are certainly plenty of arguments for protection of one kind
or another. But for the most part, you have to have quite a special
kind of enthusiasmto read back into this mass of ad hoc suggestions
and improvisations anything which deserves the name of general
theory.
4. PHYSIOCRACY AS A THEORY OF DEVELOPMENT
For the real beginnings of such a theory, as you might expect, we
have to look to the literature of the eighteenth century when the
speculative intellect, stimulated by the discoveries of natural
science, began to consider the economic phenomena of society as
a whole and to make general statements about their causal relation-
ships. It is in the eighteenth century that economics emerges as
I A typical example is Andrew Yarranton's somewhat neglected
England's Improvement By Sea and Land (1677).
2 See Lecture V, section 9, p. 112 seq.
General View
7
a systematic body of thought and. it is in the eighteenth century
that we find the beginnings of attention to the most general causes
of development.
If I were asked to pick out one single work which most typifies
the appearance in the eighteenth century of scientific economics, I
should have no hesitation in citing Cantillon's Essai sur la Nature
du Commerce, which with its system and objectivity, its deep
analytical insight and its wide empirical knowledge is almost
unique in that or any later age. But in spite of many penetrating
obiter /,icta on the subject, I should not cite it as being especially
concerned with the theory of development. Cantillon was at
once too detached from policy and too interested in unveiling the
essential interconnections of the system of production and ex-
changeto put development-as suchin the foreground of his analysis.
For that we have to look to the works of the Physiocrats and to
Adam Smith's Wealth of Nations.
To begin with the Physiocrats. There can be no shadow of
doubt that their focus was upon development. More than most,
the Physiocratic literature is encumbered by a superstructure of
what Comte would have called metaphysics - natural law and the
infallible method whereby societies may be happy and just. But
at the core is a theory of development. Quesnay and his disciples
saw the French economy burdened with a load of regulations
which they regarded as inimical to productivity, and their analysis
was directed to show why this was so and how the removal of
these regulations would lead to greater prosperity.
Unfortunately this analysis was vitiated by an important tech-
nical error, the restriction of the idea of productive labour to agri-
cultural and extractive industry --- outside these groups, all labour
engaged in manufacture, transport, commerce and finance was
ipso facto unproductive or sterile. Now it is important to realise
the nature of this error. They did not deny the usefulness of the
unproductive labour; although the terminology waS affectively
toned, the division was analytical not pejorative. I But they did
I See, e.g., Baudeau, Premiere Introduction ala Philosophie Econo-
mique, ed. Dubois (Paris, 19I0) p. 4: 'Les arts non productifs, bien
8 The Theory of Economic Development
hold that, regardless of demand or the durability of the product,
there was something essentially different between the labour
which cut the wood in the forest and the labour which fashioned
it into various commodities. And this was not just a matter
of the mere use of words: it involved a conception which ob-
scures rather than elucidates the nature ofwealth and of the wealth-
creating process.
Nevertheless, there was more in the Physiocratic system than
this analytical ineptitude. The celebrated Tableau Economique
of Quesnay was not, as its adepts contended, an invention which
was on a par with the invention of writing or money. But it was a
serious attempt to elucidate the circulation of wealth as defined
in their system; in this respect it has some ancestral relationship
to modern input-output analysis. And - what is more relevant
to my theme - in Quesnay's Premier Probleme Economique, in
Mirabeau's L'Anti des Hommes and in the jointly written Philo-
sophie Rurale of the two authors, it was overtly used to explain the
mechanism of advance or decline, according as the prescriptions
of the school were, or were not, adopted. I do not think that this
aspect of the Tableau had much influence on subsequent thought,
save perhaps on Marx's somewhat tortuous but nevertheless
interesting reproduction tables. But in any just view of the history
of the theory of development in the sense in which I am treating
it, it certainly deserves honourable mention. I
loin d' etre inutiles, font dans les etats polices Ie charme et Ie soutien de
la vie, la conservation et Ie bien-etre de l'espece humaine. . . . Ce
n'est donc pour deprecier ou aviler cette espece d'industrie tres utile,
tres necessaire, qu'il faut distinguer I'art fecond ou productif de rart
sterile ou non-productif. C'est qu'en effet l'un prepare et augmente la
fecondite de la nature et de ses productions, l'autre se contente d' en
profiter. '
I On the significance of the Tableau in this connection Professor R. L.
Meek, Economics of Physiocracy (1962), should be consulted, especially
PP
28
7-9
6
.
General View
9
5. THE WEALTH OF NATIONS
The main credit for putting economic development on the map
as a subject for general analysis belongs undoubte,dly to Adam
Smith. The Wealth of Nations is one of the great seminal works of
world literature and as such has many aspects, as social philosophy,
as economic history as well as political economy. And, as political
economy, its coverage is wide, ranging from an exhibition of the
essential structural relationships of an exchange economy practis-
ing division of labour, to the economic functions of the state and
the canons of taxation. But, as the title itself implies, the central
focus is on development - what makes the wealth of nations
greater or less. It may be true, as some commentators have urged,
that in the last analysis, Smith's prescriptions regarding policy
were inspired as much by a concern for justice as by concern for
the increase of riches. But whatever the ultimate verdict here,
there can be no doubt that the main preoccupation of this book
was that which is indicated by its title.
This emerges clearly at the outset where, in what he calls the
'Introduction and Plan of the Work', Smith sets forth his inten-
tions and their rationale. For the first time in the history of
economic thought, production per head, as distinct from aggregate
production, is adopted as the central criterion: 'According ...,
as this produce, or what is purchased with it, bears a greater or
smaller proportion to the number of those who are to consume it,
the nations will be better or worse supplied with all the necessaries
and conveniences for which it has occasion'. I And two main
, circumstances' are said to regulate this proportion: 'first... the
skill, dexterity and judgement with which . . . labour is generally
applied; and, secondly, by the proportion between the number
of those who are employed in useful labout and that of those who
are not so employed'. He then goes on to explain that the first
two books - which constitute the analytical part of the work-
I Adam Smith, The Wealth of Nations, ed. Cannan (1904) vol. i, p. 1.
All further references to The Wealth of Nations are tothis edition.
10 The Theory of Economic Development
are to be devoted to discussing respectively 'the causes .of .
improvement in the productive powers of labour' and the accumu-
lation of capital.
This indeed is the true perspective of what follows. Admit-
tedly much else comes in. In book I there is also a theory of value
and distribution, in book II a theory of money and credit; and
such is the importance of the treatment that these sections seem
to acquire, as it were, autonomous existence. But this is to get
them out of proportion. The theory of value and distribution,
important as it is, is developed in order to show how the division
of labour is organised in an exchange economy through the market
for goods and services. I The theory of money and credit is part
of a discussion of the nature of capital, preliminary to the analysis
of accumulation. And in books III and IV, which deal respectively
with 'the different Progress of Opulence in different Nations' and
, Systems of political Economy', ~ focus is still on development,
either on what has actually occurred or on the beneficial or adverse
effects of different theories of policy. Only in book v, 'Of the
Revenue of the Sovereign or Commonwealth', do the criteria
become more various. But even here the effect of policy upon
productive efficiency occupies a large part of the picture. If the
entire work were to be renamed The Theory and Practice of
Economic Development, we should lose the felicity and the multiple
implications of the actual title; but we should not do injustice
to its main intentions.
6. NINETEENTH-CENTURY CLASSICAL ECONOMICS
When we turn to the nineteenth-century classical economists, the
picture is not so simple. The tendency, noticeable already in
The Wealth of Nations, for the treatment of such subjects as value
I As is well known, there is no systematic treatment of distribution
in the Lectures on Justice, Police, Revenue and Arms, ed. Cannan (1896),
which are to be regarded, in the last three sections, as a first outline of
the theory of The Wealth of Nations.
General View II
and distribution to detach themselves from the theory 'of produc-
tive' organisation and to assume an autonomy of their own, had
gathered strength. J. B. Say in his development of the Smithian
system imposed a 'logical' division into Production, Distribution
and Consumption. James Mill went one further and treated
of Production, Distribution, Interchange and Consumption. It
would be plainly wrong to suppose that the treatment under these
headings was all focused upon the causes which make production
per head greater or less. Ricardo was indeed exceptional in
believing that the determination of the laws regulating distribution
was 'the principle problem in Political Economy' I and that in-
quiry into the nature and causes of wealth was 'vain and delu-
sive' .
2
But he was not exceptional in treating this and other
I David Ricardo, Works, ed. Sraffa (1951-2) vol. i, p. 5. All further
references to Ricardo's Works are to this edition.
2 Letter to Malthus, 9 October 1820, Ricardo, Works, vol. viii, p. 278.
The whole passage is worth quotation: 'Political Economy you think
is an enquiry into the nature of causes of wealth - I think it should
rather be called an enquiry into the laws which determine the division
of the produce of industry among the classes who concur in its forma-
tion. No law can be laid down respecting quantity, but a tolerably
cqrrect one can be laid down respecting proportions. Every day I am
more satisfied that the former enquiry is vain and delusive, and the
latter only the true objects of the science.' Against this, however, may
be quoted a letter of 28 September 1821 (ibid., vol. ix, p. 83) in which he
says: 'the great enquiries on which to fix our attention are the rise or
fall of corn, labour, and commodities in real value. . .. It, may be
curious to develop the effect of an alteration of real value on money
price, but mankind are only really interested in making labour produc-
tive, in the enjoyment of abundance, and in a good distribution of the
produce obtained by capital and industry.' I think this should make it
clear that the earlier somewhat drastic repudiation was simply a matter
of determining an area in which something like precision was possible -
an attitude with which anyone nurtured on the approach of the sub-
jective theory of value can easily sympathise" even if in the last analysis
he must agree not to condone. I speak as one who has sinned somewhat
in this way myself at times. See Professor H. Myint's very justified
strictures in the opening section of his valuable Theories of Welfare
Economics (1948).
12 The Theory of Economic Development
subjects as having interest in themselves regardless of their bearing
on economic development.
Nevertheless it would be equally wrong to suppose that dis-
cussion of the influences making for growth dropped out of the
picture. The sections dealing with production are essentially dis-
cussions of what makes production per head greater or less: and
in this connection there are deployed most of the famous theorems
derivedfromAdamSmith regarding division of labour and accumu-
lation, plus the equally famous theorems derived from Malthus
and the Corn Law controversy regarding the tendencies of popu-
lation increase and diminishing returns in agriculture. Of Nassau
Senior's 'Four Elementary Propositions of the Science', no less
than three have this orientation. Moreover it must not be for-
gotten that, even under the heading distribution, a substantial
part of the discussion relates to the effects - as distinct from the
causes - of development.
All this comes out very clearly if we turn to the Principles of
Political Economy of John Stuart Mill, which, avowedly, en-
deavoured to provide 'a work similar in its object and general
conception to that of Adam Smith, but adapted to the more
extended knowledge and improved ideas of the present age'.1 It
would be a mistake to let Mill's statement of intent lead one to
expect a sharp concentration of the whole treatise on the causes
of development: the plan with its various divisions is much more
comprehensive than that. But it would be impossible to make the
most superficial inspection of the contents table of book I on
production, with its inquiries concerning the degrees of produc-
tiveness of productive agents at different times and different places
and its treatment of the functions of capital and the combination
(i.e. division) of labour, without realising that there is here
attempted a systematic answer to all the main why questions of
the theory of development. It is true that Mill, unlike his pre-
decessors, disavowed fear of the coming of a stationary state. But
I John Stuart Mill, Principles of Political Economy, edt Robson (1965)
p. xcii. All further references to Principles oj Political Economy are to
this Toronto edition.
General View
13
this does not mean that he was not profoundly interested in
development. As we shall see in more detail later on in these
lectures, the stationary state which he did not fear was not that
which cast its shadow over the speculations of Smith or Ricardo.
It was a stationary state in which a high level of development had
been achieved by technical progress and accumulation and which
was held at that level by restraint of population growth. It should
be clear - to us if not to Mill himself - that a good deal of
development would be needed, not only in l\1ill,s day but also in
our own, to reach this happy condition; and no one who takes the
trouble to read Mill's book can doubt that one of its main under-
lying practical objectives was to provide prescriptions to that end.
The preoccupation of the classical writers with this problem is
nowhere better illustrated than in the introduction to the Outlines
of Social Economy, a work of popularisation by William Ellis, the
friend and collaborator of John Stuart Mill and the founder of
numerous schools. He opens with vivid contrasts between the
wealth,of the original inhabitants of Australia and North America
and that of the contemporary societies in those countries. He
paints in glowing colours the change in conditions in this country
'where twenty million now live in peace and security', where
originally 'two millions only did live in strife and confusion' . And
then he goes on to say that: 'History teaches us that the progress
which we have made from barbarism to our actual state of civilisa-
tion has been gradual, although more rapia of late years than
formerly; and reflection convinces .us that there is ample room
for further progress. It is our duty, then, since" we are born into
a world greatly improved by the exertions of our fathers, to hand
it down still more improved to those who are to come after us. To
performthis duty, the wish alone will not suffice; we must acquire
knowledge to guide us in its performance. To know how to
advance in civilisation or happiness, we ought to have a" clear
understanding of the causes of the progress already made and of
the obstacles which retard our fathers' progress; and to this end
we will at once direct our thoughts. 'I
I William Ellis, Outlines of Social Economy (1846) pp. 1-4.
The Theory of Economic Development
7. THE MARGINAL REVOLUTION
I now come to the seventies and the so-called Marginal Revolution
which marks the full-scale beginning of modern economic analysis.
It is, of course, an error to over-emphasise the element of revolu-
tion here. The sense of moving into a totally new world which
pervades the contributions of Jevons, Walras and the Austrians,
was to some extent a delusion. We can now see, as only Marshall
saw at the time, a much greater degree of continuity in the evolu-
tion of thought than was perceived by these thinkers. Neverthe-
less there were real innovations here, innovations which changed
the look and to some extent the emphasis of the whole corpus of
economic theory.
Speaking broadly, I would say that the changes were twofold.
First there was the greatly increased role of demand - demand
for products, demand for productive services - which was the
ultimate outcome of the reconciliation of the ideas of utility and
value: this, with different degrees of emphasis, is the common
element in all the contributions to this movement. Secondly, there
is the perception and the analytical exhibition of the interdepen-
dence of all the factors in an economic universe: this is particu-
1arly the contribution of Walras with his equations of general
economic equilibrium and - although with very different analy-
tical intentions and much greater reserve concerning the appli-
cability of such abstract constructions - of Marshall. Whatever
the element of continuity in the ultimate historic picture, there
can be no doubt that these two developments involved a notable
change of. m p h s i s ~
From the point of view of this survey, this change manifested
itself in a tendency to concentrate attention on allocation rather
than development. I The economic problem was conceived as a
problem of the disposition of given resources; and although this
clearly involved the problem of choices betweenpresent and future,
I For an illuminating discussion of the contrast, see the work by
Professor Myint cited above, especially ch. I.
General View
between consumption and accumulation, yet analysis tended to
concentrate upon the conditions of achievement, or falling short,
of various optima, rather than on the conditions of power to
achieve optima of increasing range. For reasons which are pretty
obvious, since they spring from real conceptual difficulties, there
was less discussion of the movements of aggregates of production
and the consequential averages, more of the movements of particu-
lar lines of production within given sets of constraints. It is no
accident that, outside the theory of money, the discussion of
practical questions in this early modern period relates much more
to market forms, impediments to mobility, obstacles to trade,
much less to the fundamental conditions of progress than in the
classical period.
It is important not to make the contrast too sharp. For the most
part, in so far as they did not relate to value and distribution, the
earlier propositions were not repudiated, even if they were often
ignored. Indeed they were frequently reproduced, if in rather
a dead way, in the general textbooks of the period: and of course
there were some economists of secondary influence who continued
to follow the classical tradition. But I do not think it is open to
question that the liveliness of research and speculation lay in the
directions I have indicated, rather than in the theory of develop-
ment. The lay reader of the Economics of Welfare, for instance,
would be far more likely to be interested in divergences between
private and social net product or degrees of monopoly than in
questions of accumulation and decumulation and the develop-
ment of the division of labour. And'if this was true of Pigou's
magnum opus how much truer was it of the products of the School
of Lausanne or of first-generation Vienna.
8. MARSHALLA.ND SCHUMPETER
There are two conspicious exceptions to the tendency I have been
discussing, Alfred Marshall and Joseph Schumpeter.
16 The Theory of EconOlnic Development
I will speak first of Schumpeter, since he springs quite directly
from the schools which otherwise display this tendency. His first
book, the Wesen und Hauptinhalt der theoretischen National-
okonomie, which I fancy is seldom read today, is a highly individual
amalgam of Viennese terminology and Walrasian analysis, more
severally statical than it is easy to conceive in a work of such
extensive dimensions and explicitly not concerned with problems
of development. But this was followed by a work, equally theoreti-
cal, which was entirely concentrated on the nature and causes of
development as such - the famous Theorie der wirtschaftlichen
Entwicklung.
The argument of this work is highly individual. The essence of
economic development is conceived as the rupture of existing
patterns of economic relationships - the normal circular flow of
statical analysis. And the agent of change is the path-breaking
entrepreneur who, aided by the elasticity of the cash and credit
system, is able at discontinuous intervals to wrest control of pro-
ductive factors from their normal uses and reassemble them in
novel combinations. Emulation brings in imitators and, for a
time, the expansion of credit enables the upward surge to be sus-
tained. Eventually, however, the movement exhausts itself.
Depression then eliminates the unsound positions which have
been adopted, leaving the economy purged and prepared for
another wave of heroic innovation. We have thus a picture of
both progress and fluctuation - a theory of development which
is also a theory of the trade cycle, as conceived in the light of pre-
1914 statistics. In spite of its highly sensational theme and what,
to my way of thinking, is an essentially misleading theory of
interest, it is certainly one of the outstanding works of the first
quarter of this century and, like so much of Schumpeter's work,
significantly thought-provoking evenwhen it seems most perverse.
In sharp contrast to these somewhat hectic perspectives is the
position of Alfred Marshall. As some of you may recollect, the
motto of his great Principles of Economics is Natura non facit
saltum; and, in the preface to the eighth edition, he goes out of
his way to emphasise its moral: 'Economic evolution is gradual.
General View
Its progress is sometimes arrested or reversed by political catas-
trophes: but its forward movements are never sudden; for even
in the Western World and Japan, it is based on habit, partly con-
scious, partly unconscious. And though an inventor, or an
organizer, or a financier of genius may seem to have modified the
economic structure of a people almost at a stroke; yet that part
of his influence, which has not been merely superficial and transi-
tory, is found on inquiry to have done little more than bring to a
head a broad constructive movement which had long been in
preparation. '
Nevertheless Marshall's focus was upon growth. It is true that
he had discovered, either independently by himself or with the
aid of earlier mathematical economists - Cournot, Dupuit, von
Thiinen - most of the celebrated innovations of the Marginal
Revolution - marginal utility, marginal productivity, the general
interdependence of economic quantities. But the use he made of
themwas different. Unlike most of his contemporaries, he refused,
rightly or wrongly, to be tied down by the assumptions of statical
equilibrium. He employed what he called the statical method;
but it was in the interests of the study of change and growth. In
a famous letter to J. B. Clark, the author of a celebrated dichotomy
between the contents of static and dynamic analysis, he protested
that he 'could no more write one book about my static state and
another about my dynamic state, than I could write one book
about a yacht moving three miles an hour through the water which
was running against it, and another about a yacht moving through
the still water at five miles an hour.' I And in the preface from
which I have already quoted, while stating that 'the Mecca of the
economist lies ineconomic biologyrather than economic dynamics' ,
he goes out of his way to insist that, even in dealing with founda-
tions, as in the Principles, 'the keynote is that of dynamics rather
than statics'.
Hence, for all the modernity of its analytical apparatus, the pre-
occupation of Marshall's Principles is much more akin to that of the
earlier nineteenth-century economists than that of most of his
I Memorials of Alfred Marshall, ed. Pigou (1925) p. 415.
18 The Theory of Economic Development
contemporaries; and it is this, quite as much as his retention of
older .conceptions of real costs or elasticity of the supply functions
of productive services, which perhaps justifies the label 'neo-
classical' which is often applied to his work. It is no accident
that books v and VI of his great book, which deal respectively with
Value and Distribution, should be preceded, as in the classical
tradition, by book IV which treats of the Agents of Production
and causes of variations in their efficiency.
9. TRADE CYCLE THEORY AND GROWTH
It is now time to look in directions other than the matrix of classical
production theory and developments springing therefrom. For
the modern treatment of economic development embraces some
modes of analysis having a substantially different origin.
In this connection we may begin with the theory of the Trade
Cycle. This theory, whatever other characteristics it may have,
is certainly concerned with the ups and downs of output, either in
the aggregate or at least over substantial parts of the field. It
follows therefore that, though its immediate sphere of attention
may be different, it is fundamentally concerned with movements
some of which have a family resemblance to the movements of
general development. Indeed it is possible to contend that these
ups and downs are part of the mechanism of growth - or that
growth would not be so rapid without them. As we have seen,
this was the case argued in Schumpeter's famous essay. It was
also the position tentatively adopted from time to time by no less
an authority than the late Dennis Robertson.
But the connection between the two lines of speculation can be
even more intimate than this. Since its first beginnings in the
middle of the nineteenth century, the theory of the Trade Cycle
has assumed many forms, from the sun-spot theory of Jevons to
the theory of the propagation of random shocks of Wicksell and of
Ragnar Frisch. But it has developed against a background of
General View
actual growth; and it has gradually come to be realised that it is
at least probable that its most prominent characteristics are in
some way or other a product of the fact of growth - not merely
that growth may be promoted by cyclical variations, as in the
Schumpeter-Robertson constructions, but that, more funda-
mentally, the cycle may be due to something at work among the
factors causing growth. It is not necessary that this should be so.
One can imagine a cycle within a more or less stationary state -
caused perhaps by regularly recurring influences on the weather,
or even by some inherent tendency of the data to oscillate round
a fixed' point rather than reach a final equilibrium. But, speaking
by and large, this seems less plausible than the view which associ-
ates it with development; and I believe that this is probably the
attitude of most of those who in recent years have paid attention
to this subject. I should hesitate to say when first it was explicitly
stated. In my own thought its origins are associated principally
with the works of Cassel and Spiethoff and, more recently, of Sir
John Hicks. I But I am very prepared to believe that, in the enor-
mous miscellaneous literature of the subject, there may be dis-
covered anticipators. What is important from the point of view
of this survey, however, is not the exact origin of this notion but
the fact that once it is accepted, the theory of growth and the
theory of the cycle acquire a very intimate connection and come
to be treated by similar analytical methods.
10. RE-EMERGENCE OF A THEORY OF AGGREGATES
There is a further development of the last thirty-five years which
must be noticed in this connection.
The Great Depression of the thirties involved downward
I See Gustav Cassel, Theory of Sodal Economy (1923) vol. ii, pp.
503 seq., Spiethoff's article on Krisen in the Handworterbuch der
Staatswissenschaften, a translation of which appears in International
Economic Papers, no. 3, and Hicks, A Contribution to the Theory of the
Trade Cycle (1950).
20 The Theory of Economic Development
fluctuations of employment and output so much transcending
anything experienced in the course of the trade cycle of the nine-
teenth century as almost to present a difference of kind rather than
degree. It was therefore natural in such circumstances that
attention should be directed to the problem of the fundamental
determinants of employment and output - a problem which,
rightly or wrongly, had been somewhat elided by the assumption
of a long-run tendency to reasonably full employment of those
resources whose prices were not rigid. It was to the solution of
this problem that Keynes directed the powerful constructions of
his General Theory; and, whatever the imperfections or excesses
of particular propositions in that extraordinary work, I think it
would now be generally admitted that, since its publication, our
outlook on these matters can never be quite the same again. In
so far as growth depends on the maintenance of high levels of
employment, the theory of economic development has been con-
siderably reinforced.
But the Keynesian analysis was essentially short period and
statical. It assumed the existence of given labour and given
equipment and, in true-blue Marshallian manner, it gave a com-
parison of different statical equilibria rather than providing a
theory of the path actually taken by change. Hence it was inevi-
table, especially in the context of the post-war situation with new
nations pathetically clamouring to learn the secret of rapid growth,
that attempts should be made to transcend this analysis and to
provide a full theory of the actual process of development. Hence
the constructions of Harrod, Domar, Kaldor and many others,
ably analysed by Hahn and Matthews in a famous supplement to
the Economic Journal, with the debate still continuing.
II. TRANSITIONAL
The narrative of my two last sections has taken us to a point at
which what I called the how questions have taken precedence over
General View 21
the why questions - at which simplified models of interactions
take the place of analysis of the fundamental ingredients. As I
said at the beginning, it is no part of my intention to trace this
last phase in any detail. Even with the aid of Hicks and Hahn and
Matthews, it is still too early to be sure of the proper perspective.
All that I have tried to do in this last connection has been to show
how the one kind of inquiry is related to the other and why at this
stage of history we have arrived where we are.
My remaining lectures therefore will be devoted to more detailed
analysis of the history of some of the answers to the why questions:
I shall first proceed to theories of population and returns.
LECTURE TWO
POPULATION AND RETURNS
I. INTRODUCTORY
THE object of this lecture is to trace the history of thought relating
to the connection between population growth and economic de-
velopment. This is not a matter which appears very frequently
in the modern discussions of the theory of development although
I should hope that we are by now all aware of the truly frightening
prospects looming ahead which are due to this factor. But it
figures large in earlier thought on our subject. In the classical
outlook, to discuss development without considering the tendencies
of population growth would have been to omit the most essential
ingredient ; and in this respect I am inclined to think that, with all
its obvious imperfection, classical thought. was of considerably
more practical significance than most of the theoretical models of
our own day. I make no apology therefore for putting this subject
first in my series of more detailed surveys.
2. ALTERNATIVE CHRISTIAN ATTITUDES
It is clear that discussion of population can be traced back very
far in history. The learned Stangeland in his Pre-Malthusian
Doctrines of Population I, requires no less than35opagestoassemble
utterances on this subject, from ancient Hebrew literature to the
Physiocrats and Arthur Young. The idea that there was no such
discussion before the publication of the Essay on the Principle of
Population is entirely unhistorical.
lOp. cit. New York, 1904.
22
Population and Returns
23
Much of this discussion, however, has little bearing on develop-
ment. When 8t Paul said that' It is good for a man not to touch a
woman' but that it was 'better to marry than to burn', he was
making a statement which has had a profound influence on the
Christian attitude to relations between the sexes and which affords
a mordant glimpse of his own state of mind. I But he was not
thinking of the relation between numbers and productivity. By
way of contrast Luther held that, unless he was naturally or
artificially impotent, no man was able to live virtuously without
a wife and that. only a lack of faith in the Deity could cause any
hesitation in entering into matrimony - a point of view which,
although implying a belief in an infinite tendency to at least
constant returns, obviously sprang from preoccupations which can
hardly be labelled as economic.
There remains, however, even at a comparatively early stage,
a substantial body of discussion not dominated by theology or
dogmatic morality; and it is here that we may begin our survey.
As might be expected, the protagonists in these discussions fall
into two groups: those who hold that an increase in population
is conducive to prosperity and those who are impressed by the
danger of pressure on existing resources. It will be convenient to
arrange our discussion with this division in mind.
3. EARLY ADVOCATES OF INCREASE
I begin therefore with the thought of those favouring population
Increase.
But before proceeding further, it is necessary to underline an
important distinction - the distinction, namely, between the
position of those who regard the increase of population as a sign of
I I Cor. 7: I and 9. I t is perhaps worth noting that later in the
chapter he went on to remark that he who gave his virgin daughter in
marriage did well but that he who gave her not did better (v. 38).
Nothing in the context suggests that this was intended to be humorous.
24 The Theory of Economic Development
prosperity and the position of those who regard it as a cause thereof.
It is quite fundamental not to confuse the two. The position that
increasing numbers are a sign of prosperity is perfectly compatible
with the view that such an increase is detrimental to income per
head. No less an authority than Adam Smith held that 'the most
decisive mark of the prosperity of any country is the increase of
the number of its inhabitants', I a view which derived from his
belief that population increase would be greatest when capital
accumulation had resulted in wages which for the time being were
above subsistence level. But he also believed that if such an in-
crease continued, then sooner or later it tended to reduce wages
to the subsistence level which was their eventual destination once
capital had ceased increasing faster than labour. The same
position is adopted by Malthus himself: 'Increasing population
is the most certain possible sign of the happiness and prosperity of
a state: but the actual population may be only a sign of the happi-
ness that is past.' 2 But the position that increasing population
is a cause rather than a result of prosperity must clearly rest on
an entirely different process of reasoning.
What that process was is not always altogether easy to determine.
The position we have to examine is chiefly prevalent in the litera-
ture of the so-called mercantilist period - using that term in its
wider sense; and the arguments for an increasing population
involve all sorts of criteria not necessarily relevant to economic
development - a strong army, cheap labour, better tax yield and
so on. Even where the focus is upon wealth as such, more often
than not it is aggregate rather than average wealth which seems
to be the criterion. Thus Child in his New Discourse of Trade
(1694) advances the proposition that' Most nations ... are more
or less rich or poor proportionately to the paucity or plenty of their
people and not to the sterility or fruitfulness of their lands' .
3
This
involves an assumption of an absence of diminishing returns. But
I Smith, The Wealth of Nations, vol. i, p. 72.
2 Quoted in the Edinburgh Review (Jan. 1837) from a fragment of the
unpublished tract on The Crisis, a censure of Pitt's government written
in 1796. 3 Ope cit., p. 179.
Population and Returns
25
it does not involve development in Adam Smith's sense of an
increase in income per head.
Here and there, however, there are to be found arguments which
go further. There is a very odd argument by Sir William Temple:
, The true and natural ground of trade and riches is the number of
people in proportion to the compass of the ground they inhabit.
This makes all things necessary to life dear, and that forces men
to industry and parsimony. These customs ... become with time
to be habitual. And wherever they are so that place must grow
great in traffic and riches. 'I This certainly assigns a positive role
to population increase. But, although not implausible in certain
conjectural settings, it lacks much in general applicability.
As might be expected, there is more depth in Petty's obiter dicta
on the subject. In the Treatise on Taxes - surely one of the most
wonderful productions of seventeenth-century economic thought
- he argues that: 'Fewness of people isreal poverty; and a
nation wherein are Eight Millions of people, are more than twice
as rich, as the same scope of Land wherein are Four.'2 Hereis a
genuine assertion of an increasing average return to increasing
numbers, though it is true that the reason given, 'that the same
Governours which are the great charge, may serve near as well, for
the greater, as for the lesser number' does not carry great convic-
tion. But elsewhere, in the Political Arithmetic, there is reference
to the benefits of the division of labour. I therefore see no reason
to deny Petty credit for insight into what can truly be said in
favour of expansion.
4. ANTICIPA'IION OF MALTHUS
I turn now to the position of those who argue the dangers of in-
creasing numbers; and here I do not think it necessary to spend
I Sir William Temple, 'An Essay upon the Advancement of Trade
in Ireland' in Works (1814) vol. iii, pp. 2-3.
2 Sir William Petty, A Treatise on Taxes, reprinted in The Economic
Writings of Sir William Petty, ed. Hull (1899) vol. i, p. 34.
26 The Theory of Economic Development
much time on the pre-Malthusian literature. It is true that going
back to quite an early stage there are to be found warnings of the
pressure of numbers on subsistence and even overt invocations of
the ideal of geometrical potentialities of increase. There are hints
or more extensive disquisitions on these lines in Machiavelli,
Botero and Hobbes. But the impact on thought came from
Malthus; and in this context verymuch enumerationof anticipators
would be somewhat otiose.
There are, however, a few names which call for mention.
First 'I would cite Cantillon whose terse statement that 'Men
multiply like Mice in a barn' if they have sufficient subsistence,
puts in a nutshell the main burden of the whole Malthusian theory.
It is true that he went on to rule himself out of the more normative
side of development theory by calmly observing that it was a
question outside his 'subject whether it is better to have a great
multitude of Inhabitants, poor and badly provided, than a smaller
number, much more at their ease; a million who consume the
produce of 6 acres or 4 millions who live on the produce of an
Acre and a half'.I But the pith of the matter is there for anyone
who wishes to perceive it.
Next comes poor Sir James Steuart, who had so many interest-
ing ideas but who knew so ill howto express them. In his Principles
of Political Economy he, too, sees numbers limited by the avail-
ability of subsistence, and argues that: 'The generative faculty
resembles a spring with a loaded weight which always exerts itself
in proportion to the diminution of resistance: when food has
remained sometime without augmentation or diminution, genera-
tion will carry numbers as high as possible; if their food is
diminished, the spring is overpowered; the force of it becomes
less than nothing, inhabitants will dimirtish at least in proportion
to the overcharge. If on the other hand food be increased, the
spring will exert itself in proportion as the resistance diminishes ;
people will begin to be better fed; they will multiply and in pro-
portion as they increase in numbers, the food will become scarce
I Richard Cantillon, Essai sur la Nature du Commerce, ed. Higgs
(1931 edition) pp. 83 and 85. All future references are to this edition.
Population and Returns
27
again. '1 Here is an argument very much akin to the Malthusian
idea of a repressed geometrical rate of potential increase.
Much the most important of the predecessors, however, is
Adam Smith, not only because of the clarity of his thought in this
connection, but also because it was part of a system which, as we
have already seen, was in large measure concerned with develop-
ment and that according to a criterion - the magnitude of income
per head - which is entirely congenial to modern notions.
Furthermore, it is arguable that in certain respects the Smithian
analysis is more plausible and indeed more realistic than that of
Malthus and of greater significance therefore for the theory of
development. But of that more later.
The Malthusian element in Smith's analysis is well expressed in
the following paragraph from the chapter on Wages in book 1 of
The Wealth of .LVations. 'Every species of animal naturally multi-
plies in proportion to the means of their subsistence and no species
can ever multiply beyond it. But in civilized societyit is only among
the inferior ranks of the people that the scantness of subsistence can
set limits to the further multiplication of the human species; and
it can do so in no other way than by destroying a great part of the
children which their fruitful marriages produce.' 2 This follows
an account of the effects of poverty on the rearing of children in
the course of which it is mentioned that 'it is not uncommon in
the Highlands of Scotland for a mother who has borne twenty
children not to have two alive'.
But the theory is much more elaborate than this. In stationary
conditions, according to Smith, wages are likely to be at what it
was customary to call subsistence level, which was in effect enough
to maintain the labourer and his wife and enable them to bring up
a family such as, taking account of mortality rates, would keep the
population constant. But, when accumulation is taking place,
wages are likely to be above that level. If the funds 'destined for
payment of wages' increase, then 'the scarcity of hands occasions
1 Sir James Denham Steuart, An Inquiry into the Principles of
Political Economy (1767) p. 20.
2 Smith, The Wealth of Nations, vol. i, p. 81.
28 The Theory of Economic Development
a competition among masters who bid against one another, in
order to get workmen', I and this tends to raise wages above sub-
sistence level. And this state of affairs can persist so long as these
funds goon increasing. If the increase stops, however, then it is
to be expected that the supply of labour will catch up and wages
will cease to be high: ' I t is not the actual greatness of national
wealth, but its continual increase, which occasions a rise in the
wages of labour....'2
'Though the wealth of a country should be very great," yet if it
has long been stationary, we must not expect to find the wages
of labour very high in it.... If in such a country the wages of
labour had ever been more than sufficient to maintain the labourer,
and to enable him to bring up a family, the competition of the
labourers and the interest of the masters would soon reduce them
to the lowest rate which is consistent with common humanity.... ' 3
'The liberal reward of labour, therefore, as it is the effect of
increasing wealth, so it is the cause of increasing population. To
complain of it, is to lament over the necessary effect and cause of
the greatest public prosperity.' 4
It is this possibility, namely that for o ~ periods as a result of
influences operating on the demand side, wages may be above
subsistence level, that distinguishes Smith's view from that origin-
ally held by Malthus; and it was this possibility which, as ,ve shall
see, offered to a later generation of classical economists the possible
prospect of permanent emancipation from poverty.
5. THE ESSAY ON POPULATION: THE FIRST VERSION
It is now time to turn to Malthus whose work in this field, whether
it is regarded as acceptable or not, dominates the thought of this
time and indeed all subsequent thought on the subject. But to
get it in proper perspective it is necessary to distinguish sharply
I Smith, The Wealth of Nations, vol. i, p. 70.
2 Ibid., p. 710 3 Ibid., p. 73. 4 Ibid., p. 83.
Population and Returns 29
between the position adopted in the first (1798) edition of his
famous book and that position as modified thereafter.
The first edition of the Essay on the Principle of Population was
essentially, as its sub-title implies,I a polemic against the Utopian
hopes current among the enthusiasts of the French Revolution.
Malthus says, 'I have read some of the speculations on the perfect-
ibility of man and of society with great pleasure. I have been
warmed and delightedwith the enchanting picture which they hold
forth. I ardently wish for such improvements. But I see great,
and, to my understanding, unconquerable difficulties in the
way to them. These difficulties it is my present .purpose to
state....'2
He begins with what he calls 'two postulata'. 'First, that food
is necessary to the existence of man. Secondly, that the passion
between the sexes is necessary and will remain nearly in its present
state.'
After some slight elucidation of the second, necessitated by
Godwin's odd belief that the passion in question might in time
be extinguished, he goes on to advance his main proposition: 'that
the power of population is infinitely greater than the power in the
earth to provide subsistence for man' 3 and to draw the conclusion
that 'By that law of our nature which makes food necessary to
the life of man, the effects of these two unequal powers must be
kept equal 'which 'implies a strong and constantly operating
check on population from the difficulty of subsistence'.
4
He then discloses the nature of this check: 'Through the animal
and vegetable kingdoms, nature has scattered the seeds of life
abroad with the most profuse and liberal hand. She has been
comparatively sparing in the room, and the nourishment necessary
to rear them. The germs of existence contained in this spot of
earth, with ample food and ample room to expand in, would fill
I The full title was An Essay on the Principle of Population as it
affects the Future Improvement of Society; with Remarks on the Specula-
tions of Mr. Godwin, M. Condorcet, and other writers.
2 Ope cit. (1798) p. 7.
3 Ibid., p. 13. 4 Ibid., p. 14.
3
The Theory of Economic Development
millions of worlds in the course of a few thousand years. Necessity,
that imperious all-pervading law of nature, restrains them within
the prescribed bounds. The race of plants and the race of animals
shrink under this great restrictive law. And the race of man
cannot, by any efforts of reason, escape from it. Among plants
and animals its effects are waste of seed, sickness, and premature
death. Among mankind, misery and vice.'I
Later on he distinguishes two manifestations of this check: ' a
foresight of the difficulties attending the rearing of a family acts
as a preventative check, and the actual distresses of some of the
lower classes, by which they are disabled from giving the proper
food and attention to their children, acts as a positive check to the
natural increase of population.' 2 Both, however, operate in
ways involving either misery or vice.
It is easy to see that on this view the prospects of improvement
- development in the sense of increases in income per head, un-
accompanied by misery and vice - are negligible, save for a very
short period. Malthus provides a demonstration of this in an
examination of Godwin's position regarding property and other
supposedly inimical institutions such as marriage. Let us suppose,
he argues, that all such obstacles are swept away. 'War and
contention cease. Unwholesome trades and manufacturers do
not exist. . .. Simple healthy and rational amusements take place
of drinking, gaming and debauchery.... All men are equal. ...
The spirit of benevolence will divide and produce according to
their wants.' 3 'I cannot conceive', he says, 'a form of society so
favourable on the whole to population',
4
and he then proceeds to
investigate the probable effects of successive periods of doubling.
At the end of the second period 'a quantity of food equal to the
frugal support of twenty-five millions would have to be divided
among twenty-eight millions' .
5
The pressure recreates the evils of
the past. 'The mighty law of self-preservation expels all the
softer and more exalted emotions of the soul.' 'In so short a
period as within fifty years, violence, oppression, falsehood,
I Ibid., pp. 14-15. 2 Ibid., pp. 62-3. 3 Ibid., pp. 181-2.
4 Ibid., p. 184. 5 Ibid., p. 189.
Population and Returns 3I
misery, every hateful vice, and every form of distress, which
degrade and sadden the present state of society seem to have been
generated by the most imperious circumstances, by laws inherent
in the nature of man and absolutely independent of all human
regulations. ' I
6. THE ESSAY ON POPULATION: SECOND THOUGHTS
But Malthus did not stop at this point. In the second (1803)
edition of his Essay - which in so many respects was virtually a
new book - he admits the possibility of a check which does not
involve misery and vice, the famous moral restraint. Edwin
Cannan used to suggest that he may have discovered from his own
experience that a deferment of marriage until late in his thirties
did not involve either misery or vice. At any rate he now admitted
that such a check was conceivable.
The consequences for the theory of development were momen-
tous. If it were true that the pressure of population on subsistence
could be eased by action which was not morally reprehensible,
then it was no longer true that, theoretically at least, the human
race was condemned - to use the words of the first edition, 'to a
perpetual oscillation between happiness and misery, and after
every effort [to] remain still at an immeasurable distance from the
wishes for goal'.
2
This did not mean any great concession to
Godwinian and philosophical anarchy; for under that system,
Malthus still thought, the sense of personal responsibility which
alone could lead to moral restraint would be absent. But it did
mean that, given suitable institutions and social habits, the possi-
bility of improvement could not be absolutely denied.
It is important to realise, however, that by moral restraint
Malthus did not mean deliberate control ofconception. Condorcet
had hinted at such a possibility in his Esquisse; and Malthus went
I Ibid., pp. 190-1. 2 Ibid., pp. 2-3.
32 The Theory of Economic Develop1nent
out of his way vehemently to deny any suspicion of his counte-
nancing such expedients.
1
It is quite clear that, onhis classification,
contraceptive practices would figure, not as moral restraint, but
as vice. It was not surprising therefore that the hopes which he
based on 'moral restraint' were distinctly moderate, even though
in this second edition he had attempted, to use his own words,
'to soften some of the harshest conclusions of the first essay' .
2
His vision of the future was not very rosy. In his correspondence
with Senior,3 he did indeed concede that' as education and know-
ledge are extended, the probability is that these evils [the pressure
of population against food] will practically be mitigated, and the
conditions of the labouring classes be improved'. But such an
admission did not colour his main treatment of the subject. And
indeed so long as the only permissible check to population pressure
was of the kind he envisaged, this attitude was surely abundantly
justified.
But his scruples did not communicate themselves to everybody.
Bentham had already suggested in cold print the use of contracep-
tive devices as a cure for poverty
4
and, among his followers James
Mill and Francis Place, the whole Malthusian analysis, far from
suggesting perpetual condemnation of the majority of the human
race to misery at subsistence level, became a healing diagnosis
pointing the way to emancipation and progress. If, as Adam Smith
had explained, accumulation could be maintained so as to keep
wages above subsistence level long enough for the working classes
to acquire a taste for 'comforts and enjoyments', and if there
existed means whereby, without improbable austerities, they could
limit numbers, then progressive improvement could be hoped for.
James Mill contented himself with the broad generalisations of
his article on colonies in the Supplement to the Encyclopaedia
I In the appendix printed in Malthus, Additions to the Fourth and
Former Editions (1817) pp. 292-3.
2 Op. cit. (1803) p. viii.
3 Appendix to N. W. Senior, Two Lectures on Population (183 I) pp.
82-83.
4 Bentham, Works, ed. Bowring (1843) vol. viii, pp. 367-8.
Population and Returns
33
Britannica: 'If the superstitions of the nursery were discarded,
and the principles of utility kept steadily in view, a solution might
not be very difficult to be found. 'I But Francis Place went more
directly to the point. In his Illustrations of the Principle of
Population he deliberately recommended contraception as the
solution to the Malthusian problem; and he risked - and suffered
- much public opprobrium by a printed leaflet giving practical
details: 'If', he argued, 'it were once clearly understood, that it
was not disreputable for married persons to avail themselves of
such precautionary means as would, without being injurious to
health or destructive of female delicacy, prevent conception, a
sufficient check might at once be given to the increase of popula-
tion beyond the means of subsistence; vice and misery, to a
prodigious extent, might be removed from society, and the object
of Mr. Malthus, Mr. Godwin, and of every philanthropic person,
be promoted by the increase of comfort and intelligence and of
moral comfort, in the mass of the population. . .. It is time ...
that those who really understand the cause of a redundant, un-
happy, miserable, and considerably vicious population, and the
means of preventing the redundancy, should clearly, freely, openly
and fearlessly point out the means.'2
This attitude spread among the bolder spirits of the age. It is
said, though complete confirmation is lacking, that the young
John Stuart Mill spent a night in a police station, having been
caught distributing information of this nature. The movement
for deliberate control of population pressure, in our own day the
best hope of saving humanity from the worst effects of the popula-
tion explosion, thus takes its rise in the heart of the classical
system.
I James Mill, The Article Colony, reprinted separately (1828) pp.
12-1 3.
2 Francis Place, Illustrations of the Principle of Population (1822) pp.
165, 173-4. See also J. A. Field, 'The Malthusian Controversy' and
'The Early Propagandist Movement in English Population Theory' in
Essays on Population (Chicago, 193I).
34
The Theory of Economic Development
7. DIMINISHING RETURNS AND POPULATION
To return to more analytical matters. As we have seen, the
Malthusian pessimism was based upon the alleged inability of food
production to keep pace with the potentialities of the increase of
numbers. Malthus tried to drive this home by his celebrated
comparison between ratios: 'Population, when unchecked, in-
creases in geometrical ratio. Subsistence increases only in an
arithmetical ratio' ,I and he illustrated this by the juxtaposition of
the series:
I, 2, 4, 8, 16, 32, 64 ...
and I, 2, 3, 4, 5, 6, 7, 8
for numbers and food respectively.
This is a very loose way of putting things, and from a technical
point of view it is not difficult to shoot holes in it. It is easy enough
to think of geometrical ratios which, within any period sensible
to consider, advance very slowly, and arithmetical ratios which
advance very briskly. Moreover, the way Malthus argues, the
possibilities of technical improvement are subsumed in the r i t ~
metical ratio along with the ultimate scarcity of the land factor,
which is analytically very confusing indeed.
Nevertheless I see no reason whatever to question Marshall's
view that the habit of speaking in terms of an arithmetical ratio
was 'really only a short way of stating the utmost that he thought
any reasonable person could ask him to concede', and that 'what
he meant, stated in modern language, was that the tendency to
diminishing return, which is assumed throughout his argument,
would begin to operate sharply after the produce of the island had
been doubled. Doubled labour might give doubled produce:
but quadrupled labour would hardly treble it: octupled labour
would not quadruple it. ' 2 I know that this interpretation has been
lOp. cit. 1st ed. (1798) p. 14.
2 Alfred Marshall, Principles of Economics, 8th ed. (1920) p. 179 fn.
All further references are to this edition.
Population and Returns
35
questioned, particularly by Cannan. I But since, even in the first
edition, there are hints of the idea of diminishing returns,
2
since
Malthus himself was one of the first explicitly to formulate it in
connection with the Corn Law controversy,3 and since he invokes
it quite overtly in his Summary View of the Principles of Population,
4
this degree of scepticism seems to be unwarranted.
But be this as it may, the controversy regarding protection to
agriculture, which took place in this country as the Napoleonic
Wars came to an end, threw up formulations of the so-called Law
of Diminishing returns in agriculture which were entirely apt for
this purpose. This had, indeed, been clearly stated at a much
earlier date by Turgot, but in a setting, however, which more or
less guaranteed the absence of any influence on thought.
s
But
from this period onward it becomes a central feature of classical
analysis to assume that, in the absence of technical change, to use
West's words, 'each equal additional quantity of work bestowed on
agriculture yields an actually diminished return, and, of course, if
each additional quantity of work yields an actually diminished
return, the whole of the work bestowed on agriculture in the pro-
gress of improvement yields an actually diminished proportionate
return' .
6
I t is true that in this context the so-called law was used
chiefly to establish propositions in the theory of value and distribu-
tion. But its applicability to the discussion of production was
obvious and it was not long before it was so employed.
I 'To imagine that the Essay on the Principle of Population was ever
based on the law of diminishing returns is to confuse Malthusianism as
expounded by J. S. Mill with Malthusianism as expounded by Malthus.'
Edwin Cannan, Theories of Production and Distribution, 3rd ed. (1922)
P144
2 Ope cit. pp. 106-7 fn.
3 See especially Malthus, On the Nature and Process of Rent (1815)
PP3
8
-9
4 Reprinted in D. V. Glass, Introduction to Malthus (1953) p. 122.
5 It was in remarks on a prize essay by Saint-Peravy submitted to the
Royal Agricultural Society at Limoges, (Euvres, ed. Daire (1844) vol. i,
Pp4
2
0-
1