3 - Origins of modern growth theory

Summary

The leading writers on economic issues – theoretical, empirical or polemical – have always defined the subject of their investigations in the light of current economic problems. The central economic problem for Adam Smith, as for most other economists in the eighteenth and early nineteenth centuries was how to explain, and to prescribe policies for, economic growth. The mercantilists, for example, were keenly aware of inter-country differences in economic strength and of the fact that trade expansion or trade decline could alter, and indeed had altered, the balance of economic power and the relative ranking of countries. They were also prone to believe that economic expansion could be promoted by appropriate state intervention. The message of Mandeville's Fable of the Bees for example was that: ‘Private Vices by the dextrous Management of a Skilful Politician may be turned into Public Benefits.’

The mercantilists however were concerned not so much with a sustained process of economic growth resting on a growth in output per head, as with economic expansion in the limited aggregative sense of an increase in total output. In other words they were interested in GNP as an indicator of national opulence or national power. Accordingly they saw growth in the total labour force as the primary condition of economic progress. Relatively few of them discussed the possibility that an increase in population might be associated with a fall in output per head and the majority of them favoured active pro-natalist policies.