In 1776, Adam Smith ([1776] 1936) published his treatise, An Inquiry into Nature and Causes of the Wealth of Nations , which was taken by many to be a theory of economic growth. Smith, however, was clearly concerned with economic development. The classical school of economic thought, predominantly modeled after Smith, is largely geared toward understanding and explaining economic development. Smith presented a supply driven model of growth, where output was related to labor, land, and capital. Thus, economic growth, which is the increase in output, was related to population growth, investment, land growth, and increases in productivity. According to Smith, society was dependent on the economy’s ability to sustain its increasing workforce. Investment was dependent on the rate of savings. Land growth was dependent on the ability to acquire more land (through conquest) or on the increase in the productivity of existing land. He also believed in the division or specialization of labor as a key factor in economic growth, enhanced by improved machinery and international trade. Smith argued that increased specialization would increase productivity and reduce per-unit costs, leading to increasing returns. However, he also thought that, in spite of increasing returns, such an economy would ultimately stagnate, wherein capital accumulation and population growth will approach zero. Smith believed that the extension of markets was the key to economic growth largely through the role that market extension played in creating greater specialization. Smith emphasized specialization as leading to greater productivity. He also argued that the mercantilist system was holding back England by limiting its market and, hence, limiting the division of labor. The mercantilist system, while it promoted the expansion of markets beyond the more limited markets of feudalism, restricted and regulated markets in many ways that Smith found objectionable. David Ricardo ([1817] 1965) modified Smith’s model by introducing diminishing returns to land cultivation. Diminishing returns implies that as you apply more of a variable input (labor) to a fixed input (land), the productivity of each additional worker will eventually decline as long as technology is fixed. He claimed that land was of variable quality and finite. Thus, as an economy grows, population grows relative to land, and the productivity of the labor on the land will decline. According to Ricardo, the only way stagnation could be averted, at least temporarily, would be through the trade and imports of cheap food or wage goods. The essential doctrines of John Stuart Mill (1848) differed little, if at all, from those of Ricardo. He, like Smith, believed in the doctrine of laissez-faire , but he also recognized the possibility of modifying the system. He displayed a leaning to the socialist ideal, growing closer as his life advanced. He believed that we should sacrifice economic growth for the sake of the environment and limit population to fend off the risk of starvation. This vision concerning population control was in direct contrast with Thomas Malthus’s ([1798] 1959) prediction about population growth, which he said if left unchecked would lower economic growth and cause misery for mankind. Malthus stressed that population could easily outpace production. The apprenticeship system was one such opportunity emphasized by Malthus. While few people sought higher education in Malthus’s day, there were other opportunities for people to invest in themselves by postponing family formation or remaining unwed. At a very young age, an apprentice would work for a master craftsman in return for board and room. He would gradually learn the trade, become a journeyman, and finally become a master craftsman. Only once he established his own trade would he marry. This postponement of marriage in order to obtain a better life made society more prosperous. give the point of view of the following classical economists on economic development and explain the pros and cons.
In 1776, Adam Smith ([1776] 1936) published his treatise, An Inquiry into Nature and Causes of the Wealth of Nations , which was taken by many to be a theory of
growth, investment, land growth, and increases in productivity. According to Smith, society was dependent on the economy’s ability to sustain its increasing workforce. Investment was dependent on the rate of savings. Land growth was dependent on the ability to acquire more land (through conquest) or on the increase in the productivity of existing land. He also believed in the division or specialization of labor as a key factor in economic growth, enhanced by improved machinery and international trade. Smith argued that increased specialization would increase productivity and reduce per-unit costs, leading to increasing returns. However, he also thought that, in spite of increasing returns, such an economy would ultimately stagnate, wherein capital accumulation and
population growth will approach zero. Smith believed that the extension of markets was the key to economic growth largely through the role that market extension played in creating greater specialization. Smith emphasized specialization as leading to greater productivity. He also argued that the mercantilist system was holding back England by limiting its market and, hence, limiting the division of labor. The mercantilist system, while it promoted the expansion of markets beyond the more limited markets of feudalism, restricted and regulated markets in many ways that Smith found objectionable.
David Ricardo ([1817] 1965) modified Smith’s model by introducing diminishing returns to land cultivation. Diminishing returns implies that as you apply more of a variable input (labor) to a fixed input (land), the productivity of each additional worker will eventually decline as long as technology is
fixed. He claimed that land was of variable quality and finite. Thus, as an economy grows, population grows relative to land, and the productivity of the labor on the land will decline. According to Ricardo, the only way stagnation could be averted, at least temporarily, would be through the trade and imports of cheap food or wage goods.
The essential doctrines of John Stuart Mill (1848) differed little, if at all, from those of Ricardo. He, like Smith, believed in the doctrine of laissez-faire , but he also recognized the possibility of modifying the system. He displayed a leaning to the socialist ideal, growing closer as his life advanced. He believed that we should sacrifice economic growth for the sake of the environment and limit population to fend
off the risk of starvation.
This vision concerning population control was in direct contrast with Thomas Malthus’s ([1798] 1959) prediction about population growth, which he said if left unchecked would lower economic growth and cause misery for mankind. Malthus stressed that population could easily outpace production. The apprenticeship system was one such opportunity emphasized by Malthus. While few people sought higher education in Malthus’s day, there were other opportunities for people to invest in themselves by postponing
family formation or remaining unwed. At a very young age, an apprentice would work for a master craftsman in return for board and room. He would gradually learn the trade, become a journeyman, and finally become a master craftsman. Only once he established his own trade would he marry. This postponement of marriage in order to obtain a better life made society more prosperous.
- give the point of view of the following classical economists on economic development and explain the pros and cons.
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