, i i-c EA-~ .) STUIES IN ECONOMIC HISTORY AND POLICY Thinking about growth \lt~ THE UNITED STATES IN THE TWNTIETH CENTURY Edited by And other essays on economic growth and welfare Louis Galambos and Robert Gallman Other books in the series Peter D, McClelland and Alan L. Magdovitz: Crisis in the making: the MOSES ABRAMOVITZ political economy of New York State since 1945 Stanford University Hugh Rockoff: Drastic measures: a history of wage and price controls in the United States William N. Parker: Europe, America, and the wider world: essays on the economic history of Western capitalism Richard H. K. Vietor: Energy policy in America since 1945: a study of business-government relations . Christopher L. Tomls: The state and the unions: labor relations, law, and the organized labor movement in America, 1880-1960 Leonard S, Reich: The making of American industrial research: science and business at GE and Bell, 1876-1926 Margaret 13, W, Graham: RCA and the VideoDisc: the business of research Michael A. l3emstein: The Great Depression: delayed recover and eco- nomic change in America, 1929-1939 . Michael J. Hogan: The Marshall Plan: America, Britain, and the reconstruc- tion of Western Europe, 1947-1952 David A. Hounshell and John Kenly Smith, Jr.: Science and corporate strategy: Du Pont R&D, 1902-1980 Simon Kuznets; edited by Robert Gallan: Economic development, the il; Ii family, and income distribution: selected essays ì' i The right of ihë " Univ~f3ity a/Cambridge' 10 print and sell all manner of books WQS granted by Henry VI/I in /534. The Universi'y has printed and published coniinuolUlY since 1$84. " CAMBRIDGE UNIVERSITY PRESS Cambridge New York Port Chester Melbourne Sydney Published by the Press Syndicate of the University of Cambridge The Pitt Building, Trumpington Street, Cambridge CB2 1RP 32 East 57th Street, New York, NY 10022, USA 10 Stamford Road, Oakleigh, Melbourne 3166, Australia I! Cambridge University Press 1989 First published 1989 Printed in the United States of America Library of Congress Cataloging-in-Publication Data To Carre, with love Abramovitz, Moses. Thinking about growth and other essays on economic growth and welfare. (Studies in economic history and policy) 1. United States-Economic conditions, 2. Public welfare -United States - History. i. Title. 11, Series, HC106,A33 1989 338.973 88-18902 British Library Cataloguing in Publication Datà Abramovitz, Moses Thinking about growth: and other essays on economic growth and welfare. - (Studies in economic history and policy; the United States in the twentieth century). 1. Economic growth i. Title II. Series 339.5 ISBN 0 521 33396 2 ü: , l ~O\Æl_ ~ __~i-~ l.~~S \ \ ¡- I; Bibl§otrH,~ L 1: ~.R.UJJlnburg .Â...._. :l \ 0\0\b$2 I,. i1' i Thinkig about growth Economic growth is one of the oldest subjects in economics and one of the youngest. It was a pricipal concern of the Wealth of Nations, and it filed the thoughts of economists for the next' three quarters of a century. As the Victorian Age wore on, however, growth lost its hold on the attention and imagiation of the great body of academic econo- mists. It was left to Marx and his followers, whose premature obses- sion with the demise of capitalsm appealed to neither the political tastes nor the scientific bent of the disciplie's exponents, And then, afer the Second World War, following a hundred years of compara- tive neglect, there was a resurgence of interest and study that has been proceeding with vigor for the last four decades. In the new effort, much that had been known a century and more ago had to be relearned. The new effort has had the benefit, however, of far better and more extensive historical and statistical materials and a more sophisticated theoretical framework. The accomplishments of the new research, however, have been modest, which is testíony both to the complexity of the subject and to the litations of econom- ics and of the other social sciences as well. Yet the study of growth is going on energetically. It is interestig, therefore, to ask what the newerstands. work has added to the older and where the ~subject now This sketch of the erratic involvement of economists with economic growth, although it stretches over many pages, is sti no more than a sketch. It is spare and unshaded, as a sketch must be. It deals mainy with the causes of economic growth, not its consequences. It looks at I ackowledge with thanks the caeful review and encouragement of colleagues who read early drafts of this paper. They include Eli Ginzberg, Charles Kidleberger, Rich- ard Nelson, Nathan Rosenberg, Walt Rostow and the editors of this volume, Louis Galambos and Robert Galln. I owe a special debt to Paul David's thorough and crtical readig. 3 4 Thinking about growth Thinking about growth 5 past work largely in terms of what it has contrbuted to our present Smith's theories were developed and refined in the decades after the understanding. It deals with growth only as this presents itself in appearance of his great book. Malthus's famous essay on population, advanced capitalist countres. It concentrates on the increase of pro- taken together with Ricardo's treatment of diminishing returns in the ductivity, the principal component of per capita output growth; and it use of land, sharpened the sense of conflct between population and sets aside the companion subject of population growth. It is con- resources. At thf' sáme tie, there was a growig appreciation of the cerned mainly with the overal productivity growth of nations; it ne- possibilties of progress based on the advance of knowledge. John glects the strctural change that growth requires, except as a coun- Stuart Mi's Principles of Political Economy (1848) gave the economics of tr's capacity to accomplish such change lits its rate of aggregate growth its definitive statement at the hands of the classical economists, growth. In all these ways, this sketch of the terrain is incomplete; The organiing theme of Mi's treatise has a distictly modem ring: even so, it serves a purpose, particularly if more complete and de- tailed maps are not at hand. We may say, then, . that the requisites of production are Labour, Capital, and Land, The increase of próduction, therefore, depends on the properties of these elements, It is a resùlt,of the increase either of the elements them- i. Growth and the older economists selves, or of their productiveness, The law of the increase of production must be a consequence of the laws of these elements; the limits to the increase of Adam Smith was the father, not oiùy of modern economics, but more production must be the liits, whatever they are, set by these laws. (Princi- partcularly of the political economy of growth. The Wealth of Nations ples, Ashley edition, p. 156) , in its very title announces Smith's concern with the forces that govern the relative levels of prosperity among countres and that cause some What are these laws? On labor, Mi is a Malthusian, Free of re- to forge ahead and others to fal behind, His very first chapters are straint, population multiplies rapidly so long as output per head ex- devoted to the advantages of the division of labor and its dependence ceeds some minimum standard. "The use (people) commonly choose on the scale of activity and the extent of the market. Smith saw that to make of any advantageous change in their circumstances, is to, take large-scale activity permtted a specialization and simplication of it out in the form which, by augmenting the population, deprives the trades and tasks that raised the skis of workers, saved their time, succeeding generation of the benefit" (p. 161). But Mill is a reluctant and enabled clever artsans to devise labor-savig tools and devices; it and somewhat qualied Malthusian. Conceivably people can come to enlarged the outlet for capital to embody the improved methods, and raise their minium standard. "Every advance they make in educa- afforded businessmen a profitable and productive way to employ tion, civilization and social improvement, tends to raise this standard their savings, In Smith's view, therefore, the advance in productivity and there is no doubt that it is gradually, though slowly, rising in the was an interactive process that ran from scale of market to the division advanced countres of Western Europe" (p. 161). of labor, thence to the enhancement of skis, the invention of new Mill noted that population growth rates in these progressive coun- tools, and the accumulation of capital, finally feeding back to market tres had been declining; yet he did not fully trust such hopeful signs, scale. Smith saw the political institutions under which peopl~ lived as He feared the force of people's power of natural increase. the main determnant to their abilty to exploit the scale advantages Capital too tends to increase under the impulse of its earning power, made possible by trade and, therefore, to their abilty to make full use As with the earnngs of labor, however, the profit rate must e'tceed a of their talents and natural resources. miimum standard, This threshold level is low where wealth is abun- With few exceptions, Smith thought, the "policy of Europe" should dant and people's "effective desire for accumulation" is strong. It is be one of laissez-faire. But the Wealth of Nations also displays Smith's high where business is risky and property insecure. lively sense of the tendency of people to multiply their numbers and If labor were the only element in production, output would increase to press on the physical liits of a stationary supply of land.