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Mill's shift of emphasis reflects the seventy-five years that hadpassed between Smith, who wrote only on the eve of the IndustralRevolution, and the mid-nineteenth century, when powered machi-than population. (p. 191)ally to the labour employed, is increasing or dimnishig, . . depends uponwhether population is advancig faster than improvement, or improvementWhether, at the present or any other tie, the produce of industr proportion-race:viewed the economies of scale as affording only transitory relief untipopulation becomes dense enough "to allow the pnncipal benefits ofcombination of labor" (pp. 191-92). Thereafter, progress becomes awould say. Mi's discussion reduces the emphasis that Smith hadplaced on an extension of the market and division of labor. Mithe goal itself fles before us" (p. 746),The force that, in the last analysis, keeps the stationary state at bayis "improvement in the productive arts" -: technological progress, weverge of it, and. , , if we have not reached it long ago, it is becauseintellectual and moral development of people (Book iv, Ch. Vi).Whether the stationary state that looms before nations is one ofcomfort or misery, however, loom it does: ". . . we are always on thestate, which then would hold out very favorable prospects for thehowever, might maintain a comfortable conqition even in a stationarcould be brought to a halt before incomes fell to the bare mimumrequired to support life. It might remain much higher if people cameto insist on a higher standard of livig. Mill argued that restraints onbirths were necessary even in progressive countres to prevent population from outstrpping the increase of capitaL. The same restraints,the "progress of society must 'end in shalows and in misenes' " (p.747)' Malthus himself had recognized that the increase of populationUnlike his great predecessors, however, Mil did not believe thatapproach to it, (p. 746)wealth is but a postponement of this, and that each step in advance is anthey term the progressive state lies the stationary state, that all progress inmists, that the increase of wealth is not boundless: that at the end of whatIt must always have been seen, more or less distictly by political econo-inherent tendency for growth to cease: ',¡l¡:'r. -I¡tfwith the nse in the pnce of food, reduces the real income of workers,The rate of population growth is also reduced. There is, therefore, annot because, "in the particular circumstances of a given age orMore generally, the provision of such faciities, important to thepublic interest, that private individuals might provide, but wilagency" - for example, by joint stock companies - and the regulation or public provision of servces that are natural and practicalmonopolies- gas and water companies, railroads, canals.The regulation of activities that can only be done by "delegatedThe protection of those kinds' of goods that belong to people incommon but are used by all individually - the environment.The provision of goods or the support of servces whose social utiityexceeds their private - education and scientific research (besideslighthouses and buoys).able public activity or intervention stand out:subject at length; but in an essay on growth, four instances of desir-limits of the pnnciple of laissez-faire.As to the last, Mill felt tom. He maintained the common convictionof political economists from Hume and Smith forward that individuals should enjoy the greatest possible scope to engage in trade and tocontract freely with one another. Yet he insisted that this pnnciplewas itself limited in extent and admitted of exceptions. He treated thesome, and distortonal as possible - and finally, the proper extent andlarly concerned with four matters: the secunty of property as a condition of saving and investment; the capacity of people for effectivecooperation as a basis for the conduct of industr on a large scale; theproper pnnciples of taxation - to make taxes as little arbitrary, burden-rangements and public policies of national economies. He was particu-Mil, like his predecessors, laid great stress on the institutional ar-new industrial inventions, or an extended use of those already known, butimprovements in institutions, education, opinions and human'affairs generally, provided they tend, as almost all improvements do, to give new motivesor new facilties to production. (p. 192)Improvement must be understood . . . in a wide sense, including not onlyMi's view of the matter is ample and spacious, and it has taken latereconomists some time to regain his sweeping view, if, indeed, theyhave,nature. (p. 696)human föresight can extend, the urited, growth of man's power overconnexion with the phenomena of Production, is the perpetual, and so far asOf the features which characterie this progressive economical movement ofcivilzéd nations, that which first excites attention, through its intimateThe consequent decline in the rate of capital accumulation, togetheri7ery, the railroad, the steamship, and the electromagnetic telegraphThinking about growthhad begun to create a sense of the further possibilties of technologicalprogress.Thinking about growthincrease in step with one another, They meet dimnishing returns asthey are employed together with a fixed amount of land; the return tocapital is then dnven down as rents increase at the expense of profit.6

f .,.,the necessarythe means" (p. 978).resources, or too litte advanced in intellgence to apprecite theends, or not sufficiently practiced in joint action to be capable ofnation," the public is either "too poor to commandThinking about growthsical theory of relative prices and resource allocation, which came toseem such a solid constrction on its static foundations. The theorytreated a nation's institutions, its population, and its technology, thehaps economists were seduced by the logical coherence of the neoclas-question of income distrbution became more urgent issues. Or per-economic growth itself - made workig people a stronger politicalforce. Correspondingly, the claims of labor and, more generally, thespread education, and the extension of suffrage - all concomitants ofgrowth had become absorbed into a more general vision of humanprogress, it was nO longer seen as a problem. Or perhaps it wasdisplaced by other pressing concerns. Higher incomes, more wide-did not expand. Quite the contrary! Perhaps because economiclearned to smile; it absorbed the century's wider faith in unboundedProgress,Yet the place of growth in the studies and writigs of economistscal advance continued at a rapid pace. Even the dismal sciencelands and brought food and raw materials cheaply to more populouscountres, The population response became weaker while technologi-well as manufacturing. Applied to transportation, it openèd newcontinuity. The result was his vision of a race between population andimprovement whose winner was uncertain.This ambivalent atttude gradualy disappeared as the last centuryin the United States, and in a gradually wideningwore on. In Britain,sphere in Europe incomes rose from decade to decade, Power andmachinery applied to industr increased productivity in agrculture asvance of the industral arts, but he was unsure of their pace andOne of the strong impressions one takes from Mi is his ambivalenceabout the balance of growth forces. He sensed that population growthwas beginning to be limted, but he feared the strength of the humancapacity and drive to multiply, He perceived the possibilties of human kid's growing mastery over nature and of the cumulative ad-II. Growth and economics during the hiatusNo one can read, or reread, Mi without feeling how far he and theother classical economists had anticipated contemporary work, howmuch we may learn from them, and also. how much we had forgottenduring the century-long hiatus when growth studies were neglected.89knowledge, the actual introduc-.pecuiar function of entrepreneurs. His view implied that market com-Schumpeter argued that inovation was an economic activity, theolder economists had treated both as autonomous developments, buttion of new products or new methods in commercial operations. Thewhich was the exploitation of suchSchumpeter went further. He distiguished between "invention,"or the advance of knowledge useful in production, and "innovation,"accumulation and the return to capital On the rate of improvement.plus net profit) to a minimUI and the dependence of net capitalinforced the older views about the, tendency of gross profit '(nterestcontrbution to the economics of growth, they repeated and re-gial product of capital to zero. iSchumpeter's arguments were intended first of all to enlarge thefoundations of the neoclassical theory of factor prices. As a positiveaccumulation embodying an unchangig technology drove the mar-repetitive round, there would be nO function for entrepreneurs andnO occasion for profit, And interest would disappear as continuedProfit is, indeed, the reward for the successful introduction of newmethods and products. If' economic activity followed an unceasing, vance neither a positive interest rate nor net profit would persist.gued that in the absence of population growth and technological ad-tion, His early classic, The Theory of Economic Development (1911), ar-To all this Joseph Schumpeter was an honorable and notable excep-other than the conditions of general equilbrium. lations,and the Great Depression provided a quarter-century of distractions for those economists who were mided to 'study somethingthe industralworId after 1914, Two great wars, the postwar hyperin-borders of static theory was absorbed by the troubles that engulfedstatic theory. finally, whatever impulse there was to break out of theof markets, an element in economic growth as well as a problem foraccumulation, productivity growth, rising incomes, and the extensionthe equilbrium of relative prices, And Alyn Young had to wrte afamous essay (1928) to remid economists that it was somethigmore, part of an interactive and cumulative process involvig capitalbasic insight - came to be viewed as just a problem for the theory ofscale, the division of labor and increasing returns - Adam Smith'sOn economics, at least On the science that economists had the ambition to build. It left growth outside its borders, Even the subject ofmainl neglected. Neoclassical theory, therefore, imposed boundariesresource allocation adjusted. But the causes of their changes were notsubjects for, economists to investigate, and their implications werewere viewed as the cOnstraints and conditions to which prices andcentral elements of the growÜi process, as autonomous data. TheyThinking about growth

Thinking about growth11risks and costs of advanced capitalist life drove countres to developsystems of protection and benefit - the welfare state. It was quicklyappreciated that it would be easier to pay for these systems fromrising incomes than from redistrbutive taxes. The political tensionsand social conflict inherent in redistrbution would be mitigated bygrowth.and long-lived corporations had displaced the individual entrepre-porate versions of the same ideas; but that revival of Schumpeterianeconomics remained for the futue. While their attention was directedactivity. Economists' present models of technological progress incor-commercial exploitation had become "routine" aspects of businessneur, he suggested that both the search for new technology and itsthe democratic suffrage in the industralied countres, a strongeregalitarian sentiment, and people's heightened appreciation of theoutside the economic system, and innovation, which was regarded asOn another level, the rivalr betwèen the US?R and the UnitedStates made each countr anxious to prove that its system was capable ofp'aducing ever higher material conditions and was thereforeworthy of emulation, frendship, or even allance.Internal political forces also pressed for growth. The enlargement ofregies.Similarly, the newly independent countres, the former colonies,saw economic growth not only as the means of rising from povertybut as a necessary condition for consolidating their new politicalbusiness investment of a bold and risky sort. Recognizing that largeearly writings had drawn between invention, the product of activitiesSchumpeter now also abandoned the sharp distinction that hisnewed by the innovative activity of entrepreneurs.progressive economy - constantly lited, but also constantly re-Some degree of monopoly power,therefore, was a regular feature of aimitative inroads and further innovations of rival entrepreneurs.pries were transient, being diluted and eventually eliinated by thesary, therefore useful, inducements and rewards - an acceptableprice for the benefits of innovation and growth. Moreover, theseeral education, their experience with modern commerce, industr,and finance, and their political institutions should be able to support amuch higher relative status,even earlier. They correctly felt that their levels of scientific and gen-profits, He now argued that inovation rested not only on the lure ofhigh but competitive profits; often it also conferred monopoly powerand its concomitant monopoly profits, Al these he viewed as neces-their security and power as restig on an economic base. To ensuretheir independence and safety, they' concluded they must grow; ifahead, stay ahead; if behid catch up,Europeans became aware that they had lost ground to the UnitedStates in levels of livig not only durig the war but since 1913 andPeople, including politicians, realized that the outcome of the warhad been determined by GNP. More than ever before, nations viewedwere pressures for growth to achieve other urgent social objectives.There were considerations of national security and rivalry, of theconquest of poverty, and of advances toward prosperity, and therehowever, quickly shifted. Growth became a primary goal of nationalpolicy and consequently an absorbing subject of study by economists.That was how matters stood as World War II came to an end, Interest,III. The postwar revival of interest in growth and theresponse of economicsielsewhere, economists' views ,about economic growth remained unformed. Guided by neoclassical theory, they treated technological advance - as independent of economic incentives and saw only capitalaccumulation as a source of productivity growth responsive to economic causes,Thinking about growthracy (1942). Here he enlarged on his earlier ideas about the role ofcially by the theses of his later work, Capitalism, Socialism, and Democ-II, economists studied Schumpeter again. They were attacted espe-When interest in economic growth finaly revived after World Wardated within the domiant neoclassical modeL.suggest that the uncertainties accompanyig inflation and other financial disturbances could pose a lastig obstacle to innovation and productivity growth - a lesson for the contemporary scene and season.Schumpeter was widely admed for his briance and long neglectedfor his originality. His innovative theories were not easily accommo-growth and retardation and the financial distortions they brought intheir train, as part of the innovatory process, He was among the first tosaw business cycles, particularly the longer waves of acceleratedand their prices and costs without an undue sense of risk. Schumpetereconomic conditions so that businessmen could gauge their marketscessful innovation: open markets to permt. the appearance of "newmen" and "new firms," access to credit, and suffciently stable macro-economics of grQwth. As such, he stressed the requirements for suc-was thought to establish their equilbrium.Schumpeter taught that innovation was the central element in thepetition included rivalr in the intfoduction of new products andprocesses. Relative prices, therefore, were in flux, constantly disturbed by the same market competition that in the received theory10

The qualified tendency to convergence in the productivity growthrates and levels of industnalized counmes.pronounced acceleration following World War II and the retardation of the last 15 years,The gradual spread of modern growth from Bntain to the UnitedStates, Europe, the counmes of European settlement, and Japan.The secular acceleration of productivity growth; in particular thetion growth in the course of indusmalization.The demographic transitions from nsing to declining rates of popula-The nse of aggregate and per capita growth rates associated with theonset of "modem economic growth."which much analytical workis directed, A list of such generalizations,incomplete but ilustrative, includes the followig:stiulated and supported similar efforts in other countres. The empirical generalizations that he and his collaborators and followers established comprise many of the broad facts towards an explanation ofand other vital statistics, labor force, wealth, and many others. Heextended the U,S. national product series back to 1870. He encouragedthe compilation of long-term statistical data to supplement the nationalproduct figures and assembled many of them himself - populationtional product and national income accounts. He worked out theirconceptual bases, made the early estiates for the United States, andKuznets's great achievement was the foundation of the modem na-considerable number of countres, Simon Kuznets's work is the greatin some respects Colin Clark wasexemplar of such studies, althoughhis precursor.ment was to establish theobservable characteristics of growth on thebasis of a wide survey of experience over long periods and across aon private enterprise and market gudance.The growth studies fell Ilto two divisions. The first was principallyhistorical and descriptive. 'Its aim and, indeed, its solid accomplish-resources and a system of central plannig and control had beenestablished. This essay deals with the first of these, growth in thepresently industralized countres whose economies depend mainlytres, where a new set of institutions based on the state,ownership ofinstitutions and capabilties for exploitig contemporary technologyremained to be established. A third concerned the communist coun-ing from a preindustral condition, the countres in which the basiccapable of operatig at or near the frontiers of modem technology,Another was the study of development in poor countres sti emerg-Calculations that decomposed the growth of output into thecontributions of labor input and labor productivity had been madeThe discovery of the Residualof growth, as it had been for Mil himself to think that the "increase ofproduction. . . is a result of the increase of the (inputs) themselves,or of their productiveness," But how much was due to the increase ofeach of the inputs and how much to that of their productiveness? Thatwas an obvious first question. "Growth accounting" was the attemptto answer it,featue of their static models of price and income distrbution, It wastherefore as natural for economists, when they returned to the ¡,tudyorganizing theme of Mi's Principles. The same fundamental notionwas taken over by the neoclassical economists and became a centraloutlook of the classical economists, and, as we have seen, it was thepioneers in the measurement of national income and product and ofassociated data on labor force and capital stock were not aimess excursions into the statistical cosmos, They were guided by the conceptionof a production function, which is to say by the idea that output is afunction of the inputs of labor, accumulated capital, and land and ofthe productivity of these factor inputs. This idea had been part of theThe descriptive efforts of Colin Clark, Simon Kuznets, and the otheriV. The proximate sources of growthconcern of the rest of this paper.vations, they are the indispensable background for analytical w

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