SOME PROBLEMS IN THE THEORY OF GROWTH AND PLANNING POLICY

Abstract

SUMMARYControversy during the past decade over the theory of growth has been largely concerned with the question of choice of methods of production (or of technique). Connected therewith is the question of distribution of investment between sectors. Until quite recently it was supposed that an answer to both these questions was afforded as a direct corollary from the theory of marginal productivity: in particular, that where capital is scarce and there is surplus labour, highly labour‐intensive methods of production should be favoured and the development of light industry be preferred to that of heavy industry. Thereby has been erected a theory of stages in development.This traditional doctrine is challenged by the view that the criterion of investment policy should be to maximise the growth‐rate of the economy by maximising the increase of its investible surplus. The latter implies the choice of a higher capital‐intensity of technique than the traditional doctrine would allow, and so far as possible assigning priority in development to the capital goods sector. Although in the immediate future such a high‐growth‐rate‐policy involves a lower level of employment and consumption than the rival‐policy, the former, by maximising the growth‐rate of investment, will fairly soon maximise also the growth‐rate of both employment and consumption.An attempt is made to relate this analysis to a problem of minimising cost, as a preliminary to deciding on a rational price‐system for a planned economy. Its connection with a principle of “maximum economy of labour”, advanced by some writers, is considered, two possible variants of such a principle being distinguished; also its connection with Professor V. V. NOVOZHILOV'S category of “national‐economic cost‐price”, depending on a calculation of the “marginal effectiveness of investment”.