Twentieth-century growth theory

Abstract

The theory of economic growth was not a promising area in which to apply marginal techniques of analysis. It therefore fell largely outside the scope of what the neo-classical orthodoxy which triumphed as a result of the marginal revolution chose to define as ‘pure economic science’. At the beginning of the twentieth century, however, one man, far ahead of his time in theoretical interests and insight, was working in Europe on a theory of economic development which was essentially a theory of cyclical growth. Joseph Schumpeter's Theory of Economic Development was first published in Germany in 1911 but was not translated into English until 1934. By then English and American economists were deeply concerned by problems of trade cycles and secular stagnation in the mature capitalist countries from which developed a new interest in analysing the economic development of industrial society. But it was not until after the Second World War when the condition of the underdeveloped countries became a primary policy issue that economists began to study growth again in the form in which it had interested Adam Smith, Karl Marx and the classical economists generally, i.e. as an inquiry into the nature and causes of the wealth of nations. Unlike most of his contemporaries among English speaking economists, Schumpeter was well-acquainted with the works of both Marx and Walras as well as Marshall, and, of course, of the members of the Austrian school in which he was trained.