Economic Growth

Thoughts about Economic Growth: Then and Now

As a means of gaining a more comprehensive understanding of economic growth, it is instructive to look at the theories of some of the topic's thought leaders over time. This perspective will make it easier to understand [Page 644]the wide array of successful and unsuccessful economic development or growth policies used by various government entities. Although ancient Greeks and Romans demonstrated an understanding of economic security and growth as the foundation for social and political health, most of the discussion about the topic has occurred in the last 250 to 300 years.

Some of the economic writings from the 16th through the 18th centuries dealt with the growth of commerce resulting from European expansion. The Mercantilists sought limitations to trade between countries while expanding their own contiguous territorial or colonial trading systems. On the other hand, one of the most highly regarded anti-Mercantilists was David Hume, who wrote Political Discourses in 1752. Hume argued that international trade is not a zero-sum game and that the growth of international trade was directly related to the strength and diversity of the trading partners. Today, the viewpoints of both the Mercantilists and Hume are endorsed by political leaders as they struggle to achieve economic growth in a global economy.

One of Hume's contemporaries, Adam Smith, provided additional thoughts about economic growth when he published An Inquiry Into the Nature and Causes of the Wealth of Nations in 1776. Smith's premise was that the self-interest of individuals drives them to compete. This competition will in turn result in the production of goods and services that society wants, in the amounts that it wants, and at appropriate prices.

In other words, it was Smith's belief that an evolving capitalist system, driven by economic growth, would benefit society as a whole. More than 200 years later, Smith's beliefs about growth benefiting society were highlighted in a series of articles in The Economist in 2005. The discussion cited examples of how economic growth had improved people's lives, with the production of ample food supplies, the provision of adequate housing, the facility to travel freely, and a sharp reduction in chronic diseases.

In 1798, Thomas Malthus prepared An Essay on the Principle of Population. In this writing, he suggested that the population would grow at a geometric rate, while the food supply would only grow at an arithmetic rate. This writing was in direct conflict with a popular notion at that time that a productive society, or one that experienced growth, was a society that maintained a high fertility rate and ultimately a larger workforce. It was Malthus's belief that population growth would decrease output per worker, particularly in agriculture, thus reducing the standard of living. Malthus held the lower class responsible for this situation and suggested that the British government should establish restrictive policies to hold the middle and lower classes responsible for maintaining the proper rate of population growth. To a certain extent, his premise is followed today in certain countries, such as China, which has implemented a policy of one child per family.

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