Challenging the Supply-side Vision of the Long Run
Edited by Mark Setterfield
Chapter 1: Introduction: A Dissenter’s View of the Development of Growth Theory and the Importance of Demand-Led Growth
1. Introduction: a dissenterÕs view of the development of growth theory and the importance of demand-led growth Mark Setterfield Growth theory has enjoyed a somewhat chequered history in the development of economic thought, despite having been a defining feature of economic analysis during the century that followed the publication of SmithÕs Wealth of Nations. The works of Ricardo, Malthus, Mill and Marx Ð and even, as Nicholas Kaldor often pointed out, the early chapters of the Wealth of Nations itself Ð all attached central importance to issues of accumulation and growth. But in the wake of the late nineteenth-century marginalist revolution, with its emphasis on exchange, resource allocation and price determination, growth became a topic of secondary importance. The work of Harrod and Keynes in the 1930s revitalized interest in growth, and this interest remained central to the development of both neoclassical and Keynesian economic theory throughout the 1950s and 1960s. But growth theory is commonly believed to have lost its momentum once again thereafter. Indeed, it is now commonplace to refer to there recently having been a revival in growth theory, marked by the contributions of Romer (1986) and Lucas (1988) and the subsequent development, during the 1990s, of neoclassical endogenous growth (NEG) theory. The alleged hiatus in growth theory during the 1970s and 1980s is, however, more apparent than real. The popularity of this idea is more representative of the overwhelming attention that has been paid to supply-side analyses of macroeconomic processes since the beginning of the classical...