Compare,Contrast & Crtitisms in Development Theory

Theory is A set of assumptions, propositions, or accepted facts that attempts to provide a plausible or rational explanation of cause-and-effect (causal) relationships among a group of observed phenomenon. The term 'Classical' refers to work done by a group of economists in the 18th and 19th centuries. Much of this work was developing theories about the way markets and market economies. Development theory is a conglomeration of theories about how desirable change in society is best achieved. Classical Theory Classical economics refers to work done by a group of economists in the eighteenth and nineteenth centuries. The theories developed mainly focused on the way market economies functioned. Classical theory of development study mainly concentrates on the dynamics of economic growth. The generalized classical theory on growth and development is a combination of the contributions of Adam Smith, David Ricardo, Robert Malthus, Mill and Malthus. The main features of classical theory of development are: increase in the labor quantity (population growth) improvements in the quality of labor through training and education increase in capital (through higher savings and investment) improvements in technology Freedom from government restriction Competitive economy promotes public interest Diminishing returns Division of labor related to market size.

Now we discuss about Smith, Ricardo and Mills theory of development and then we show among 3 theories contrast and comparison.

Adam Smith
Adam Smith (17231790) was a Scottish philosopher and economist and his theory of economic development contained within Chapter I, Book III, of the The Wealth Of Nations(1776). According to Smith, the natural order of development as it proceeds from primary to secondary to tertiary activity is determined by the evaluation of the relative risk and potential profit to be earned in alternative uses of capital. Basic Assumption of Smith: The most fundamental force of productivity growth is increasing division of labour. Increasing division of labor requires increasing scale of production and an increasing scale of market. Production is subordinate to and conditioned by production factors. Investment is subordinate to and conditioned by profit Accumulation of resources brings about technical progression Profit depends solely on workforce availability and proficiency level The number of effective workers depends on their wages (employer's share from domestic income).
Abir Goldar.Development Studies Discipline, Khulna University

Compare,Contrast & Crtitisms in Development Theory

growth in the labor force and stock of capital Capitalistic economy based upon Laissez-Faire Wine Cloth Criticism :(i) Smith in his model includes just two segments of the economy, i.e., the capitalists (landlords) and laboring class. But it is not true, in addition to these two classes, there is also a middle class which plays an important role, in the economic growth. (ii) The Smith's model is based upon Laisseze-Fair. But the non-intervention system is possible just in dreams. (iii) In Smith's 'model, we do not find the role of entrepreneurs. (iv) The Smith's hypothesis regarding stationary state is also misleading, because economic growth is not a smooth process. (v) Capitalism is not suitable for all economy sometime capitalism obstacles the economy of poor people in developing country Portugal 80 men/year 90 men/year England 120 men/year 100 men/year

Ricardo
David Ricardo (17731823) is second only to Adam Smith in the school of classical economics.In his theory of growth and development he outlined his basic economic model, amplified in his Principles of Political Economy and Taxation, of an economy with diminishing returns in agriculture subject to long-term decline because of the protection of agriculture. The Ricardo's model of economic growth encompasses the production function, natural and human resources, capital accumulation and pattern of development. Basic Assumptions of Ricardian : Ricardo sought to show how changes in distribution affect production Ricardo contended that as the economy grows, rents rise, squeezing profits As profits are squeezed, economic growth declines Profit equalization in the home country derived from free movement of production factors. Emphasizes on law of diminishing returns There are no transport costs Costs are constant and there are no economies of scale. There are only two economies producing two goods. The theory assumes that traded goods are homogeneous.

Abir Goldar.Development Studies Discipline, Khulna University

Compare,Contrast & Crtitisms in Development Theory

Factors of production are assumed to be perfectly mobile within a country but no movement internationally Full employment exists

Critcism: (i) Ricardo's model is based upon diminishing returns. But due to modern scientific knowledge its application can be suspended. (ii) The concept of stationary state advanced by Ricardo is baseless. How that economy can be a stationary one whose output is expanding, whose profits are rising and capital accumulation is taking place. (iii) Ricardian concept of subsistence wages and the concept of increase in population due to rise in wages are misleading. As far as western countries are concerned the wages have never been subsistence and because of rise in wages the population in these countries decreased, rather increasing. (iv) Like Smith, Ricardo also assumes the system of 'Laisseze-Fair'. But it is not applicable in real life and the state does have to interfere with. (v) Ricardo assumes that there are no institutional changes. But the institutional changes highly influence the process of growth. (vi) Ricardian model basically explains the theory of rent determination. Therefore, this model is like a theory of national income distribution. (vii) Ricardian model did not incorporate the role of rate of interest in economic growth.

J.S. Mill
In the classical tradition, Mill(1806 1873) argued that, given Say's law, employment and increased levels of output are dependent on the accumulation and investment of capital. Part of the investment in capital, the result of saving, is required to tide labor over a discontinuous production period. Although he later seemed to recant this idea, Mill revealed a clear understanding of the wages-fund doctrine: He revised Ricardos classical theory.

Basic Assumption of Mills: Improved education of the working force Improved system of taxation and land tenure and more sold instruction for the rich classes that would increase their mental energy Generate feelings of public spirit in them and qualify them for constructive roles in society. Utilitarianism Mill appears to draw a sharp line between production, determined by scientific principles and distribution, determined by law, customs and other human institutions Joint Supply
Abir Goldar.Development Studies Discipline, Khulna University

Compare,Contrast & Crtitisms in Development Theory

Law of diminishing returns in agricultural sector Control population growth Regarded economic development as a function of land,labor and capital Human interests amenable to governmental control Criticisms (i) This model ignored the role of technical progress (ii) Ignored free trade (iii)Ignored entrepreneurship (iv) He do not support Laissez Faire' economy Comparison and contrast among Smith, Ricardo and Mills theory of growth Smith Emphasize on Capital Accumulation Growth depends on Diminishing Returns Based on Entrepreneurship Capitalism Depends on the rate of savings Ricardo Capitalism Depends on the function of profit Mill Economic Democracy the function of the proportion of the labour force employed ' productively Land ,labor and capital Support 3 sectors(Rich, middle class and labor) Ignored He do not talk about this economy

Division of labor Absence of diminishing returns Two sectors(Capitalistic and laboring class) Fully absence of entrepreneurship Supported

Division of labor Support No comment about the division of economy sector Supported new entrepreneurs Like Smith he also supported this economy Applicable for under developing countries

Laissez Faire' economy Suitable for

Least applicable for under developing countries

Applicable for developing countries

Adam Smith and Ricardo both were the classical economists. They had much more similarities in their models of growth. But now a days, there is a customary to present a full fledge classical model which is composed of the ideas given by Smith, Ricardo, J.S. Mill regarding economic growth and development.

Abir Goldar.Development Studies Discipline, Khulna University

Compare,Contrast & Crtitisms in Development Theory

References:1. Hunt, D. (1989), Economic Theories of Development: An Analysis of Competing Paradigms. 2. Richard Peet with Elaine Hartwick, "Theories of Development", The Guilford Press (1999) 3. J. R. Hicks, Methods of Dynamic Economics 1st edition 1987 4. Adelman, Irma, Theories of Economic Growth and Development(California: Standford University Press,1962) 5. Ricardo, David (1937). The Principles of Political Economy and Taxation. London. p. 56. 6. Adam Smith The Wealth Of Nations(1776) 7. Michael St. John Packe, The Life of John Stuart Mill, Macmillan (1952). 8. I. Adelman, 1961, Theories of Economic Growth and Development. 9. www.bized.co.uk 10. www.wikipedia.com

Abir Goldar.Development Studies Discipline, Khulna University