Introduction to part 1
This chapter presents an introduction to the handbook on development economics, Part 1. Development, as contrasted with mere growth of the economy, is, according to Schumpeter, a distinct phenomenon, entirely foreign to what may be observed in the circular flow or in the tendency toward equilibrium. In the dominant neoclassical paradigm of the postwar era, Adam Smith's parable of the invisible hand was rigorously restated in terms of the two fundamental theorems of welfare economics. First, under a set of mild restrictions on production technology and individual preferences, the equilibrium of a laissez-faire market economy is a Pareto optimum. Second, given a set of rather restrictive assumptions, including the absence of technological externalities and increasing returns to scale in production of goods, and convexity of consumer preferences, any Pareto optimum is also a competitive equilibrium provided income (or initial endowments) of individuals can be redistributed through lump-sum transfers or other non-distortionary means. In contrast to the neoclassical approach to development, that is a historic and based on virtual time, there is the historical, real-time Marxian approach that is closer to the spirit of Schumpeter's analysis. In this approach, the forces of production, represented by available technology at any point in historical time, and the existing relations of production, represented by the institutions governing ownership and access to the means of production determine equilibrium.
Year of publication: |
1988
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Authors: | Srinivasan, T.N. |
Published in: |
Handbook of development economics : volume 1. - Amsterdam : North-Holland, ISBN 0-444-70337-3. - 1988, p. 3-8
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