It is now time to look in directions other than the matrix of classical production theory and developments springing therefrom. For the modern treatment of economic development embraces some modes of analysis having a substantially different origin. In this connection we may begin with the theory of the Trade Cycle. This theory, whatever other characteristics it may have, is certainly concerned with the ups and downs of output, either in the aggregate or at least over substantial parts of the field. It follows therefore that, though its immediate sphere of attention may be different, it is fundamentally concerned with movements some of which have a family resemblance to the movements of general development. Indeed it is possible to contend that these ups and downs are part of the mechanism of growth – or that growth would not be so rapid without them. As we have seen, this was the case argued in Schumpeter’s famous essay.
It was also the position tentatively adopted from time to time by no less an authority than the late Dennis Robertson. But the·connection between the two lines of speculation can be even more intimate than this. Since its first beginnings in the middle of the nineteenth century, the theory of the Trade Cycle has assumed many forms, from the sun-spot theory of Jevons to the theory of the propagation of random shocks of Wicksell and of Ragnar Frisch. But it has developed against a background of actual growth; and it has gradually come to be realised that it is at least probable that its most prominent characteristics are in some way or other a product of the fact of growth – not merely that growth may be promoted by cyclical variations, as in the Schumpeter-Robertson constructions, but that, more fundamentally, the cycle may be due to something at work among the factors causing growth. It is not necessary that this should be so.
One can imagine a cycle within a more or less stationary state – caused perhaps by regularly recurring influences on the weather, or even by some inherent tendency of the data to oscillate round a fixed’ point rather than reach a final equilibrium. But, speaking by and large, this seems less plausible than the view which associates it with development; and I believe that this is probably the attitude of most of those who in recent years have paid attention to this subject. I should hesitate to say when first it was explicitly stated. In my own thought its origins are associated principally with the works of Cassel and Spiethoff and, more recently, of Sir John Hicks. I But I am very prepared to believe that, in the enormous miscellaneous literature of the subject, there may be discovered anticipators. What is important from the point of view of this survey, however, is not the exact origin of this notion but the fact that once it is accepted, the theory of growth and the theory of the cycle acquire a very intimate connection and come to be treated by similar analytical methods.
It assumed the existence of given labour and given equipment and, in true-blue Marshallian manner, it gave a comparison of different statical equilibria rather than providing a theory of the path actually taken by change. Hence it was inevitable, especially in the context of the post-war situation with new nations pathetically clamouring to learn the secret of rapid growth, that attempts should be made to transcend this analysis and to provide a full theory of the actual process of development. Hence the constructions of Harrod, Domar, Kaldor and many others, ably analysed by Hahn and Matthews in a famous supplement to the Economic Journal, with the debate still continuing.
