Allyn Young’s Inquiry into the Nature and Causes of the Growth of Markets - Lange, Jérôme
Allyn Young (1928) remarked that Smith (and after him Senior) had observed how through the growth of population and of markets the division of labour could be furthered, and he expanded on Smith’s division of labour theory by stressing how the division of labour and market expansion were two interdependent and cumulative (and thus self-perpetuating) processes. Modern growth theorists in the tradition of general equilibrium analysis often cite Young, but Young himself analysed economic growth in terms of a qualitative as well as quantitative change of the whole system of production, which would constantly disturb any momentary equilibria. He thus warned against attempting to enclose his theory in an equilibrium framework, which would necessarily obscure important elements of the analysis (i.e. economic restructuring and technical progress). The initial stages of the process of market growth were however not analyzed by Young. This has given rise to much circular reasoning in an ensuing generation of development economists trying to solve an apparent chicken-and-egg dilemma of the need for investment to create demand and the need of demand in order to invest. Yet in Young’s analysis, it is the division of labour, not investment, which brings about economic growth, and this is sufficient to explain the process of development, precisely because as long as markets remain too small, investment in capital will remain uneconomical. Young stresses that it is the development of the division of labour, furthered notably by population growth, which can enlarge markets to the level where capital accumulation on a larger scale becomes economical.
Keywords: conferencePaper