An earlier version of this paper was presented at “75 Years of Development Research,” at Cornell University: [email protected]. This paper has benefited from the comments and suggestions of Amitava K. Dutt, James Rakowski, Jaime Ros, and Esther-Mirjam Sent. Research support from the Academy of Finland, Emil Aaltonen Foundation, Finnish Cultural Foundation, and Yrjö Jahnsson Foundation is gratefully acknowledged. Two anonymous referees gave valuable insights on the submitted draft. The usual caveat applies.
Notes
1That is, references to Young are occasionally made, but like many others, Thirlwall Citation(2002), a recent development and growth economics contribution, falls short in recognizing Young's influence on development theory pioneers, Rosenstein-Rodan and Nurkse: “Allyn Young's 1928 vision … got lost until economists such as Gunnar Myrdal … Albert Hirschman and Nicholas Kaldor … started to develop non-equilibrium models of the development process” (Thirwall 2002, p. 6).
2This notion has become known as pecuniary, market-transmitted externalities or inter-industry interdependencies within the development economics literature.
3 Young quite explicitly describes his vision as endogenous growth, which he considers prevalent:
“[T]o conceive of all economic processes in terms of tendencies towards an equilibrium might even maintain that increasing returns, so far as they depend upon the economies of indirect methods of production and the size of the market, are offset and negated by their costs, and that under such simplified conditions … the realizing of increasing returns would be spread through time in such a way as to secure an equilibrium of costs and advantages. This would amount to saying that no real progress could come through the operation of forces engendered within the economic system—a conclusion repugnant to common sense” (Young Citation1928, p. 535).
4The article was originally a Presidential Address before section F (Economic Science and Statistics) of the British Association for the Advancement of Science, Glasgow, September 10, 1928.
5Blitch gives indication of this in his biography on Young and various other contributions involving him. Young felt that the professional preoccupation with the logical rigor and refinements of static equilibrium theory was at wide variance with what the mounting empirical evidence showed. The data reflected an economy undergoing rapid change and growth in productivity in manufacturing, industrial structure, goods and services, and capital investment. Static equilibrium theory did not allow for the growth and change, so Young's dissatisfaction with such analysis grew with the passage of time (Blitch Citation1983b, p. 363). Young also had a strong empirical emphasis in his approach to economics ever since his graduate thesis at Wisconsin (Blitch Citation1983a).
6The literature on Young implies that this critique is not only directed to the Marshallian partial equilibrium methods, but also to the general equilibrium apparatus as well. Arndt Citation(1955) discusses Young's critique on the partial equilibrium framework and Kaldor Citation(1972) points to that on the general equilibrium one.
7Blitch Citation(1995) documents the ongoing academic debate that Young had with Knight on the topic. He brings forth evidence that Knight's statement, “[that] under the conditions necessary to perfect competition, costs must always increase as supply increases” was refuted by Young in cases in which: the increased supply is a response to an increased demand. “External economies” of certain sorts will be realized … The point is that certain economies are possible only with large demand. An increased output means more plants, of course, but the important thing is that they are not “similar establishments”, but in general, more highly specialized establishments. As you know I differ from your notion of decreasing costs. I hold them to be real, not necessarily tending to monopoly, and one of the most important economic phenomena of modern times. They are not a matter of the “proportioning of factors”. They are, in great part, a matter of the economies of the division of labor, which, as Adam Smith observed, is limited by “the extent of the market” (Blitch Citation1995, pp. 169–70). Furthermore, as a response to Knight's criticism on “pure external economies” and exhibiting them through the use of the long-run supply curve with a negative slope, Young wrote to Knight that “Where I do not follow you, of course, is in respect to increasing returns. The reasons may be that increasing returns do not exhibit themselves adequately when approached from the point of equilibrium price-theory” (Blitch Citation1995, p. 170).
8The first two motivations of Marshall are also discussed in Blitch Citation(1983b).
9Marshall forecasts the relevance of the notions:
These results will be of great importance when we come to discuss the causes which govern the supply price of a commodity. We shall have to analyse carefully the normal cost of producing a commodity, relatively to a given aggregate volume of production; and for this purpose we shall have to study the expenses of a representative producer for that aggregate volume (Marshall, 1920 p. 317).
10Currie Citation(1981) also mentions this crucial difference between Marshall and Young, pointing how the former lacked perspective on dynamic aspects of growth and that his perception of economic progress was linked to international trade. However, there does not seem to be an agreement with this in the literature (see Arndt Citation1955).
11Skill accumulation, improvement in the dexterity of the worker in Smith's vocabulary, is one of the three consequences of the division of labor that Smith discusses.
12Evidence of Young's realistic approach (or Ely's influence) can be seen throughout the essay. Young repeatedly points to the limitations of the theoretical concepts whenever significant departures from empirical reality can be found. This method, in Young's words, is as follows:
We begin, let us say, with a hypothesis—a generalisation. We then look into the facts, knowing that if the hypothesis is sound the facts we find within a certain range will not be inconsistent with it, and we determine our field of inquiry accordingly. This much is deduction. If the facts prove to be consistent with the hypothesis, our tentative deduction is transformed into an induction (or as we say when we are testing some theorem, into a “verification”). If the facts are inconsistent with the hypothesis we cast about for a new hypothesis, for a generalisation that brings the facts into some sort of orderly relation. In any really creative research, however modest in scale, there is this process of continuous give and take between the search for general relations and the scrutiny of particular details, between thinking and concrete observation (Blitch Citation1995, p. 9).
13Young's view bears some similarity to the Schumpeterian notion of creative destruction.
14This interpretation finds additional support from the debates Young had with his colleagues. See, for example, the excerpts from the debate between Young and Knight in n. 7.
15Though when considering that “the theme” that Young borrows is not only that “the division of labor is limited by the extent of the market” but also that this dictum entails the case for increasing returns in the aggregate (or generalized increasing returns), Young rightly attributes Smith as the master. Even in recognizing this, it can be argued that Young contributes in modernizing the notion and crystallizing it in the context of economic growth. For a recent formalization of Smithian growth process, see Kelly Citation(1997).
16This interpretation is supported by the biographical accounts on Young by Blitch: “Young, like Adam Smith, was interested, first of all, in the general problems of the economy as a whole, with only essential references to individual industries and firms as operational elements” (Blitch Citation1983a, p. 18).
17The Marginalist Revolution changed the focus of economic analysis to microeconomics until the revival of macroeconomics following the Great Depression and the emergence of Keynesianism (for more on this, see Blaug Citation1997, p. 4).
18See his discussion in Young (Citation1999 pp. 412-13).
19Young's criticism that Smith “missed the main point” is debatable to a degree given that Smith states that “everybody must be sensible how much labour is facilitated and abridged by the application of proper machinery. It is unnecessary to give any example,” and hence it seems that he did recognize the importance of machinery, though he fails to discuss the role of labor division in its adoption to production. Marshall can be considered to have taken a step forward from Smith in recognizing that an increase in routine-like tasks in production processes does lead to an increased use of machinery. However, the underlying point is that Young went further in placing the chief emphasis on the relevance of division of labor in facilitating capital accumulation and in recognizing the circularity of this process via its consequence to market expansion.
20In parentheses, he makes a reference to the viewpoint held by Knight and Sraffa in the cost controversy, “Otherwise, economists of standing could not have suggested that increasing returns may be altogether illusory, or have maintained that where they are present they must lead to monopoly” (Young Citation1928, p. 531).
21The fact that the usage of machinery broadens the scope for the labor division was also recognized by Marshall; however, he fails to explain the process through which it occurs. In contrast, Young makes the phenomenon explicit.
22While Young begins the discussion and places more emphasis on the former concept, only the latter, secondary, process is explicitly named and defined by him. To clarify the discussion on Young's process of growth, I dub the former concept as primary mechanism, which seems to be the most logical extension for Young's notion.
23As it is required in the construction of machinery and other capital goods.
24An example of “technical effectiveness” can be represented by a case in which a machinery can be used to produce goods with broad range spanning from capital goods to final demand market (for example, the hammer-making industry). I am grateful for an anonymous referee in pointing this out.
25It is generally agreed within the literature that the term Say's Law, also known as the Law of Markets, is a set of propositions and not simply one law as the name suggests. For a discussion on Say's Law and the debates it has fueled, see Baumol Citation(1999).
26Lavezzi (Citation2003 p. 21) argues that Young's definition is deeper than that of Say's Law, since “both demand and supply are endogenously determined according to the degree of division of labor prevailing.”
27It is worth remembering that Young was writing at the eve of the Great Depression and hence his vision was formed based on the growth and development experience of the advanced economies during the past century.
28Though Young refrains from analyzing a case of market failure, in a different contribution when discussing the growth of the economic system with reference to business enterprises, he makes explicit reference that this growth, which is like an evolution of a living organism, cannot by itself, if left to the competitive forces alone, assure that balance is achieved on the market (Young Citation1999, p. 416). This point is further discussed when comparing Young's and early development theorists' views with respect to policy.
29Young discusses the notion in such broad terms that it seems to entail both horizontal and vertical pecuniary external economies. Basically, horizontal pecuniary external economies occur between wage-good producing firms, while vertical pecuniary external economies occur between suppliers and final goods producers. These concepts will be further discussed in the next section.
30Young Citation(1999) argues that the size of a particular firm depends on industry and product specific characteristics. In general, the extent of product standardization and simplification of product manufacturing process determine whether it is economical to produce them in large production units (1999, p. 414).
31See Lavezzi Citation(2003) for a discussion of the different notions of competition present in the Smithian framework.
32For terminological clarity: methodologically in the sense that he is not using the Marshallian equilibrium methods and conceptually in the sense that he brings external economies, existence of which was disputed at the time and he explicitly sees as operating at the macroeconomic level, to the forefront in his analysis as the engine of the growth process.
33Though not in the spirit of Young's (1928) contribution, Young's ideas have been argued to have influenced the profession via the monopolistic competition models of E. H. Chamberlin, who was a student of his (Buchanan and Yoon Citation2000). In fact, Buchanan and Yoon Citation(2000) argue that this work directed attention away from the generalized increasing returns that Young was advocating.
34Both Sandilands Citation(2000) and Lavezzi Citation(2003) make a compelling case that important aspects of classical growth theory (or Smithian and Youngian growth theory) are still not adequately addressed by the contemporary growth theory and hence these theories can still be found insightful today. Akin to these contributions, the present contribution will argue that important aspects of classical growth theory that culminated in Young were lost when incorporated into early development theory and hence Young's contribution can still be considered insightful from development theory perspective as well.
35This field can be argued as having been newly re-emerged in the post-war era, as by some counts much of the development of economics has been the emergence of development economics. For a view adjoining the roots of development economics to that of economics in general, see Lewis Citation(1988).
36There has been much terminological discussion on whether “big push” is the most appropriate term to describe this type of development effort. According to Nurkse Citation(1961), the theory of the big push is nothing less than “the theory of development.”
37The article was used as background material for a study group at the Royal Institute for International Affairs that met between 1942-45 (Rosenstein-Rodan, Citation1984). The regional focus, Eastern and South-Eastern Europe, was chosen due to the fact that at that time, the government officials from this region were in exile in London and the region consisted of countries with reasonably similar characteristics that facilitated the analysis (Rosenstein-Rodan, Citation1984).
38A qualification on Arndt's point is that Rosenstein-Rodan Citation(1943) discusses horizontal pecuniary externalities and refers to technological externalities. Rosenstein-Rodan Citation(1961) further broadened the externalities discussion to vertical pecuniary externalities, though referred to Scitovsky Citation(1954) for a discussion on them. See the following text for a further discussion of these externalities.
39Of the four major theoretical points applied into the context of developing economies in Rosenstein-Rodan Citation(1943), only “the concept of ‘pecuniary’ external economies” is discussed and mere reference is made to “technological external economies” as well as “block of social overhead capital.” Young's discussion on the externalities leading to increasing returns does not include technological externalities in industrial training though he does make reference to the inflexibility of human capital as a obstacle for growth, in addition to which he does mention the absence of indivisibilities as one of the key factors for the cumulative process to function properly. The latter notion gains special importance in Rosenstein-Rodan's thought later on. Given that Young's discussion centered on describing the operation of dynamic pecuniary external economies, it is the focus of the comparison with Young in this paper. For an in-depth discussion of the remaining application in Rosenstein-Rodan Citation(1943), “concern with excess agrarian population,” see Rosenstein-Rodan Citation(1984). Rosenstein-Rodan's innovation in this context is not the concepts themselves; rather it is the fact that he had the foresight to apply various concepts into the context of developing economies.
40This reference is made within the literature by Eckaus Citation(1989), i.e., that Joan Robinson's disguised unemployment concept was incorporated into the development economics by Rosenstein-Rodan. None of Rosenstein-Rodan's contributions make specific reference to Robinson Citation(1936) though she gets a mention as one of the “important predecessors of the theory of development” (Rosenstein-Rodan Citation1984, p. 207). The others are Harrod, Domar, Keynes, and Clark.
41Strictly speaking, in his original contribution, Rosenstein-Rodan's notion of complementarities can only be considered as horizontal pecuniary externalities.
42“An industrial dictator, with foresight and knowledge, could hasten the pace [of growth] somewhat, but he could not achieve an Alladin-like transformation of a country's industry, so as to reap the fruits of a half-century's ordinary progress in a few years” (Young Citation1928, p. 534, emphasis added). Young's views on policy are further discussed when comparing them to those held by the early development theorists.
43I am grateful for this point to an anonymous referee.
44Kaldor's notes on Young's lectures give added support for this interpretation: But, even if one could see ahead, and plan and co-ordinate industry—each growing industry supplying a market for the other's goods—it would not be done. For the changes make are costly, and how costly depends on how long a time is taken. Say it is carried out in ten years, it would disrupt the social life of the country. Some industries would be abandoned, unemployment would occur, the population would need to be shifted from one place to another. And there would be enormous capital costs. The amount of capital required would be immense; for a time the country would need to live on next to nothing. You would cut far too deeply into the supply of present goods (Kaldor Citation1990, p 47, emphasis added).
Furthermore, it is clear from a broader reading of Young that he was no advocate of laissez-faire and interpreted neither Smith, nor other classical economists, in that light: “in the classical writers' minds laissez-faire took a second place to competition. They meant not laissez-faire which leads to some monopoly, but laissez-faire such that competition was kept going” (Kaldor Citation1990, p. 22). “The classical economists' emphasis on the economic mechanism suggests that they held that mechanism to be self-sufficient. But, in fact, no first-rate economist ever was an upholder of laissez-faire” (Kaldor Citation1990, p. 26). In a sense, Young can be considered to have anticipated the difficulties of industrialization as he views it be a process that occurs gradually over the long run (as it did in the United Kingdom and the United States). In fact, his remark on the growth of cities certainly bears relevance when considering the current state of affairs is many large cities in developing countries, where balance has been lost due to inadequate planning or mere inability to keep up with the inflows of population.
45Though he did observe other fluctuations and recessions and, for example, lectured on them extensively (See Kaldor Citation1990, lectures XXXVI-XLV). Perhaps the most appropriate interpretation, given that Young's focus was to elaborate on the importance of externalities, (the existence of which was disputed) in generating self-sustaining growth, is that analyzing a case of a market failure was not relevant to his purpose and hence not considered by him. In turn, when early development theorists began discussing the phenomenon of underdevelopment, market failure, the fact that this market-driven mechanism was not functioning properly was central to their purpose.