Emergence of Theory of Growth
In the course of the last twenty five years or so, a separate branch of economic theory has emerged which studies the factors which contribute to increase the level of national income and output of a country and raise the standard of living of its people. This new branch of economic theory is variously leveled as ‘Economics of Growth.
The factors determining economic growth were discussed by Adam Smith, the father of political economy, and other classical economists. But, after the classical economists. owing to ascendancy of marginalia, the economists mainly concentrated on the study of allocation of-resources and determination of relative prices. In the beginning of the present century, and especially in the early 1930’s, when the Great Depression engulfed the capitalist countries, the economists were largely engaged in finding out suitable explanation of depression various aspects of which have already been discussed, brought about a revolution in economic thinking. Keynes explained clearly the true nature of depression and economic fluctuations.
But Keynesian theory only deals with the determination of income and employment in the short run, on the contrary economic development is a long-run process. It is, therefore, widely recognized that the Keynesian theory of income and employment has serious limitations when applied to crud-clopped countries. The problem which Keynes was in the nineteen thirties was on«~of economic capital. In under-developed concentric , the main problem has been one of insufficiency of capital. In these countries, the problem essentially is one of narrowness of the margin over and above the consumption demand based on the extremely low standards of living.
Poverty, hunger, disease, illiteracy, and lack opportunity for self development have been the lot of a large majority of people in under-developed countries. Poverty there is old but the awareness of poverty and the hope that something can be done about it are new. In fact, a “revolution of is currently sweeping the under-developed countries. In these countries, many theories were propounded about vitiating and accelerating the process of economic growth.