THE THEORY OF ECONOMIC GROWTH

For two-thirds of the world’s population— over 2 billion people—the number one economic problem is getting enough to eat and a place to sleep. By our standards, they are desperately poor. For these people, economic growth—more goods and services per capita—offers the only real hope of rising above a bare subsistence level of food and shelter.

Few people in the United States today need fear starvation. Yet even here there are millions of poor, miles of squalid slums—and few in our population of over 200 million do not continually hope for more income to spend, for the better things in life. Thus, here too economic growth is a central issue, though a far less pressing need than for the world’s underdeveloped, poverty-stricken nations.

Moreover, during the 1950’s most Americans became painfully aware that Russia’s rate of economic growth exceeded ours by a wide margin. Happily, the margin between the two rates has narrowed in the 1960’s, for comparison between the communist and free world growth rates is a critical factor in the eyes of many underdeveloped nations in determining whether they go the communist or the capitalist way. Economic growth has become a central issue in the world-wide battle for men’s minds.

This chapter begins with some facts on economic growth, but it is concerned primarily with the theory of growth. Why do economies grow as fast or as slowly as they do? What are the major forces on which we must rely for a long-term rise in per capita output? Chapters 16 and 17 then use this theoretical framework to explain the growth in today’s American economy; and Chapter 18 does the same for the underdeveloped economies, which contain the great bulk of the world’s population.