What determines economic growth? For the early practitioners of political economy such as Adam Smith, Thomas Malthus and even Karl Marx, this was arguably the central question of the discipline. They correctly identified the source of economic growth as the availability of factors of production such as labour, capital, land and enterprise. This led them to the, arguably mistaken, conclusion that economic growth was ultimately limited by the supply of land, which was regarded as a fixed factor of production. As a result, the nineteenth century view of economics was that of an essentially fatalistic discipline in which increases in output per person could only be temporary since eventually a rising population, in conjunction with a fixed supply of land, would lead to output and incomes returning to subsistence levels. Not surprisingly, economics became known as the ‘dismal science’.
The modern view of economic growth is considerably more optimistic than that of the classical economists. First of all, the development of an industrial economy downgraded the role of land in production. Although natural resources and raw materials still provide an essential part of the production process, it is possible to argue that their availability does not provide the rigid constraint on growth envisaged by the economists of the eighteenth and nineteenth centuries. It is possible to argue that growth is now driven more by the ingenuity of firms and individuals in finding new resources and methods, rather than the older vision of an essentially static technology. However, the question remains as to what is the ultimate driving force behind economic growth. It is this question that we will examine in this article.
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