SIR JAMES STEUART ON ECONOMIC GROWTH
| DOI | http://doi.org/10.1111/j.1467-9485.1978.tb01185.x |
| Date | 01 February 1978 |
| Author | M. A. Akhtar |
| Published date | 01 February 1978 |
Scoftish Journal
of
Political Economy,
Vol.
25,
No.
1,
February
1978
SIR JAMES STEUART ON ECONOMIC
GROWTH
M.
A.
AKHTAR*
Federal Reserve Bank
of
New York
INTRODUCTION
Sir James Steuart’s
Principles
of
Political Oeconomy
appeared nine years
before Adam Smith’s
Wealth
of
Nations,
and contained a fundamentally
different approach to the problem of economic growth.’ It was, however,
Smith’s approach which formed the basis of all subsequent developments in
this branch of theory. The purpose of this paper is to provide a formal
outline of Steuart’s growth model and to place this model in a suitable
perspective in the history of growth theory. At the outset, it should be noted
that Steuart’s analysis of the growth problem cannot be isolated from his
broad and complex system of political economy.2 This paper, therefore,
must be viewed as a part of the whole in which economic growth is the
dominant theme. This theme appears in virtually every facet of Steuart’s
thought; in his analysis of the origins of the modern society, in his arguments
concerning various stages of trade experienced by the exchange economy, in
his discussion of varying rates of growth in different countries, in his emphasis
on
circulation and money, and in his treatment of the role
of
government in
the economic process (cf. Skinner,
1966,
pp. lx, lxxxiv).
Like most of his contemporaries, Steuart opened his analysis with an
account of the origins and nature of modern exchange economy. He traced
society’s progress through pastoral and agrarian types of economic organ-
ization, but most of his analysis deals with the process of change in the
exchange or money economy. Steuart viewed the exchange economy as
passing through three stages
:
infant trade, foreign trade, and inland trade.
During the state of infant trade, the economy is closed and experiences rapid
growth of output based
on
hitherto unused or underutilized domestic
Sir James Steuart’s
An
Inquiry into the Principles
of
Political Oeconomy,
two volumes,
was first published in
1767.
In this paper, most of the references to the
Principles
are made
to the reduced version published by Oliver and Boyd in
1966.
However, when necessary,
references are made to
The Works
of
Sir James Steuart
which includes the full text of the
Principles
as well as other important writings of Steuart.
In recent years, several studies have discussed various facets of Steuart’s thought,
but none of them deal with his whole system. Elsewhere,
(1976)
I
have provided a more
comprehensive outline of Steuart’s economic ideas, aimed at formulating a complete
macroeconomic model.
*
I
am grateful to the Editors
of
this
Journal
for helpful comments on an earlier draft of
this paper.
A
version of the paper was presented to the History of Economics Society
Conference at the University
of
California, Riverside, on
24
March
1976.
The views
expressed are solely my own, and do not indicate concurrence by the Federal Reserve
Bank of New York.
Received in final form:
19
July
1977.
57
58
M.
A. AKHTAR
resources. In the course of time, as the economy becomes industrially
developed, infant trade is extended into foreign trade partly by the increasing
wants of the private sector and partly by the actions of the “statesman”
(government ~ector).~ The potential for growth is at a maximum during the
stage
of
foreign trade, but over time domestic prices get out
of
line with the
world prices causing the balance of trade to be unfavourable. The statesman
may be able to correct the problem in the short run but in the long run all
measures become ineffectual, and at that time it becomes necessary to replace
foreign trade with inland trade (Steuart,
1767,
p.
263
and Book 2, ch.
18).
Steuart approached the problem
of
the exchange economy from a static
as well as
a
dynamic point of view; he presented
a
detailed analysis of the
features of each stage while taking
full
account of the process of transition
between them. The stages of infant and foreign trade depict a growing
economy in which the degree of interdependence is rapidly increasing as
economic growth takes place. In the case of the stage of inland trade, how-
ever, “augmentations of every kind” have come to
a
stop (Steuart,
1767,
pp.
196
and
310)
and
all
changes are cyclical in nature. The scope of this paper
is limited to the closed economy of the stage of infant trade since it is in this
context that Steuart’s analysis of the growth problem is most clearly and
systematically formulated. Steuart believed that economic growth during
the state of infant trade
is
essential not only for satisfying human wants and
promoting a higher standard of living but also as a basis for establishing
foreign trade (Steuart,
1767,
pp.
260-3).
With respect to the latter, the develop-
ment of both manufacturing and agricultural sectors is seen as a means of
preparation for attaining productive capacity to compete with other nations
in the stage of foreign trade.
The remainder of this paper is divided into seven sections. Sections I-IV
outline the basic structure of Steuart’s growth theory. Section V presents
the solution of the model and analyzes the process of economic growth.
Section
VI
summarizes Steuart’s discussion of the role of government in
enhancing economic growth. Section VII concludes the paper with an
overview of Steuart’s analysis of the growth problem in which
a
special
emphasis is laid
on
its distinguishing features
uis-d-uis
Smith’s theory
of
economic growth.
I
POPULATION AND PRODUCTION
Steuart’s theory of population and agriculture
is
the foundation of his
analysis of the growth problem. He maintained that the size and growth
of
population are limited by the output
of
food which is limited
in
turn by the
The main argument on the three stages is summarized in Steuart (1767, Book
2,
ch. 19).
The argument explaining why the domestic prices in relatively developed economies will
tend to get
out
of
line with the world prices is summarized in Steuart (1767, Book
2,
ch. 18).
See also Skinner (1966, pp. Ixiii-lxxix). Steuart’s discussion
of
international trade is beyond
the scope
of
this paper, but
it
should be noted that he made some original contributions
in
that field (see Johnson, 1937, pp. 225-34 and 314; and Viner, 1937, chs.
1
and
2).
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