1954-Lewis：Economic-development-with-unlimited-sup

W.A.LewisonDevelopmentwithUnlimitedSuppliesofLabor1W.A.Lewis,“EconomicDevelopmentwithUnlimitedSuppliesofLabour”*(1954)1.Thisessayiswrittenintheclassicaltradition,makingtheclassicalassumption,andaskingtheclassicalquestion.Theclassics,fromSmithtoMarx,allassumed,orargued,thatanunlimitedsupplyoflabourwasavailableatsubsistencewages.Theythenenquiredhowproductiongrowsthroughtime.Theyfoundtheanswerincapitalaccumulation,whichtheyexplainedintermsoftheiranalysisofthedistributionofincome.Classicalsystemsstemsthusdeterminedsimultaneouslyincomedistributionandincomegrowth,withtherelativepricesofcommoditiesasaminorbye-product.Interestinpricesandinincomedistributionsurvivedintotheneo-classicalera,butlabourceasedtobeunlimitedinsupply,andtheformalmodelofeconomicanalysiswasnolongerexpectedtoexplaintheexpansionofthesystemthroughtime.ThesechangesofassumptionandofinterestservedwellenoughintheEuropeanpartsoftheworld,wherelabourwasindeedlimitedinsupply,andwhereforthenexthalfcenturyitlookedasifeconomicexpansioncouldindeedbeassumedtobeautomatic.OntheotherhandoverthegreaterpartofAsialabourisunlimitedinsupply,andeconomicexpansioncertainlycannotbetakenforgranted.Asia’sproblems,however,attractedveryfeweconomistsduringtheneo-classicalera(eventheAsianeconomiststhemselvesabsorbedtheassumptionsandpreoccupationsofEuropeaneconomics)andhardlyanyprogresshasbeenmadefornearlyacenturywiththekindofeconomicswhichwouldthrowlightupontheproblems.ofcountrieswithsurpluspopulations.WhenKevnes’GeneralTheoryappeared,itwasthoughtatfirstthatthiswasthe.bookwhichwouldilluminatetheproblemsofcountrieswithsurpluslabour,sinceitassumedinunlimitedsupplyoflabouratthecurrentprice,andalso,initsfinalpages,madeafewremarksonseculareconomicexpansion.Furtherreflection,however,revealedthatKeynes’sbookassumednotonlythatlabourisunlimitedinsupply,butalso,andmorefundamentally,thatlandandcapitalareunlimitedinsupply-morefundamentallybothintheshortrunsensethatoncethemonetarytapisturnedthereallimittoexpansionisnotphysicalresourcesbutthelimitedsupplyoflabour,andalsointhelongrunsensethatsecularexpansionisembarrassednotbyashortagebutbyasuperfluityofsaving.GiventheKeynesianremediestheneoclassicalsystemcomesintoitsownagain.Hence,fromthepointofviewofcountrieswithsurpluslabour,Keynesianismisonlyafootnotetoneoclassicism-albeitalong,importantandfascinatingfootnote.Thestudentofsucheconomieshasthereforetoworkrightbacktotheclassicaleconomistsbeforehefindsananalyticalframeworkintowhichhecanrelevantlyfithisproblems.Thepurposeofthisessayisthustoseewhatcanbemadeoftheclassicalframeworkinsolvingproblemsofdistribution,accumulation,andgrowth,firstinaclosedandtheninanopeneconomy.Itisnotprimarilyanessayinthehistoryofeconomicdoctrine,andwillnotthereforespendtimeonindividualwriters,enquiringwhattheymeant,orassessingitsvalidityortruth.Ourpurposeisrathertobringtheirframeworkup-to-date,inthelightofmodernknowledge,andtoseehowfaritthenhelpsustounderstandthecontemporaryproblemsoflargeareasoftheearth.SpaceforNotes↓W.A.LewisonDevelopmentwithUnlimitedSuppliesofLabor2I.TheClosedEconomy.2.Wehavetobeginbyelaboratingtheassumptionofanunlimitedsupplyoflabour,andbyestablishingthatitisausefulassumption.Wearenotarguing,letitberepeated;thatthisassumptionshouldbemadeforallareasoftheworld.ItisobviouslynottrueoftheUnitedKingdom,orofNorthWestEurope.Itisnottrueeitherofsomeofthecountriesusuallynowlumpedtogetherasunder-developed;forexamplethereisanacuteshortageofmalelabourinsomepartsofAfricaandofLatinAmerica.OntheotherhanditisobviouslyrelevantassumptionfortheeconomiesofEgypt,ofIndia,orofJamaica.Ourpresenttaskisnottosupersedeneo-classicaleconomics,butmerelytoelaborateadifferentframeworkforthosecountrieswhichtheneo-classical(andKeynesian)assumptionsdonotfit.Inthefirstplace,anunlimitedsupplyoflabourmaybesaidtoexistinthosecountrieswherepopulationissolargerelativelytocapitalandnaturalresources,thattherearelargesectorsoftheeconomywherethemarginalproductivityoflabourisnegligible,zero,orevennegative.Severalwritershavedrawnattentiontotheexistenceofsuch“disguised”unemploymentintheagriculturalsector,demonstratingineachcasethatthefamilyholdingissosmallthatifsomemembersofthefamilyobtainedotheremploymenttheremainingmemberscouldcultivatetheholdingjustaswell(ofcoursetheywouldhavetoworkharder:theargumentincludesthepropositionthattheywouldbewillingtoworkharderinthesecircumstances).Thephenomenonisnot,however,byanymeansconfinedtothecountryside.Anotherlargesectortowhichitappliesisthewholerangeofcasualjobs-theworkersonthedocks,theyoungmenwhorushforwardaskingtocarryyourbagasyouappear,thejobbinggardener,andthelike.Theseoccupationsusuallyhaveamultipleofthenumbertheyneed,eachofthemearningverysmallsumsfromoccasionalemployment;frequentlytheirnumbercouldbehalvedwithoutreducingoutputinthissector.Pettyretailtradingisalsoexactlyofthistype;itisenormouslyexpandedinoverpopulatedeconomies;eachtradermakesonlyafewsales;marketsarecrowdedwithstalls,andifthenumberofstallsweregreatlyreducedtheconsumerswouldbenowhitworseoff-theymightevenbebetteroff,sinceretailmarginsmightfall