Pasinetti: Structural Change and Economic Growth

Pasinetti, L., Structural change and economic growth, Cambridge University Press.

Pasenetti beings his book by exploring a broad overview of economic theory historically. At its broadest, he distinguished between trade and industrialization in the development of the science of economics. Initially, there was trade, which is a relatively static phenomena. Then, out of the growth that trade created, the more dynamic process of industrialization took place.

Merchantilism is the school of economic thought that believes that countries must trade with other countries, but that exports should be larger than imports. Trade is a weapon to be used to strengthen nations.

Physiocracy, alternatively, explored economic production from the perspective that promoted the idea that agricultural production was the core of all economic production. This school of thought also produced the first table representing economic inputs and outputs (Quesnay).

Smith and Ricardo represent the core of the classical approach to understanding economic growth. Smith paints a picture of growth that is highly determined by different levels of technology and productivity. Ricardo explores two different kinds of goods, those whose value is determined solely (or mostly) by their scarcity, and those whose value can fluctuate greatly based on productivity.

Marginal economic theory emerged from criticisms of classical economic theory: the later didn’t take into consideration demand side economic issues. These theories, most notably, those of Walras and equilibrium seeking, price driven models, stood as a contrast to radical takes on classical economic systems of production. For example, economists could rely in a Walsrasian analysis of the economy as it took production of the equation, and thus castrated Marxist analysis.

Marginal production theory was another transition that occurred in the late 19th century. This theory brought together all of the factors of the production process and produced relative production curves (in contrast to utility curves) to demonstrate the relative productive capabilities of different allotments of factors of production in an economy to overall production.

From here on, there have been many different foci of economic theory, though Pasenetti argues that the focus on scarcity should be less heavily emphasized because there has been a structural change in productive capabilities.