3
significantly, English classical economists tended from the late 18
th
Century on to concentrate
their analysis on the last stage of evolution, on commerce – on supply and demand and on
[179]
prices – rather than on production. During the 19
th
Century, German and US economists insisted
on a very different interpretation of the development stages. To them the previous stages were all
built on ways of producing goods, and they saw it as a grave mistake to classify the next stage of
development in terms of commerce rather than in terms of production. This theoretical difference
of opinion essentially laid the foundation for how 19
th
Century German and US economic policy
came to differ from that prescribed by English theory:
English Stage Theories (18
th
Cent.)
German/US Stage Theories (19
th
Century)
(Adam Smith)
(Friedrich List/Richard Ely)
1.
Age of Hunters
1. Age of Hunting
2.
Age of Shepherds
2. Age of Pasturage
3.
Age of Agriculture
3. Age of Agriculture
4.
Age of Commerce
4. Age of Agriculture and Manufacturing
This kind of stage theories is useful also in order to understand the important issues of popu-
lation and sustainable development. The pre-Columbian population of North America – consist-
ing essentially of hunters and gatherers – has been estimated at 1-2 million people, whereas the
pre-Columbian population of the Andes, having reached the agricultural stage, has been calcu-
lated at 12 Million. This gives a population density 30-60 times higher in the apparently inhospi-
table Andes than on the fertile prairies. The concept of sustainability is not very meaningful until
the technology variable is introduced.
Because the focus of analysis was to be trade and commerce, and not production, English and,
later, neo-classical economic theory slowly came to see all economic activities as being qualita-
tively alike. Theories of production which were later added into this Anglo-Saxon tradition of
economics – today’s standard theory – essentially came to regard production as a process of add-
ing capital to labour in a rather mechanical way, similar to that of adding water to genetically
identical plants growing under identical conditions. In this theoretical
[180] tradition no consid-
erations are made as to how the availability of technology varies the potential which different
activities – at any point in time – present in terms of adding capital to labour in a potentially
profitable way. The standard economics tradition also came to disregard completely the ‘soil’ in
which the process of adding water to the plant (capital to labour) took place, i.e. the historical,
political and institutional context of the process of development. Standard economic theory con-
siders neither the obvious focusing of technical change at any point in time, nor the extreme
variation in ‘windows of opportunity’ between different economic activities which is the result
of this focusing effect, nor the context in which this process takes place. In our view this blind
spot of conventional economic theory is a major cause of our failure to come to grips with the
extremely inequitable distribution of income on a world scale.
Classical, neo-classical and today’s standard economics all stand in sharp contrast to the
German/US tradition – which lasted until and including the theories of Simon Kuznets (1901-
1985) – in which economic growth is seen as activity specific, i.e. the potential to create wealth
varies enormously between economic activities. In this setting, stage theories serve as a focusing
devise which singles out the area of human activity where learning was focused at any point in
time, pointing at where the frontier of human learning is located.
4
In 1949 Paul Samuelson – using the standard assumptions of neoclassical economic theory –
showed that international trade would lead to an equalisation of wages all over the world (factor-
prize equalisation). In the alternative German/US production-based tradition, the equalisation of
wages between a society solely specialised in herding animals – in pasturage – trading with one
specialised in advanced industrial production is an absurd proposition. Because the core of its
theory was based on barter rather than production, neo-classical economics created a
Harmo-
nielehre, where free trade automatically creates the equalisation of wages throughout the world
economy, regardless of the economic activity in which the nation specialises. In our opinion it is
difficult to overestimate the fundamental importance of the late 17
th
Century schism in economic
theory which was created by the two different interpretations of the next stage in Man’s evolu-
tion. Whether one saw this next stage as the Age
[181] of Commerce — thus creating barter-
based theory – or as the Age of Agriculture and Manufacturing — creating a production-based
theory -result in completely different Weltanschauungen and in completely different ideas on
what causes economic development and welfare.
Francis Bacon was essentially right: the choice of profession still determines the way of life
more than do geography, climate, race or religion. A Tanzanian agricultural economist residing
in Norway recently told me that he found many similarities between Tanzanian tribes who base
their subsistence on herding animals and Norwegian Lapps whose subsistence base is herding
reindeer. A stockbroker in Lima, Peru will have a lifestyle that has much more in common with
a stockbroker in New York than with a Peruvian who makes his living cutting sugar cane. This
activity-specific aspect of economic life has, however, been completely lost in today’s economic
theory. Today’s world economic order essentially functions on the assumption that in a world of
free trade, a nation of cane cutters will be as wealthy as a nation of stockbrokers. As already in-
dicated, we feel that the loss of Bacon’s insight accounts for our inability to understand the un-
equal distribution of wealth on a world scale. In other words, our incomplete understanding of
production is at the core of our inability to understand income inequalities.
Stage theories are ‘ideal types’ in a Weberian sense. In Kaldor’s terminology each stage
would constitute a cluster of ‘stylised facts’ about one particular type of society. Fixed points of
transition between stages are, of course, not easily established. Points of transition between
childhood, adult life and old age are equally difficult to establish, but few would argue that this
problem makes ‘childhood’ and ‘old age’ useless concepts. Stage theories are not iron laws, and
there are no automatic mechanisms that carry nations from one stage to the next. During the 19
th
and early 20
th
century both conservatives and Marxists saw the spread of industrial society
across the globe as an inevitable process. The last 50 years have taught us otherwise. Not only is
there no automatic upgrading and promotion in the system, the possibilities of being down-
graded, of ‘falling behind’, are definitely present. There are also instances when the historical
sequence is different: before having tamed animals, American Indian women of some tribes
were growing a few plants of corn around their dwell-
[182]ings. Keeping all the limitations of
stage theories in mind, they constitute an instrument which deserves being put back into the tool-
shed of economic theory.
Understanding the qualitative differences between economic stages – the relationship between
technology and wealth – is a prerequisite for understanding, designing and implementing appro-
priate institutions and mechanisms for income distribution in a society. This point is emphasised
by Schumpeter, who sees stage theories as ‘a simple explanatory device for impressing upon be-
ginners (or the public) the lesson that economic policy has to do with changing economic struc-