[connornll]

Hi,

I was wondering if you could discuss Nurkse’s Balanced Growth theory which from my understanding states that a government of an underdeveloped country needs to take tax dollars and invest heavily all across economy to create economic growth. I was wondering if you could possibly give an Austrian counter argument to this.
Also I was wondering if you could also discuss Critical minimum effort theory.

Thanks!

[jmherbener]

As I understand it, Nurske’s theory is if the state of an underdeveloped country takes the wealth of its poor citizens and spends it on capital projects across the economy it will increase productivity which will then expand markets domestically. That way, the underdeveloped country can enjoy economic growth without integrating into the world economy.

His argument defies every sound economic theory about economic growth. Economic growth requires capital accumulation, i.e., saving and investing directed by entrepreneurs into capital projects that produce goods that satisfy people’s preferences. The quickest way for poor people to experience economic growth is to integrate their activities into the already developed world economy. Then they can rely upon the saving, production, and entrepreneurship of other people instead of merely their own.

Take a look at P.T. Bauer’s book, Equality, The Third World, and Economic Delusion and David Osterfeld, Prosperity versus Planning,

[jmherbener]

As I understand it, critical minimum effort theory is a model that has built into to its operation the result that population growth will outweigh capital accumulation per capita unless a certain threshold is met, which underdeveloped countries cannot normally meet.

I’m afraid that CMET, like Malthus’s theory, will prove inaccurate in predicting real economies. There are no constants in the relationships among variables in human action.

[connornll]

Awesome thank you! I thought these might be a little too specific but it seems like you really know your stuff.

Also could you give me a few good suggestions for books on Mainstream Economics? I really enjoy learning Austrian Economics but I’m not an Economics Major, I’m just studying this independently. So I feel in a way that I’m missing out because I’m only learning what the Austrians knows and not what “everyone else” knows. Further more I feel like I could better understand and appreciate Austrian Economics by learning how the Mainstream looks at economics.

[jmherbener]

One approach you might take is to read mainstream works. You could start with a principles level book like Mankiw’s, Principles of Economics. But introductory books tend to gloss over the core of mainstream economics, which is modeling. To get a treatment of that, you have to move to intermediate level works. You might try Snowden and Vane’s book, Modern Macroeconomics.

Another approach is to read critiques of the mainstream paradigm. Take a look at Murray Rothbard’s articles:

http://library.mises.org/books/Murray%20N%20Rothbard/Praxeology%20The%20Methodology%20of%20Austrian%20Economics.pdf

http://mises.org/rothbard/mantle.asp

Ludwig von Mises’s book, Human Action, has sections that critique the mainstream approach.

http://library.mises.org/books/Ludwig%20von%20Mises/Human%20Action.pdf

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