The New Growth Theory

12 July 2006 at 8:07 am Nicolai Foss 1 comment

| Nicolai Foss |

I am reading David Warsh’s Knowledge and the Wealth of Nations: A Story of Economic Discovery. Although the book contains little that will be new to those with some knowledge of the history of economics and recent growth theory, it is worth reading because it is beautifully written, contains some juicy gossip, and has a clear storyline. In other words, excellent Summer reading.

A notable feature of the book is portraying the development of new growth theory as a remarkable instance of scientific discovery. Eight years ago, I published a paper in the Journal of Economic Methodology, “The New Growth Theory: Some Intellectual Growth Accounting” (here is an earlier paper version) that took issue with this claim. My argument was that the NGT was successful for purely heuristic reasons. The argument may have been over the top, or the NGT may have changed since 1998. Anyway, here is the abstract:

This paper discusses the reasons for the success of the New Growth Theory. Given that the NGT does not appear to say much new about empirical reality, that its essential ideas have been known for a long time, and that it does not really make contact with a large literature on institutions and economic change, its strong success may arguably be seen as surprising. Or, at least, its success may appear peculiar to Lakatosian methodologists, and others who emphasize notions such as “novel facts”. The reason for the success of the NGT is argued to lie in its constituting a case of strong heuristic progress: it brought growth through knowledge accumulation within the confines of neoclassical economics, and thus demonstrated the continued viability of this research tradition.

Entry filed under: - Foss -, Methods/Methodology/Theory of Science, Papers.

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1 Comment Add your own

1. MikeKP | 12 July 2006 at 9:19 pm

I agree that Knowledge and the Wealth of Nations is a great book. I thought it could have used a little more editing in parts, but overall a good story of the development of the new growth theory.

Warsh’s story does privelege the high-math form of economics over more interpretive forms (but so does academic economics itself), which probably explains why Warsh interprets the NGT success in terms of finding the right form of model. From the high-math econ perspective, “scientific discovery” doesn’t happen until you can systematic your finding in acceptable forms. All that earlier stuff — Adam Smith, Schumpeter, yada yada — was just economic description but not scientific discovery.

You and I may find that view of science to be somewhat narrow, but that’s the profession.