In this provocative work, Gerald Scully develops and empirically tests a theory about how a nation's constitutional setting affects its economic growth. Modern growth theory links the rise in the standard of living to capital formation, both physical and human, and to technological progress, and development economists continue to believe that the transformation of the less developed world cannot occur without massive government control of the economy. Scully, on the other hand, maintains that material advancement is as much affected by the choice of the economic, legal, and political institutions under which people live and work as it is by resource endowment and technological progress. Nothing in the neoclassical theory of growth considers the "rules of the game" under which capital is accumulated and innovation is made. Redressing this neglect, Scully proposes ways of measuring the economic, civil, and political freedom within a society's institutional framework, and he reveals that freedom, or the lack thereof, powerfully and demonstrably influences not only economic progress but also income distribution. Politically open societies grow at nearly three times the rate of those where freedom is more circumscribed, and they also have a more equitable distribution of income. Finally, Scully measures the effect of the size of the state on economic progress, showing that the larger the amount of government expenditures out of gross domestic product, the lower the rate of economic progress.
Originally published in 1992.
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"Scully insists that the 'rules of the game' under which capital accumulates, technology advances, and incomes are distributed, are determined primarily by social, political, and legal institutions.... His statistical data reveal that market-oriented, politically open economies grew almost three times faster, had more equitable distribution of income, and were two and one-half times more efficient in transforming their inputs into national output than their centrally controlled command counterparts."--Choice
Table of Contents:
List of Figures and Tables
Ch. 1 Overview 3
Ch. 2 The Theory of Economic Growth and Economic Policy 13
Ch. 3 The Constitutional Setting and the Gains from Exchange 56
Ch. 4 A Theory of the Evolution of the Constitutional Setting 80
Ch. 5 Measures of Liberty 106
Ch. 6 The Choice of Law and the Extent of Liberty 148
Ch. 7 The Constitutional Setting and Economic Development 166
Ch. 8 The Constitutional Setting and the Distribution of Income 184
Ch. 9 The Economic Effect of the Size of the State 200
Ch. 10 What Is to Be Done? Reform of the Institutional Framework and Economic Policy for Progress 212