Fritz Machlup, “Disputes, Paradoxes, and Dilemmas Concerning Economic Development” (1957)

Machlup’s essay is a conceptual map of development economics at mid-century. Rather than treating “economic development” as a single measurable object, he separates disputes about definitions, values, policy advice, and theory. His central claim is that many controversies arise because economists and policymakers use the same terms for different situations: unused resources, mass poverty, population pressure, rising national income, rising income per head, or improved welfare for the majority.

The opening section shows how unstable the phrase “underdeveloped economy” can be. A country may be poor without having promising unused resources, or rich while still possessing large undeveloped opportunities. Machlup’s irony captures the paradox:

How splendid to be rich and yet underdeveloped!

He then tests possible measures of development—total income, income per head, output per worker, consumption, and mass living standards—and shows that each can yield anomalous results. Oil profits, elite accumulation, hoarding, migration, or demographic change may improve one index while worsening another. His provisional emphasis falls on sustained growth of national income per head, but he refuses to let any definition become final:

Probably no definition can avoid paradoxical applications.

The second major movement shifts from measurement to social purpose. Disagreements over development may really be disagreements over whether the desired end is higher per capita welfare, national power, population increase, equality, rapid accumulation, democracy, socialism, racial hierarchy, primitivism, or economic nationalism. Machlup insists that these ends cannot all be reduced to national-income accounting. Political and cultural preferences may be real objectives even when they lower measured output:

The psychic incomes from living under a particular kind of social or political system cannot be estimated in the same terms as the national product.

This produces one of the essay’s strongest warnings: economists must distinguish ends from instruments. Full employment, import controls, exchange-rate rigidity, industrialization, or “economic independence” may be justified as means to growth, yet they often harden into doctrines valued for their own sake. Machlup’s concern is not merely semantic but practical: once policy instruments are treated as ultimate goods, evidence about their consequences loses force.

The third section surveys rival recommendations made in the name of development. Advisers may favor agriculture, cottage industry, large-scale industrialization, social overhead capital, export expansion, import substitution, light industry, heavy industry, high wages, low wages, foreign capital, or restrictions on foreign capital. Machlup does not simply choose among them; he reconstructs the assumptions that make each recommendation plausible. The dispute over labor-saving techniques is especially revealing because it reverses the expected rule that labor-abundant countries should economize on capital:

The recommendation of labor-saving, capital-using investments in countries with abundant labor and scarce capital is a genuine paradox.

The theoretical section identifies the doctrines behind these policy claims: autarky, infant-industry protection, external economies, divergences between private and social cost, balanced growth, terms-of-trade strategy, reinvestment effects, employment creation, wage theory, and population dynamics. Machlup concedes that private profitability may fail as a guide in special circumstances, but he repeatedly asks what exception to comparative advantage is actually being invoked and whether it can be disciplined. Balanced growth, for example, may describe a coordination problem, but it becomes suspect when it serves as a rationale for generalized self-sufficiency.

The essay closes without pretending to solve development economics. Technological progress, technical assistance, and adaptation of existing knowledge remain crucial, and central planning appears as an unresolved institutional question. Machlup’s enduring contribution is to show that development debates combine empirical diagnosis, welfare ethics, distributional preference, intertemporal sacrifice, and theoretical commitment. What looks like one argument about growth is often several arguments at once.