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sounds as if it must surely include a key role for economies of scale; but I have been unable to find a
single reference to their role even an indirect one in his work. Indeed, when he offers an example of the
process of circular causation, the external economies occur via the tax rate rather than any private
market spillover.
So it may be giving too much credit to our intellectual forerunners to think of 1950s development
theory as involving a general appreciation of the way in which economies of scale at the individual
plant level can aggregate to strategic complementarity at the economy level. But at least some theorists
seem to have understood the point quite clearly.
Factor Supply
Probably the most famous paper in all of development economics is Arthur Lewis's "Economic
Development with Unlimited Supplies of Labor" (1954). In retrospect, it is hard to see exactly why.
One interpretation of Lewis's argument is that the shadow price of labor drawn from the agricultural
sector in developing countries is zero or at least low, so that the social return to investment in industry
exceeds its private return. It was pretty obvious even early on, however, that this was a fragile basis on
which to justify protection and promotion of industry.
Why then was Lewis so influential? The key reason, I would argue, was that the surplus labor story,
unlike many other development stories emerging at the time, could be formalized relatively easily; so it
gave economists a way to follow the mainstream's increasing emphasis on rigor and formalism while
continuing to do development. But it was also true that even though Lewis himself made no reference
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