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suggest things that you would never think of otherwise. Consider, for example, the case of development
theory.
The Fall and Rise of Development Theory, Again
Let me turn, once again, to the story of high development theory I introduced in the first lecture. By the
late 1950s, as I have argued, high development theory was in a difficult position. Mainstream
economics was moving in the direction of increasingly formal and careful modeling. While this trend
was clearly overdone in many instances, it was an unstoppable and ultimately an appropriate direction
of change. But it was difficult to model high development theory more formally, because of the
problem of dealing with market structure.
The response of some of the most brilliant high development theorists, above all Albert Hirschman, was
simply to opt out of the mainstream. They would build a new development school on suggestive
metaphors, institutional realism, interdisciplinary reasoning, and a relaxed attitude toward internal
consistency. The result was some wonderful writing, some inspiring insights, and (in my view) an
intellectual dead end. High development theory simply faded out. A constant-returns, perfectcompetition
view of reality took over the development literature, and eventually via the World Bank
and other institutions much of real-world development policy as well.
And yet in the end it turned out that mainstream economics eventually did find a place for high
development theory. Like the Norwegians who discovered that the shapes of clouds do mean
something, mainstream economics discovered that as its modeling techniques became more
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