The Lewis growth model

The first lecture dealt with Engel's law that holds that agricultural output grows more slowly than the economy as a whole because of diminishing returns to and capacity for consumption in food. An important corollary, of great explanatory significance for much economic history, is that as industry and services grow, and if productivity in agriculture grows as well, a supply of labour becomes available in agriculture for transfer to the other sectors. If one adds population growth in agriculture and an excess of workers attached to agriculture, we can readily arrive at the W. Arthur Lewis model of “growth with unlimited supplies of labour”. It has a strong family resemblance to Karl Marx's model of growth that exploits an industrial reserve army. The title of this lecture is perhaps a misnomer, as the iron law of wages of, say, Ricardo or Malthus holds in the longer period than that in which I am interested, when it holds at all, and runs to the effect that wages cannot rise above the subsistence level because if they were to do so, population would expand to bring them down again. The Lewis or the Marxian model of growth with an elastic supply of labour to draw upon is akin to the iron law of wages insofar as it assumes that wages are fixed at some subsistence level, which may in fact rise gradually over time as the concept of the subsistence level of living inches up because of Duesenberry effects, but the emphasis is different.