The State of Economics

models have helped to direct policies towards the typical included variables, thereby diverting attention from other significant influences. When these models serve as basis for policy (which they often do whatever the intention of those who construct them) the model-builders often act as terribles simplificateurs. The projections and policies based on their constructs assume that the social and political determinants of longterm development will not change or at any rate will remain unaffected by the policies. These models usually consider investment expenditure, the supply of capital goods and the volume of imports among the most significant determinants of development. Measures designed to operate on these factors often greatly affect political and social institutions and administrative behaviour, the direction of people's energies and resources and other excluded factors. The recognition and appreciation of such interactions is indispensable for an assessment of the likely outcome of different policies, especially wider policies, such as the restriction of consumption to finance public investment or to conserve foreign exchange. And it is pertinent also to the choice of instruments for these purposes, for example, the choice between taxes, specific controls or changes in the exchange rate. In assessing the case either for these overall policies, or for one instrument in preference to one of the others, it is necessary to go beyond changes in the familiar variables and consider the probable repercussions on the political climate, on administrative and business conduct, on social and personal attitudes, on occupational and geographical mobility, and on the spread of new ideas, techniques and products. For instance, attempts to restrict imports of consumer goods by specific controls are likely to confer windfall profits on recipients of licenses which are often tantamount to cash gifts and on this ground more likely to exacerbate political tension (especially in multiracial societies), than a corresponding reduction of imports by tariffs. Formal growth models offer no guidance at all on the choice between instruments the repercussions of which differ so greatly. It is not necessarily valid criticism either of economic analysis or of theoretical growth models that the variables whose interrelations they study exclude major determinants of economic situations and sequences and especially of the determinants of long-run material progress. But it is misleading and reprehensible to pretend otherwise. Is Ignorance of the cause of cancer is no reason for not exposing a quack. 10 THE JOURNAL OF LAW AND ECONOMICS It is perhaps debatable how far exponents of formal growth models recognise the practical limitations of their constructs or how far they have influenced policy, whether for good or bad. These models are certainly widely regarded as helpful for the framing of economic policy, especially development policy, and their exponents have held and hold influential positions as advisers to governments and to the major international organi-