Central to the definition of “stagnation,” in economics, is a situation in which total output (or output per capita) is constant, falling slightly, or rising only sluggishly, or a situation in which unemployment is chronic and growing. Such conditions may exist in particular industries, in wider sectors of an economy, or in the economy as a whole. Only the last of these will be treated here.
Economists have analyzed the occurrence of stagnation in the following widely different circumstances;
(1) Stagnation during certain stages of the business cycle in industrial economies. This type of stagnation is temporary, for it marks a transition in the cyclical process. Its description and explanation are thus part of the general theory of business cycles and will not be discussed here [see Business Cycles].
(2) Stagnation in the advanced stages of economic growth. This is a more permanent stagnation. It plays an important role in the classical analysis of economic maturity marked by the advent of the “stationary state” and in the Keynesian analysis of the “secular stagnation” of an advanced capitalist economy.
(3) Stagnation in poor, underdeveloped countries. Here stagnation may persist because the economy is dominated by unchanging traditional patterns of economic and social life, which have remained untouched by outside forces and in which there is no incentive to change. Or it may persist if the economy is in the grip of certain types of “vicious circles” that defeat all efforts to advance and that hold the economy in a state of “static equilibrium” at low levels of income. This type of stagnation is analyzed in the theories of the economic development of poor countries.
(4) Stagnation in economies facing difficulties in adapting to changed external circumstances, suffering from the aftermath of severe shocks such as wars and plagues, from gross maladministration of economic affairs, or from political instability. This type of stagnation is discussed more by economic historians than by economists.
(5) Stagnation of economies that seem to be suffering an inexplicable decline in enterprise and “vigor.” The last two types of stagnation, unlike the first three, are not due to inherent characteristics of the economic system but are the consequence of external changes or internal decline, which may have occurred for either economic or non-economic reasons, or both.
A rigorous exposition of persistent and prolonged stagnation as it appears in the classical stationary state, in the Keynesian theory of underemployment equilibrium, or in the theories of economic development cannot be presented in the space available here. Consequently, we shall confine ourselves to a discussion of the general nature of the problem as it appears in these various contexts, together with a brief reference to the treatment of the subject by economic historians.
Stagnation in classical theory . The classical economists were particularly interested in the question of economic progress, but that growth could continue forever seemed inconceivable to them. For one reason or another progress would have to cease at some point, and in a fully mature economy, population and capital accumulation would both become stagnant, with wages at a subsistence level and profits at a minimum. For these economists the “stationary state” was not just an analytical tool, as it was later for Alfred Marshall, but a condition that would eventually be reached in historical time. Thus, to understand fully their conceptions of the causes of stagnation, the reader should examine their theories of economic growth [see Economic Growth, article on Theory; and the biographies Of Malthus; Ricardo; Smith, Adam].
For Adam Smith, capital accumulation, on which progress depended, both promoted and was promoted by a progressive division of labor; but a country’s resources, climate, and location set limits to the amount of capital it could absorb even under the most favorable conditions. Hence, continued accumulation would eventually drive down the rate of profit to a point at which net investment became zero and the economy stagnated because resources permitted no further advance. Yet Smith regarded such a state as far in the future. He was more concerned with the imminent checks to progress arising from political and legal institutions inimical to risk bearing and to individual initiative, from the perverse effects of monopolistic organization, and from the stultifying consequences of government intervention in commerce and international trade, for these could lead to stagnation long before the full potentialities of the economy had been realized. Thus, Smith found eighteenth-century China a country of considerable wealth but stagnating because her laws and institutions did not permit full use of her resources. He considered neglect of foreign commerce and industry a particularly important cause of China’s arrested growth, since it limited the extent to which division of labor could be carried out.
The stagnation of the “stationary state” that Ricardo envisaged was au fond the result of diminishing returns to labor applied to land. As population increased in response to an increased output made possible by increased investment, the demand for food would rise; but more food could be produced only at increasing cost, because less fertile land would have to be brought under cultivation and existing land used more intensively. This would raise the price of food, and a progressively larger share of the increment in output would have to be paid out in wages, thus driving down the rate of profit and reducing the incentive to accumulate, on which continuing progress depended. Eventually, capital accumulation would cease, and the economy would stagnate: it would have reached the “stationary state.”
Nevertheless, according to Ricardo, technological advance could stave off stagnation for a long time, and an individual country could continue to progress “for ages,” since the relevant condition, given free trade, was the ability of the whole world to produce foodstuffs. And even if stagnation did occur, a reasonable standard of living might still be possible, since the subsistence wage that would prevail would be in part culturally determined. If workers insisted on a high standard of living and were willing to restrict their numbers, the subsistence wage might be considerably above the physiological minimum. In spite of these elements of optimism, however, Ricardo was (unjustifiably) labeled a “pessimist”; and economics was called by Carlyle the “dismal science.”
Although the Malthusian image of the stationary state was much the same as that of Ricardo, Malthus took issue with Ricardo on a number of significant questions. In particular, he greatly emphasized the importance of the demand for commodities in maintaining the profitable employment of capital and labor, arguing that a deficiency of demand could lead to stagnation in which both capital and labor were redundant relative to the opportunities for employing them profitably. Here he clearly foreshadowed some aspects of modern Keynesian theory, even though he did not quite get to the heart of the matter. Moreover, in the exposition of his argument Malthus came close to some of the fundamental notions in the modern theories of so-called “balanced growth” when he discussed the importance of a supply of commodities consistent with the “structure and habits of society” ( 1964, book 2, chapter 1, section 3).
Malthus analyzed at length the conditions in what today would be called the underdeveloped countries, illustrating his arguments by reference to Ireland and Spanish America. There he found that the grossly unequal distribution of income and wealth, especially of land, and the absence of adequate foreign markets for raw materials disastrously reduced both the peasant’s incentive to produce and the landlord’s incentive to invest. Consistent with his general sociological views about the nature of man, he stressed the “indolence” of laborers. But he was well aware that much of the apparent indolence might be accounted for by the fact that there was little for laborers to do in the “actual state of things,” and by the absence of the stimulus to work and to consumption that a brisk demand for labor might provide. He pointed out that where such demand existed, as in the vicinity of a “new mine,” for example, the demand for labor and produce together induced a rapid increase in cultivation. Lack of demand and ignorance and indolence, promoted by inequality of property and deficiency of commerce in landlord and peasant alike, and not capital deficiency, he warned, made it likely that “. . . Spanish America may remain for ages thinly peopled and poor, compared with her natural resources” (ibid., section 4, p. 343). It would follow that to overcome this type of stagnation the appropriate policies would be to promote land reform, to extend the export market for raw materials and improve the terms on which they could be sold, to provide the appropriate incentives (consumer goods?) to overcome the “indolence” of workers, and to overcome “ignorance” through education and “technical assistance.” Malthus is famous for his population theory, but it is clear that he anticipated much twentieth-century thought in his analysis of the causes of stagnation and in the means of curing it implicit in that analysis.
Keynesian stagnation . Another version of the stagnation of a mature capitalist economy appeared in the late 1930s, with the Keynesian analysis of the relation, as a country grows in wealth, between the strength of the propensity to save and the inducement to invest. According to this analysis, as capital accumulation proceeds, the return to investors can be expected to fall, leading to a level of investment insufficient to absorb the desired saving of the economy at full employment. As a result, the equilibrium level of national income may be consistent with extensive unemployment. Alvin H. Hansen (1938; 1939), a leading Keynesian “stagnationist,” developed this analysis with respect to the historical evolution of capitalism in the United States. He attempted to show how reduced opportunities for investment, coupled with an increased propensity to save, had created a growing gap between actual and potential national output. He thought that as trade cycle succeeded trade cycle, the troughs would become deeper and the booms weaker, with a growing core of unemployment. This process he called “secular stagnation,” and he thought it characteristic of “mature economies,” especially when there was also a decline in the rate of increase of population. [See the biographies of Hansenand Keynes, John Maynard.]
In both Keynesian and classical theory, stagnation resulted from a decline in the inducements to invest. In the former, however, stagnation took the form of unemployment and loss of potential output, while in the latter, it appeared in the form of a cessation of saving as well as of investment, with full employment at “subsistence” wage levels.
The secular stagnation theory, coming as it did during the great depression of the 1930s and casting doubt on the efficiency of unsupervised capitalism—which events had already brought under suspicion—aroused great controversy, and a number of writers set out to refute in detail Hansen’s evidence for the alleged decline of investment opportunities in the United States. The controversy died shortly after the end of World War n, partly because events did not appear to support the thesis that investment opportunities were drying up and partly because the monetary and fiscal policies that the Keynesians advocated, as well as the task of “maintaining full employment,” had become widely accepted by governments.
Stagnation in poor countries . Interest in stagnation due to full development or “maturity” was replaced after World War n by interest in the problems of the stagnating economies of poor countries; for all but a tiny minority of the peoples of the world, static or only sluggishly rising incomes have long seemed more “normal” than significant growth. Most of the literature on the development of the poor countries contains explicitly or by implication some theory of stagnation—that is, an explanation of why per capita incomes have for such a long time failed to increase significantly. Two broad types of explanation have been offered. One views stagnation in terms of the circular “static equilibrium” of societies bound by a traditional culture. The other attempts to discover why societies where considerable change has taken place and which have in fact experienced substantial periods of growth often fail to maintain the impetus, tending either to fall back to low levels of per capita income or to advance only apathetically.
Lack of incentive to invest. If one accepts the notion that the growth of an economy in the long run is characterized by an S-shaped curve, the stagnation of the traditional society can be regarded as the counterpart, at the bottom of the curve, of the stagnation of maturity at the top. Both types of stagnation occur because of the lack of incentive to further capital investment.
The absence of significant net investment in traditional societies is attributed by many to the absence of any notion of productive accumulation, or even of progress, and to acceptance of values and institutions which are inimical to innovation. Unchanging technology is held to be, almost by definition, a characteristic of “traditional” stagnation. As a result, economic life continues year after year in a repeating pattern, with no underlying tendency for output to increase appreciably. Some economists, however, have held that the presence of certain economic conditions, such as markets too small to permit the use of more productive technology, incomes too low to permit saving, and inadequate means of transport or sources of power, are sufficient explanations of the failure of an economy to grow.
Failure to maintain growth. Very few countries have such a rigid traditional structure that significant change has never taken place, and in many of them there have been periods in which considerable increases in income have occurred; yet such periods often have not led to sustained economic advance. Explanations of the type of stagnation in which potential economic growth is constantly aborted emphasize certain types of circular causation. Among the chief characteristics of a backward economy, according to many (e.g., Leibenstein 1957), is not only stagnating per capita income but also a tendency, when equilibrium is disturbed, for any forces that increase income to call forth even stronger forces that will again depress it. The relation between increases in income and in population, where technology is relatively primitive and arable land is not easily extended, is held to be one of the more important examples of this type of cause of stagnation. If, with an increase in income, no surplus for investment becomes available because of increased consumption as the population increases, then periods of rising per capita income may well be only temporary. This kind of problem, which was also at the center of classical analysis, is aggravated by advances in medicine and public health which permit the population to grow independently of economic conditions.
A large number of characteristics of poor economies which are inimical to growth have been discussed in the literature, but many of them are merely descriptions of the accompaniments of poverty: ignorance and superstition, low standards of education, disease, inability to save, apathy, etc. There is no doubt that material and technical backwardness of the mass of the people makes the elimination of poverty extremely difficult, particularly when political institutions and the attitudes of the wealthier classes do not favor productive enterprise. But a major objection to all of the theories which insist on the closed and unbreakable nature of “vicious circles” arises from the fact that a number of countries whose conditions would seem to fit the requirements of such theories have in fact been able to break out largely by their own efforts. It should be noted, however, that many of these countries had unusually favorable opportunities for international trade.
Stagnation following external shocks or severe decline . In addition to the stagnation discussed in economic theory and the apparent stagnation of traditional and primitive societies described primarily by anthropologists, there are periods of stagnation in more advanced economies which historians have explained in various ways.
An excellent modern discussion of an economic stagnation which can be traced largely to the difficulties of adjusting to radically changed external conditions can be found in Svennilson’s analysis of the European economy between the World Wars (1954). Some of the major heavy industries in the large industrial countries of Europe found themselves ill-equipped to meet postwar circumstances. Stagnation in these industries spread to other sectors of the European economy, giving rise to very slow rates of growth for a number of countries, with severe consequences not only for international trade but for intra-European trade as well. This, in turn, intensified the problems of adjustment. It is clear that stagnation in advanced countries, like poverty in backward countries, often creates economic and, perhaps even more important, political and social conditions which are antagonistic to the very changes required to overcome it. A variety of circular economic, political, and social causal relationships give rise to cumulative movements in which tendencies to stagnation or decline reinforce each other, particularly after an economy has suffered a shock or when adaptation to changed external conditions requires substantial alterations in the existing economic structure.
Many of the notorious examples of stagnation in history have been explained primarily as the consequences of conditions and events which brought about a preceding decline. For our purposes we must distinguish between the causes of decline and the reasons for the subsequent stagnation. Since wars, internal political fissions, and general breakdown of law and order have often been engendered by decline brought on by other causes, the resulting inability of the economy to recover quickly has been explained with reference to the damage caused by such prior events. Many great empires and civilizations of the past seem to have suffered before their final “collapse” long periods in which agriculture, industry, and trade were stagnant. Among the more prominent explanations advanced by historians have been the excessive luxury of courts, the corruption of the ruling classes, and the growth of a despotic, extortionate, and expensive bureaucracy, all of which led to financial disorder and particularly to disastrously heavy taxation of agriculture, which destroyed the foundations of the rural economy. The income taken from agriculture was not used productively, but in ostentatious consumption.
Thus taxation and the unproductive consumption of the ruling classes were apparently important causes of the stagnation of the agriculture and industry of Athens in the fourth century B.C., where decline was hastened also by the loss of export markets. The break-up of the Islamic empire after the eighth century and the stagnation of many of its constituent parts were also associated with oppressive taxation of agriculture, unheeding luxury expenditure, and corruption and mismanagement of rulers. In Iraq, for example, the economy had been stagnating long before the Mongol invaders arrived in the thirteenth century and sacked Baghdad. The neglect and final destruction of the irrigation system on which the area depended resulted in a long period of stagnation. Later, in the eighteenth century, the Ottoman Empire was in a state of economic anarchy also largely because of the decayed and degenerate state of government. Neither the ruling class, nor the military, nor the intellectuals were concerned about economic conditions, especially the state of agriculture; and oppression of the rural population, general misrule, and bureaucratic corruption were prevalent. Similar conditions have a central place in the historians’ descriptions of the closing periods of the Roman Empire, the Byzantine Empire, and even of the stagnation in Spain after the sixteenth century.
Some scholars have attempted sweeping theories to explain the decline and stagnation of particular types of societies. The great fourteenth-century Arab historian and philosopher, Ibn Khaldün (1375-1382), postulated, with many illustrations, an inevitable decline of “group feeling” in empires in full maturity, and also the rise of luxurious habits of rulers and a growing “tameness” among the people as characterizing the “senility” of the society. Schumpeter, considering modern capitalism, also noted a tendency to self-destruction “which, in its earlier stages, may well assert itself in the form of a tendency toward retardation of progress” (1942, p. 162). And Toynbee (1934-1939) explained why some civilizations suffer “arrest” and enter periods of “petrifaction.”
As is to be expected, any attempt to isolate specific “causes” for historical events is fraught with serious difficulties. Simple economic “models” do not attempt to deal with those sociological and political aspects of stagnation that are as important as, if not more important than, the economic aspects. Economists may fruitfully try to explain in economic terms why an economy may stagnate in the modern world, and they have come up with some useful relationships which can be used in the formulation of economic policies. But stagnation sets in for different reasons in different circumstances, and all explanations, including the so-called economic ones, rest, in the last analysis, on as yet unexplained characteristics of human psychology and sociology: attitudes toward procreation, “propensities” to save and invest, aptitudes for innovating “enterprise,” religious values or superstitions, and apathetic acceptance of the apparently inevitable. To explain the sufficient conditions for stagnation is also to explain the necessary conditions for sustained progress; and this has not yet been achieved.
[See alsoEconomic Growth
Cipolla, Carlo M. 1952 The Decline of Italy: The Case of a Fully Matured Economy. Economic History Review Second Series 5:178-187.
Hammond, Mason 1946 Economic Stagnation in the Early Roman Empire: The Tasks of Economic History. Journal of Economic History 6 (Supplement):63-90.
Hansen, Alvin H. 1938 Full Recovery or Stagnation? New York: Norton.
Hansen, Alvin H. (1939)1944 Economic Progress and Declining Population Growth. Pages 366-384 in American Economic Association, Readings in Business Cycle Theory. Philadelphia: Blakiston. → First published in Volume 29 of the American Economic Review. Expounds the theory of secular stagnation.
Higgins, Benjamin 1959 Economic Development: Problems, Principles and Policies. New York: Norton. → A useful discussion of the classical and modern theories of stagnation, together with bibliographical references, may be found in chapters 3, 5, and 7 and Part 4.
Ibn KhaldÜn (1375-1382)1958 The Muqaddimah: An Introduction to History. 3 vols. Translated from the Arabic by Franz Rosenthal. New York: Pantheon. → See especially Volume 1, Chapter 3, sections 10-13.
Leibenstein, Harvey (1957) 1963 Economic Backwardness and Economic Growth: Studies in the Theory of Economic Development. New York: Wiley.
Malthus, Thomas Robert (1820) 1964 Principles of Political Economy Considered With a View to Their Practical Application. 2d ed. New York: Kelley. → A reprint of the 1836 edition. See especially Book 2 on the progress of wealth.
Mill, John Stuart (1848) 1965 Principles of Political Economy, With Some of Their Applications to Social Philosophy. Edited by J. M. Robson. 2 vols. Collected Works, Vols. 2-3. Univ. of Toronto Press. → See especially Book 4, Chapter 6, “Of the Stationary State.”
MossÉ, Claude 1962 La fin de la démocratie athénienne: Aspects sociaux et politiques du déclin de la cité grecque au Ive siécle avant J.-C. Paris: Presses Universitaires de France.
Ricardo, David (1817) 1951 Works and Correspondence. Volume 1: On the Principles of Political Economy and Taxation. Cambridge Univ. Press. → See especially Chapter 2, “On Rent”; Chapter 5, “On Wages”; and Chapter 6, “On Profits.” See also Chapter 19, “On Sudden Changes in the Channels of Trade.” A paperback edition of this volume was published in 1963 by Irwin.
Schumpeter, Joseph A. (1942) 1950 Capitalism, Socialism, and Democracy. 3d ed. New York: Harper; London: Allen & Unwin. → A paperback edition was published by Harper in 1962.
Smith, Adam (1776) 1950 An Inquiry Into the Nature and Causes of the Wealth of Nations. Edited by Edwin Cannan. 6th ed. 2 vols. London: Methuen. → For the effects on employment of a stationary state, see Book 1, Chapter 8, “On the Wages of Labour.” See also Book 3, “Of the Different Progress of Opulence in Different Nations,” and Book 4, “Of Systems of Political Economy.” A paperback edition was published in 1963 by Irwin.
Svennilson, Ingvar 1954 Growth and Stagnation in the European Economy. Geneva: United Nations, Economic Commission for Europe.
Toynbee, Arnold J. (1934-1939) 1947 A Study of History. Abridgment of Vols. 1-6 by D. C. Somervell. Issued under the auspices of the Royal Institute of International Affairs. Oxford Univ. Press.
"Stagnation." International Encyclopedia of the Social Sciences. . Encyclopedia.com. (October 17, 2018). http://www.encyclopedia.com/social-sciences/applied-and-social-sciences-magazines/stagnation-0
"Stagnation." International Encyclopedia of the Social Sciences. . Retrieved October 17, 2018 from Encyclopedia.com: http://www.encyclopedia.com/social-sciences/applied-and-social-sciences-magazines/stagnation-0
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Stagnation is a condition of an economy in which its rate of total output, or per capita output growth, is at—or close to—zero for a relatively long period of time. (Sometimes the term is applied to particular sectors, but in this entry it refers to the entire economy.) Stagnation is sometimes characterized by high rates of unemployment. It can be distinguished from other terms such as recession or depression, which usually refer to periods of low or even negative rates of growth but which are relatively shortlived phases of the business cycle. If stagnation is accompanied by high inflation, the phenomenon is called stagflation (although this may sometimes merely be a phase of the business cycle). The term stagnation is used both for economically advanced countries that have experienced growth in the past and have a high level of per capita income and for less-developed countries that have failed to grow.
The analysis of stagnation in this economic sense, as well as in broader terms, has a long history. The fourteenth-century Arab scholar Ibn Khaldun discussed the tendency of empires and societies to stagnate due to the erosion of solidarity and the spread of habits of luxury among rulers. In the twentieth century, this broad view about the rise and inevitable decline of civilizations was pursued by German philosopher Oswald Spengler (1880–1936), who analyzed stagnation in terms of factors like the domination of politics by the power of money and the concentration of populations in “barrack-cities” that turn people into mobs susceptible to demagoguery. This view was also explored by historian Arnold Toynbee (1889–1975), who examined how mature civilizations, due to the “intractability of institutions,” for instance, are unable to respond appropriately to challenges and therefore suffer stagnation. Heavy tax burdens and the corruption and excessive luxury of the ruling classes have often been highlighted in historical studies of stagnation. Stagnation in precapitalist countries was attributed by Adam Smith (1723–1790) to inadequate laws and institutions and to the neglect of foreign trade. Broad analyses of the problems of less-developed countries explain stagnation in terms of political and social factors. For instance, those enjoying political power and doing well outside of the economy are argued to be unwilling to makes changes to institutions and policies that are likely to worsen their own positions.
In more narrowly economic terms, stagnation in advanced economies has been explained both in terms of supply-side and demand-side factors. Factors on the supply side were stressed in the classical theory of the stationary state. In David Ricardo’s (1772–1823) analysis of the growth process, as more capital is accumulated and more workers are hired, the demand for food to be consumed by workers increases, which drives agricultural production onto increasingly less fertile land, increasing the competition for land, driving up land rent, and reducing the profits out of which capital is accumulated, which eventually brings capital accumulation to a halt. While Ricardo may have underestimated the extent to which diminishing returns to agriculture can be offset by technological improvements, the main reason for his stationary state—that is, diminishing returns—continues to be stressed. In Robert M. Solow’s 1956 model, for instance, as capital is accumulated, diminishing returns to capital set in to make saving and investment sufficient only to keep the capital-labor ratio constant, which implies a constant level of per capita income, unless exogenous technological change makes per capita output grow. The assumption of diminishing productivity of capital and other produced inputs has more recently fallen into disfavor, with empirical evidence suggesting that technological change and external economies can defeat the effects of diminishing returns, as usually assumed in new growth theory models. But structural changes increasing the weight of technologically lagging service sectors and environmental constraints remain possible causes of stagnation.
For the demand side, it was argued by John Maynard Keynes (1883–1946) that, in advanced economies, saving as a ratio of output tends to rise with increasing output and income as consumer wants are increasingly satiated, while investment incentives progressively decline with capital accumulation. With lower rates of investment and consumption, aggregate demand declines, and the rate of growth of output slows. These insights were used by Alvin Hansen (1887–1975) to develop a theory of U.S. stagnation in the 1930s due to inadequate aggregate demand. Subsequent events have shown that government aggregate demand policy can rescue economies from deficient aggregate demand and that there seems to be no inherent tendency for satiation in consumption. Nevertheless, governments may be unable or unwilling for political reasons to solve the problem of demand deficiency, and structural changes rather than any inherent tendency for consumption demand to become satiated may continue to make demand factors relevant. Josef Steindl (1912–1993) argued that the rise of monopoly power made possible by increasing industrial concentration tends to increase profit markups, which tends to increase saving in the economy, leading to a reduction in aggregate demand, a decline in capacity utilization, and a consequent decline in investment. Paolo Sylos-Labini (1920–2005) stressed problems created by the growth of oligopoly on the nature and consequences of technological change, which tended to increase profit margins of large firms and reduce aggregate demand.
Explanations of stagnation in less-developed countries sometimes focus on the demand side, for instance, stressing the absence of investment incentives due to the small size of markets and the high levels of uncertainty caused by external and internal shocks, and sometimes the supply side, emphasizing low saving and productivity. Many of the explanations invoke the concept of the vicious circle, according to which low per capita income, through a variety of channels, implies its persistence (see Nurkse 1953; Leibenstein 1957). The plethora of such mechanisms under discussion, in addition to low saving and investment incentives, include: poor nutrition and health and low productivity; low income, absence of collateral, and the inability to borrow and finance economic projects; and poverty, child labor, and low levels of education and human capital accumulation. More recently, vicious circles have been related to poor institutions, governance, corruption, and violence. Low levels of income may make corruption and violence more attractive, leading to poor economic performance. Some approaches examine how increases in per capita income may set off forces that lead to subsequent declines. Examples of such mechanisms include increases in population caused by better living conditions, which reduce per capita income; increases in consumption from very low levels when income increases; and the inability to adopt increasing-returns technologies that require a minimum size of the market (see Azariadis and Stachurski 2005). These mechanisms produce low-level poverty traps: if per capita income is initially below a critical minimum level, the economy will converge to a poverty trap, whereas if the economy happens to attain a level beyond that critical minimum, it sets off into self-sustained growth.
The newer approaches suggest that stagnation is not inevitable for advanced economies, and poor countries can escape from their low-level traps under certain circumstances. However, these approaches also suggest that broader political, social, and institutional factors emphasized in earlier approaches have continued relevance insofar as they interact with more narrowly defined economic factors in explaining stagnation.
SEE ALSO Depression, Economic; Great Depression; Macroeconomics; Macroeconomics, Structuralist; Recession; Stagflation
Azariadis, Costas, and John Stachurski. 2005. Poverty Traps. In Handbook of Economic Growth, Vol. 1A, eds. Philippe Aghion and Steven Durlauf, 295–384. Amsterdam: Elsevier.
Hansen, Alvin. 1938. Full Recovery or Stagnation? New York: Norton.
Leibenstein, Harvey. 1957. Economic Backwardness and Economic Growth: Studies in the Theory of Economic Development. New York: Wiley.
Nurkse, Ragnar. 1953. Problems of Capital Formation in Underdeveloped Countries. Oxford: Oxford University Press.
Ricardo, David.  1962. The Principles of Political Economy and Taxation. Cambridge, U.K.: Cambridge University Press.
Smith, Adam.  1976. An Inquiry into the Nature and Causes of the Wealth of Nations. 2 vols. Oxford: Oxford University Press.
Solow, Robert M. 1956. A Contribution to the Theory of Economic Growth. Quarterly Journal of Economics 70 (1): 65–94.
Spengler, Oswald. 1926–1928. The Decline of the West. Trans. Charles Francis Atkinson. New York: Knopf.
Steindl, Josef. 1952. Maturity and Stagnation in American Capitalism. Oxford: Blackwell.
Sylos-Labini, Paolo. 1962. Oligopoly and Technical Progress. Trans. Elizabeth Henderson. Cambridge, U.K.: Cambridge University Press.
Toynbee, Arnold J. 1934–1961. A Study of History. Oxford: Oxford University Press.
Amitava Krishna Dutt
"Stagnation." International Encyclopedia of the Social Sciences. . Encyclopedia.com. (October 17, 2018). http://www.encyclopedia.com/social-sciences/applied-and-social-sciences-magazines/stagnation
"Stagnation." International Encyclopedia of the Social Sciences. . Retrieved October 17, 2018 from Encyclopedia.com: http://www.encyclopedia.com/social-sciences/applied-and-social-sciences-magazines/stagnation