8 - The state and the policy for economic development

Summary

The solider who shields the peasant while he is cultivating his field from the annoyance of the foe performs his part towards the improvement of the land; and the Magistrate, whose duty it is to give security to property after it is acquired, contributes more even than the capitalist himself towards the public prosperity. Let it not be imagined, therefore, that the revenues of a state lose all powers of reproduction from the moment that they pass into the chest of the collector.

Court of Directors to the Government of Bombay 10 January 1810

INTRODUCTION

The Classical theory of economic policy was never wholly averse to state intervention in economic affairs: indeed the state had to play a significant part in bringing about socioeconomic changes, so that rapid economic development was made possible. Whereas James Mill thought that such changes could be rapidly introduced by legislation, the Court of Directors before his arrival at the India Office thought that the process of preparing Indians to make them enjoy the pleasures of free trade was a slow and gradual affair. The Directors also came to the view that the public sector had a definite function to perform from a different point of view. In order to defend public expenditure on the provision of what are called public goods by modern economists, the Court even criticised Adam Smith and Quesnay for making the unrealistic distinction between productive and unproductive labour.