MPSC 2023 Prelims Paper-I · Question 55 of 100

Correct — option (2). The sentence is Ragnar Nurkse's, and it is the compressed statement of his account of the vicious circle of poverty; the paper prints the name as 'Ragnar Nurks', while the economist's name is usually spelt Nurkse. Nurkse's argument, set out in his work on capital formation in underdeveloped countries, is that poverty in such an economy is self-sustaining because it blocks the accumulation of capital from both directions at once, and the apparent circularity of the sentence is the point rather than a flaw in it. On the supply side the chain runs like this: a low level of income leaves very little margin above subsistence, so the capacity to save is small; small savings mean a small volume of investment; a small volume of investment leaves each worker with little capital to work with, so productivity stays low; and low productivity is precisely what makes income low. On the demand side the chain runs in parallel: low income means low purchasing power, so the domestic market for any new product is small; a small market gives an investor little inducement to build a factory, since the output could not be sold; weak inducement to invest again means little capital formation, again low productivity, and again low income. Both circles close on themselves, which is why the country's poverty is at once the cause and the consequence of its poverty. The practical conclusion Nurkse drew from the demand-side circle is the doctrine of balanced growth: since no single industry can prosper in a market too poor to buy from it, investment should be made simultaneously across a range of industries so that the workers employed in each become the customers of the others, enlarging the market from within. He also argued that the disguised unemployment of an overcrowded agriculture represented a hidden saving potential that could be mobilised for capital projects. Option (2) is therefore the answer.

• (1)G. Myrdal — Gunnar Myrdal is the most dangerous of the three wrong names, because he argued something genuinely similar and a candidate who knows both economists may hesitate. Myrdal's principle of circular and cumulative causation holds that in a poor economy a change tends to reinforce itself rather than to be corrected, so that advantage accumulates in the regions that are already advancing while the rest fall further behind — the backwash effects outweighing the spread effects. That is a theory of self-reinforcing inequality between regions and groups, and it is set out at length in his study of poverty in South Asia. It is not, however, the source of this particular sentence, which belongs to Nurkse's account of the vicious circle of poverty. The distinction worth holding is that Nurkse's circle explains why a poor country cannot accumulate capital, while Myrdal's cumulative causation explains why disparities widen instead of narrowing.
• (3)Robbins — Lionel Robbins belongs to a different branch of the subject altogether. He is remembered for the scarcity definition of economics, advanced in his essay on the nature and significance of economic science, which describes economics as the study of human behaviour as a relationship between ends and scarce means that have alternative uses. That definition shifted the discipline away from Marshall's concern with material welfare and towards the logic of choice under scarcity, and it is the reason Robbins's name appears in every discussion of what economics is. It has nothing to do with development economics or with the mechanics of capital formation in poor countries, and his name is in this option set as one of two famous economists included to test whether the candidate can attach a quotation to the right field before attaching it to the right person.
• (4)Marshall — Alfred Marshall is the founder of the Cambridge school and the author of the Principles of Economics, and his contribution lies in microeconomic analysis — the joint determination of price by demand and supply, elasticity of demand, consumer surplus, and the distinction between the short and the long period — together with the welfare definition of economics as the study of mankind in the ordinary business of life. He wrote before development economics existed as a field, and nothing in his work addresses why a poor country remains poor in the sense this quotation intends. As with Robbins, the surest way to eliminate this option is to notice that the sentence is a statement about underdevelopment, which places it in a body of work written largely after the Second World War, and neither Marshall nor Robbins belongs to it.

The vicious circle of poverty is the central idea of early development economics and it is best held as two chains that close on themselves. The supply chain runs from low income to low saving to low investment to low capital per worker to low productivity and back to low income; the demand chain runs from low income to small purchasing power to a small market to weak inducement to invest, and so again to low capital, low productivity and low income. Because both circles are closed, a small increase in effort at any single point tends to be absorbed rather than to break the pattern, which is why the theories built on this diagnosis all call for a large and simultaneous intervention: Nurkse's balanced growth, in which investment across many industries creates the market for each, and Rosenstein-Rodan's big push, which makes the same argument in terms of indivisibilities and external economies. Against them stands Albert Hirschman, who argued that a capital-scarce country cannot mount a broad front and should deliberately invest in strategically chosen sectors so that the shortages and opportunities created — the backward and forward linkages — draw investment into the rest of the economy. Gunnar Myrdal's circular and cumulative causation belongs to the same family of self-reinforcing explanations, but applies it to the widening of disparities between regions.

MPSC's economy section tests development economics largely through attribution: which economist said what, which doctrine belongs to whom, and which idea opposes which. Such questions are cheap to set and quick to mark, and they reward a candidate who has built a small table of names against ideas. What makes them treacherous is that the four names offered are usually all genuine economists whose work the candidate has heard of, so recognition is useless and only the specific association helps. This paper adds a second difficulty of its own: names are frequently misspelt, and 'Ragnar Nurks' here is one of several such transliterations in the paper. A candidate who is looking for the exact spelling learnt from a textbook may hesitate over an option that is close but not identical, and hesitating over a name is a poor use of examination time. The rule to follow is that recognition should rest on the idea in the stem rather than on the orthography of the name attached to it: the sentence about a country being poor because it is poor identifies the theory, the theory identifies the economist, and the spelling on the page is then merely how this paper chose to render him.

• The statement that a country is poor because it is poor is Ragnar Nurkse's, and it summarises his theory of the vicious circle of poverty; the paper prints the name as 'Ragnar Nurks', while the usual spelling is Nurkse.
• The supply-side circle runs from low income to low savings, low investment, low capital per worker and low productivity, which returns the economy to low income.
• The demand-side circle runs from low income to low purchasing power, a small market, weak inducement to invest and low capital formation, which again returns the economy to low income.
• Nurkse's remedy for the demand-side circle is balanced growth: simultaneous investment across many industries so that the workers of each become the customers of the others and the market is enlarged from within.
• Gunnar Myrdal advanced the related but distinct principle of circular and cumulative causation, in which backwash effects outweigh spread effects so that disparities between regions widen rather than narrow.

• Attributing the vicious circle of poverty to Gunnar Myrdal, whose cumulative causation is a related but distinct theory about widening regional disparities
• Hesitating over an option because a name is spelt unusually, when the idea in the stem rather than the orthography should decide the answer
• Confusing economists of the classical and neoclassical tradition with those of development economics, which is largely a post-war field
• Remembering the phrase without the mechanism, which leaves a candidate unable to answer the variants that ask what the two circles actually contain

Attribution questions of this kind appear in almost every MPSC economy paper, either as a quotation to be assigned to an economist, as a doctrine to be assigned to its author, or as a matching item joining four economists to four ideas. The names that recur are a small set — Adam Smith, Marshall, Robbins, Keynes, Nurkse, Myrdal, Rosenstein-Rodan, Hirschman, Schumpeter, Amartya Sen — and preparing them as a table of name against one-line idea covers the whole family. Because the Commission transliterates foreign names inconsistently, the table should be learnt by idea rather than by spelling, and it is worth noting that the same paper elsewhere tests Schumpeter's distinction between growth and development, which belongs to the same block of the syllabus.

No directly related past PYQ was found.

• practice — not a real PYQ

  In the demand-side version of the vicious circle of poverty, low income leads to low investment through which of the following links ?

  • (a)Low income reduces the capacity to save, so less capital is available
  • (b)Low income reduces purchasing power, so the market is small and the inducement to invest is weak
  • (c)Low income raises the rate of interest, so borrowing becomes costly
  • (d)Low income increases imports, so domestic demand leaks abroad

  Answer(b) Low income reduces purchasing power, so the market is small and the inducement to invest is weak — this is the demand-side chain, and it is the one that leads Nurkse to the doctrine of balanced growth, since investing in many industries at once creates the customers that any single industry would otherwise lack. The first option describes the supply-side chain, which runs through the capacity to save rather than through the size of the market.

• practice — not a real PYQ

  The principle of circular and cumulative causation, under which backwash effects outweigh spread effects so that regional disparities widen, is associated with which economist ?

  • (a)Ragnar Nurkse
  • (b)Gunnar Myrdal
  • (c)Lionel Robbins
  • (d)Alfred Marshall

  Answer(b) Gunnar Myrdal — his argument is that in a poor economy a change reinforces itself rather than being corrected, so advantage accumulates where growth has already begun and the lagging regions fall further behind. Nurkse's vicious circle of poverty is a related self-reinforcing explanation but concerns the blocking of capital formation within a poor country rather than the widening of disparities between its regions.