The history of economic growth theory

In 1377, the Arabian economic thinker Ibn Khaldun provided one of the earliest
descriptions of economic growth in his famous Muqaddimah (known as Prolegomena
in the Western world):
"When civilization [population] increases, the available labor again
increases. In turn, luxury again increases in correspondence with the
increasing profit, and the customs and needs of luxury increase. Crafts are
created to obtain luxury products. The value realized from them increases,
and, as a result, profits are again multiplied in the town. Production there
is thriving even more than before. And so it goes with the second and third
increase. All the additional labor serves luxury and wealth, in contrast to
the original labor that served the necessity of life."
In the early modern period, some people in Western European nations developed
the idea that economies could "grow", that is, produce a greater economic
surplus which could be expended on something other than mere subsistence. This
surplus could then be used for consumption, warfare, or civic and religious
projects. The previous view was that only increasing either population or tax
rates could generate more surplus money for the Crown or country.
Now it is generally recognized that economic growth also corresponds to a
process of continual rapid replacement and reorganization of human activities
facilitated by investment motivated to maximize returns. This exponential
evolution of our self-organized life-support and cultural systems is remarkably
creative and flexible, but highly unpredictable in many ways. Since science
still has no good way of modeling complex self-organizing systems, various
efforts to model the long term evolution of economies have produced few useful
results.
During much of the "Mercantilist" period, growth was seen as involving an
increase in the total amount of specie, that is circulating medium such as
silver and gold, under the control of the state. This "Bullionist" theory led to
policies to force trade through a particular state, the acquisition of colonies
to supply cheaper raw materials which could then be manufactured and sold.
Later, such trade policies were justified instead simply in terms of promoting
domestic trade and industry. The post-Bullionist insight that it was the
increasing capability of manufacturing which led to policies in the 1700s to
encourage manufacturing in itself, and the formula of importing raw materials
and exporting finished goods. Under this system high tariffs were erected to
allow manufacturers to establish "factories". Local markets would then pay the
fixed costs of capital growth, and then allow them to export abroad,
undercutting the prices of manufactured goods elsewhere. Once competition from
abroad was removed, prices could then be increased to recoup the costs of
establishing the business.
Under this theory of growth, the road to increased national wealth was to grant
monopolies, which would give an incentive for an individual to exploit a market
or resource, confident that he would make all of the profits when all other
extra-national competitors were driven out of business. The "Dutch East India
company" and the "British East India company" were examples of such
state-granted trade monopolies.
In this period the view was that growth was gained through "advantageous" trade
in which specie would flow in to the country, but to trade with other nations on
equal terms was disadvantageous. It should be stressed that Mercantilism was not
simply a matter of restricting trade. Within a country, it often meant breaking
down trade barriers, building new roads, and abolishing local toll booths, all
of which expanded markets. This corresponded to the centralization of power in
the hands of the Crown (or "Absolutism"). This process helped produce the modern
nation-state in Western Europe.
Internationally, Mercantilism led to a contradiction: growth was gained through
trade, but to trade with other nations on equal terms was disadvantageous. This
– along with the rise of nation-states – encouraged several major wars.