The author presents a dual-sector model to explain the process of economic development in economies with an abundant supply of labour. The model describes a traditional, subsistence agricultural sector where labour is abundant and wages are low, and a modern, capitalist industrial sector where investment leads to economic growth.
The main argument is that surplus labour from the agricultural sector can be absorbed by the industrial sector without raising wages, as long as there is an unlimited supply of labour. Profits generated in the industrial sector can then be reinvested to further expand industrial production. As the economy develops, the surplus labor is gradually exhausted, leading to rising wages and a shift towards a fully industrialized economy.
The paper outlines how this transformation can drive economic development, emphasising the role of capital accumulation, the reinvestment of profits, and the gradual shift of labour from traditional to modern sectors.