Understanding the gains to capitalists from colonization: Lessons from Robert E. Lucas, Jr., Karl Marx and Edward Gibbon Wakefield

Britain after the Napoleonic wars saw the rise of colonial reformers, such as Edward Gibbon Wakefield, who had extensive influence on British colonial policy. A version of Wakefield's systematic colonization plan became the basis for legislation establishing the South Australia colony in 1834 and the New Zealand colony in 1840. We use extended versions of Robert Lucas's 1990 model of coordinated colonial investment to show how Wakefield's institutions were designed to work. We also find that the analysis of Wakefield's system by Karl Marx in Das Kapital follows the same line of reasoning as Lucas's analysis of colonial institutions.