And kind of the opposite question, can an economy grow if consumption always stays at a minimum level needed to survive.
Growth to me, means the economy’s standard of living in increasing. I do not believe an economy can grow if there is no savings, as what is produced would immediately be consumed. Standard of living would remain constant.
If consumption does not grow, thus savings continue to grow larger and larger, I believe the stanard of lving would increase. The basics for life would soon require next ot no energy to maintain and it would pretty much stay there until someone wanted to up their consumption, then production would be diverted to meet that demand. But I am unsure that if consumption does not grow, what happens with savings and investments. It would be correct to say consumption = consumer goods and savings = investment = producer goods, right?
What do you guys feel about this train of thought?
Well, if you go by your definition, the answer is yes, an economy can grow with 0% savings. By your definiton, all that needs to happen for “growth” to take place is for people’s preferences to change. I mean, you need savings for capital accumulation. You need capital accumulation for increases in production. You need increases in production for greater abundance of goods, and of course a greater abundance of goods means cheaper goods. In other words, more stuff and better stuff for more people at less of a cost. That’s how I think most people define growth. But if all you really need is just your “standard of living to improve”, technically you don’t need all that. Of course, I suppose that depends how you define “standard of living”, but if everyone all of a sudden enjoyed a primitive lifestyle more than anything else in the world, it could be said their “standard of living” would be greatly improved if they got out of those dreadful houses and apartments and got back into nature. That would not require savings. If people preferred making things by hand, and hunting and catching and farming everything they ate more than going to movies and playing video games, then no, you would not need savings to increase the time people spend doing what they consider “leisure”.
As far as your assessment goes though, you’re mostly right in your reasoning. But I think your final equation is a bit too simplistic. And it is not always true. Consumption does not have to always equal investment. Capital consumption is a big part of the Austrian Business Cycle Theory. Check out this article for a great overview. And for more, be sure to checkout the best collection of resources on the ABCT ever assembled.
The economy grows with every single non-aggressive human act (especially voluntary exchange). The economy is richer after you scratch your itchy nose and after any two parties subjectively improve their situations through a voluntary exchange.
John, by standard of living I do mean how you explained it. More goods at a less cost. But if there is not any producer goods being bought, then no additional goods will be produced, thus the standard of living stays the same.
Unit4, what do you mean by “savings”? In Austrian Economics, “savings” is ultimately defined as simply “deferred consumption”. So if you buy groceries at the store, take them home, and don’t consume all of them yet, guess what? You now have (food) savings. Under this definition, then, I think 0% savings is impossible.
That sums up the totality of post-, neo-, new-, and all other Keynesian mental masturbations. Krugman would be impressed. With the magic of credit, no GDP must ever suffer from not growing. If we all bought everything with credit, no one would ever have to move a finger, we’d all be fat and happy, and the economy would grow forever, or at least until we die which, in the long run, we all must do (Keynes). The only problem is convincing the herd to vote for themselves the prosperity they so much deserve. The fiat money cartel is standing by the printers ready to oblige.
Savings will obviously be “consumed” when capital is created. I think that the people on this thread were taking it along the lines of spending all of your money on consumer goods, e.g. eating the seeds of grain as opposed to planting them.
The word “net” or “total” doesn’t appear anywhere in your OP. All you wrote was, as indicated, “no savings”. While it’s fine if you really meant net/total savings, you didn’t make that clear in your OP.
Now regarding net/total savings, the question becomes, over what period do you think the net/total savings is to be measured?
So it’s basically like I was illustrating…you just had sloppy definitions. (Which appears to be even further illustrated in the conversation of this thread).
Really? How do you expand the division of labor without capital accumulation? And how about if we define growth as “an increase in the physical size of the average human in the economy.”?
Human capital can increase without the savings necessary for non-human capital accumulation.
I obviously didn’t mean that you could define terms any way you wanted, but that a broad range of potentially logically compatible definitions would easily be satisfied. I suppose you also heckle when someone around you declares their hunger to be great enough that only a horse will suffice. You’re thatguy.
I’m just saying if the entire issue of the OP is based in sloppy definitions and not being clear on terms, I don’t think it makes much sense to just throw out more careless statements to try to answer it.
Half the problem people have understanding a lot of these concepts is not being taught the proper things to begin with, or being presented with sloppy explanations and half-true or sometimes-true axioms that end up causing problems as they confront issues in their discussions and studies later on. But as LeVar Burton always used to say, you don’t take my word for it…
