Hi, guys.
This is a newbie question, so perhaps the moderators can move the thread if it’s more appropriate in another forum.
Leftists often claim that capitalist economies are ultimately unsustainable because the compound growth upon which they depend means that they will inevitably run out of finite resources. Is it true that capitalist economies must grow and, if so, what are the implications of this?
Thanks.
The whole point of capitalism is to show how people are able to adapt to scarcity… For example, people fear that we will run out of oil, but so what? I am sure that well before we run out of oil, there would already be an alternative energy source that would take its place… What I am trying to say is that, there is always an alternative for something, and the market is best suited to explain what the alternatives are. (on a side note, the fear of running out of oil has been going around for decades now… so it is nothing more than a tatic to scare people)
Define “growth”. Most things you see “growing” (GDP, SP500 index, etc.) are doing so because the values of the units by which they are measured (fiat currencies) are shrinking. The real growth – for example the fact that I can get a glass of water from a faucet as opposed to trecking two miles to the river with a bucket – is rarely amenable to quantification into aggregates like that.
As Mises said, economic growth only occurs when per-capita productivity rises - that is, when productivity rises at a faster rate than the population does. So “economic growth” is really growth in productivity. That doesn’t necessarily mean more stuff. It can also mean doing more with what we already have.
By growth I mean GDP growth. Leftists frequently claim that compound GDP growth is a necessity in order for capitalist economies to survive. They then point out that the world is finite, and argue that capitalism is unsustainable as a result. Is it true that capitalist economies must grow?
What capitalist country are you referring to?
Ask them what a capatalist economy is?
ansiktburk, did you read any of the replies? Also, wouldn’t it be easier for the source of the claim (the leftist) to substantiate it?
isn’t growth a consequence?
Leftists generally consider pretty much every country to be a capitalist country in that the capitalist mode of production is the dominant one. David Harvey in his Crisis of Capitalism lecture (http://www.youtube.com/watch?v=qOP2V_np2c0) makes the point that compound growth is a necessity for capitalist countries. I’ve heard countless other leftists make the same claim though.
I have read the replies, thanks!
This is not specific to capitalism. No matter how you try to handle property and ownership one thing remains true: The more stuff we have per capita the better off we are. If population increases and production doesn’t, we’re worse off (assuming static values).
The comments about compound growth makes no sense. Compound growth in an industry just means that demand is so underserved that reinvestment for expansion continues to make sense. Eventually demand will be sated and production will level off, or grow with population. Sounds to me like someone is saying “boo hoo, capitalism is managing to provide a bunch more stuff that people want every year”.
What they probably mean (and confuse with free market capitalism in general) is that a fractional reserve banking system has to keep creating new money, and the economy has to keep up with that monetary growth or the system collapses. (The Crash Course preaches some of that stuff, I forget which chapter.) This is not a problem with “capitalism” itself but with our particular ponzi-scheme of government-monopoly fiat money. As Autolykos said, economic growth is simply growth in productivity, it does not follow that resources are ‘used up’ at a greater pace. I fact, resources are not finite at all. Higher productivity is another way of saying that we created more resources. The problem is in fact the opposite of what environmental socialists (read as in ‘national socialist’) want us to believe. We have to keep renewing resources through economic growth to run a sustainable economy. Their retreat into “renewability” and economic stagnation (“stability”) is truly unsustainable. This finite-earther stuff is dangerous religious nonsense. What these ascetics have a problem with is wealth creation, exploiting the earth to make humans better off. They are simply rich kids who are perfectly willing to give up (other peoples) material well-being for the sake of a spiritual notion. And this whole movement is kept together by communist and anti-liberal propaganda.
ansi,
In that video, it’s The Messiah who tells him. No arguments made to prove it.
And he also assumes there is a conflict between financiers and manufacturing, as if one can only get rich at the expense of the other. No proof offered, because it is false.
He confuses “anti financier”, which should mean removal of laws that give them privileges others do not have, with anti free markets.
He throws around “greed” as something businessmen have, but then exposes his own when he thinks hedge fund managers make “obscene” profits. Translation: gimme some o’ dat.
I’m always impressed by the ability of AE to explain and to prove its claims in a few words, when everyone else doesn’t even bother. Or else present something so full of holes one wonders how they tie their laces successfully in the morning.
Good points in that video:
He confesses that he doesn’t know the answer.
He confesses that he has to change his mode of thinking. [Unless he means we have to change our way to his way].
He mentioned 5 reasons we are in a mess, says all of them are partly right, and adds in The Messiah’s explanation. This is good, because it proves he has no clue. No mention of AE’s explanation [except some inane dismissal of what he thinks Hayek said].
Doesn`t that depend on what the market wants?
What`s “the capatalist mode of production”?
On to the video:
Why does Harvey claim that Hayek is the leading economist today, and not Keynes?
Didnt/doesnt Austrians know that Keynesian-economics create the problems we`re having?
We live in a corporatist society, i.e. special interest groups/populations in general want government to regulate/borrow money so government can provide for them, or help them, i.e. not just Wall Street etc.
Wages are declining in the OECD because people there are greedy, wages elsewhere have risen.
What does “pumping up the credit economy” have to do with Hayek?
You don`t start with money, you start with producing!
Where does he make the point “that compound growth is a necessity for capitalist countries”“”?
Why does unlimited amounts of stuff make me better off(I`m sure I can settle with just enough)?
Capitalism has nothing to do with compound growth. If you are a central bank, however, and you want to extract a regular percentage of money from the public you must, by the laws of mathematics, inject an exponential (compounded growth) amount of cash into the system*. So, the supposedly exponential or compound growth of the Dow Jones or your investment portfolio or bank balance sheets and so on is a mirage created by the exponentially growing flood of cash being injected by the world’s central banks. Has nothing to do with the market, let alone a free market/capitalism.
“Growth” is not well-defined and intentionally so. Do they mean population growth? What about capitalism depends on the fertility rate exceeding 2.1 (or whatever the fertility rate is that balances the death rate)? If they mean the money supply, I’ve answered that, and see the example below. If they mean the available number of choices of goods and services, how does this matter? If they mean energy consumption, I can see how that matters in a very weak sense since increased energy consumption necessarily entails increased pollution but then solving this is a problem of stronger application of property rights (a key component of capitalism) to force polluters to feel the costs of their actions.
Clayton -
*Let’s say there’s $1,000,000 in existence. As the central bank, you are charged with collecting revenue for the government in the form of 10% inflation per year. To do this, you inject $100,000 into the money supply, devaluing the existing money stock by 10% and netting $100,000 revenue to the government - easing the amount of taxes which the government must levy to fund itself. The next year, the money supply is $1,100,000 so to get 10% you must inject a little more than $100,000… this time, you must inject $110,000. This devalues the existing money stock by 10% and nets the government the same effective revenue as it did last year. The next year, the money supply is $1,210,000. So, you must inject $121,000 to devalue by 10%. If you chart out the numbers, you will see a compound growth:
1,000,000.00 – Money supply in year 1
1,100,000.00 – Mony supply in year 2
1,210,000.00 – etc.
1,331,000.00
1,464,100.00
1,610,510.00
1,771,561.00
1,948,717.10
2,143,588.81
2,357,947.69
As you can see, the money supply is growing faster and faster every year. With it, GDP grows, stock indices rise, prices of goods and services rise, incomes rise, everything floats ever upward.
First of all, we live in a limited universe so no one is talking about “unlimited amounts” of anything. In fact, this is why economics matters… the ever-present problem of scarcity forces us (and all other living things) to economize, that is, to figure what is the highest use to which we can put our limited resources.
But to understand why more goods are preferable to fewer goods, compare the value of a $100 bill in New York City versus the value of a $100 bill in the middle of the Sahara desert. In NYC, you have an abundance of choices of how to spend that $100, and it is these choices which makes the $100 so valuable. In the Sahara, there are no choices of where to spend the $100 bill… it is of no value whatever. So, the value of money comes from its use in exchange and the more kinds of things there are for which money can be exchnaged, the more valuable money becomes.
Clayton -