Saturday, 17 January 2015
Is Growing the Economy Necessary?
We often hear the argument that the economy needs to grow, that without growth the economy will die. But is that true?
First lets define what the economy is, it is the management of the money, property and goods of a country, community or household.
In this context we are talking about countries not only one country. I should also point out that money is not wealth, it is a token or representation of wealth. Wealth is the increase created through Agriculture, Fishing, Forestry, Mining and Manufacturing, in other words an increase is a surplus. With Transport being a multiplier which takes good from places where it is common to places where it is uncommon. Most economic activity does not create wealth, what it does is transfers money from one person to another. So for example when you get paid you are not receiving wealth, instead you are paid money, a representation of wealth. Then when you go shopping you give that representation of wealth to the shopkeeper. That transfer of money between people is vital to the health of the economy, but it is not wealth.
Over time the economy has changed and we can divide the economy into 4 great stages:
The Prehistoric Economy
The Agricultural Economy
The Industrial Economy &
The Post-Industrial Economy
Lets start at the start with the Prehistoric Economy. Growth is very slow as there is no way to secure property. People must move to get enough food to eat and it is very hard to keep food for very long. The domestic animals and plants that we take for granted are either rare or do not exist yet. There is trade in hard to find or in hard to create items and slowly in some parts of the world people learn to domesticate animals and plants, leading to the next economic stage.
The Agricultural Economy sees the spread of Agriculture across the world, very quickly in some parts, slower in others. During this time we see the rise of the great Ancient Civilizations and their fall. Then the rise of new nations to replace them. Economically the production of food is the defining feature, no longer is hunting and gathering enough as the stable production of food allows large increases in population. Sometimes that system fails and famine results, but as time goes on even that becomes rarer and rarer. The increase in food production also increases the production of non food Agriculture. The increase in population and food allowed for large workforces to work on large projects, creating the Ancient Civilizations and maintaining them. Economic growth allowed manufacturing to emerge in certain areas. While those Civilizations didn't last, the Agricultural Economy they were based on did. And when they ended people didn't return to a Prehistoric Economy, they remained within the Agricultural Economy.
By the 1700's came the next great economic change, the Industrial Economy. Agriculture is still important and it still employs the majority of people. But now the manufacturing of goods and the trading of such goods creates the most wealth. Just as being able to produce food lead to an increase in living standards, so over time did the Industrial Economy.
We now live at the start of the Post-Industrial Economy, the United States became the first in 1956 to have most workers being in the Service area, instead of being Agricultural or Industrial workers. In fact everyone who is not in agriculture or industry is a service worker, cleaners, doctors and astronauts are all Service workers. Was economic growth necessary to get to where we are today? The answer is yes.
But now I'd like to look further at the Post-Industrial Economy. For most of history economics was organic, it grew or failed based on real world economics. It either had very little or no theory behind it. But over time that has changed and today economics is a major field of study. Economist's are often called upon to plan the future and many expect that they will success. But the further a theory is from reality the less likely it is to work, no matter what the subject. Over time there have developed many different and often contradictory theories about how the economy works and about how it should work. One idea that is very popular is the idea of growth, that like a shark the economy must keep moving or it will die.
Growth is a method to measure the economy by, if it's bigger than it's good, if it's smaller it's bad and as a general rule that's fine. But growth has become a mantra, bigger is better, but thats not true. Or to be more correct it's not always true. Under the Agricultural and the Industrial Economies wealth was created. But where does the wealth come from in the Post-Industrial Economy?
There is still Agriculture, many countries have Fishing and Mining and some have Forestry and Manufacturing. But the majority of the economy is the Service sector and that includes everything that is not Agricultural or Industrial. But the Service sector cannot create wealth as it produces no surplus. Instead it consumes, which wasn't a problem until it became the majority of the economy. So now we are told that building houses is growth and that as growth is good building more houses is also good. But that is to confuse the needs of society with the needs of the economy. Society may or may not need more houses, but it becomes an economic necessity as we must always have growth. Houses are important because people need them to protect them from the elements, but they are not an economic necessity. They have been made an economic necessity because the economy needs growth.
If all house building stopped that would leave large numbers unemployed. But that's not the real problem, the real problem is that there are no other jobs for them to do as we are now a Post-Industrial Economy. The truth is that while economists list this as growth, it is not. It produces no wealth and instead creates debt. Debt is not growth, it is a burden that eats away at wealth. Only Agriculture, Fishing, Forestry, Mining and Manufacturing with the multiplier of Transport create wealth and any growth in the economy that isn't in these areas isn't growth, it's ultimately debt, the destroyer of wealth.
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