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Three Cheers For Capitalism

January 30, 2012 | APPEARED IN VOLUME 90, ISSUE 5

In his editorial “Recent Travels,” Rudy Baum weaves simple facts with invalid assertions so tightly that one might be led to believe the resulting quilt is not full of holes (C&EN, Nov. 28, 2011, page 3). But it is. He attempts to disparage capitalism with the statement, “You can’t have a sustainable economic system based on exponential growth on a finite planet.” Actually, you can. But we need to define our terms first.

What exactly is this “growth” that some believe is inherently bad? Quite simply growth = profit = savings = that which is not consumed from one’s own work. Growth (excess) can be consumed in the future for its own sake. (For example, a farmer grows more corn than he can consume, so he stores the excess and cuts back on his work in the future; that is, he retires.) Or the growth may be used to consume things one can’t produce efficiently (the same farmer trades his excess corn for some good books). Or the growth may be used to foster even more growth (the same farmer trades the excess corn for a tractor, so now he can grow more than he could by hand). Without growth, none of these things could occur.

So clearly we must have growth unless we want to live like cavemen. Annualized exponential growth (produce 10 widgets this year, 12 next year, 14 the following, and so on) occurs as a result of population growth and/or productivity increases. Such growth in output is not sustainable over long time frames, but it is also not a necessary condition of successful and sustainable capitalism. To suggest otherwise is simply uninformed. Aggregate exponential growth (produce 10 widgets every year but only consume five so that after three years one has accumulated 15 unused widgets) is sustainable because it relies on the simple fact that individual humans can produce more than is required to sustain them. Aggregate growth is a necessary condition of capitalism.

If Baum wishes “to create an economic system that provides for human needs without endless growth in human population and consumption,” then his waiting is over! Capitalism is the most successful system for providing for human needs. It does not require population growth to be sustainable. It simply requires that the population produce goods and services that they freely trade among themselves. That’s it.

By Gregory Morin
Bishop, Ga



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Chad (January 30, 2012 4:22 AM)
The world economy has grown by about 5% per year for the last forty years. During that time, population growth was about 2%, and the growth rate for the extraction of resources (fossil energy, water, minerals, etc) has been around 4%. Only one percent of growth has been technological, which as you note, can continue indefinitely. The other four fifths of our past growth is fundamentally limited by nature. Even the one percent growth that has been due to improved technology may not hold up. There are some sound arguments out there that the ROI on research and development is declining due to the low-hanging fruit having been picked. If you are betting on 3% growth for the rest of the century, you are betting that the economy of 2100 will be thirteen times the size of that today. I'd take the other side of that bet in an instant.
Greg Morin (April 21, 2012 1:19 PM)
I'm not sure what your point is, I never suggested any specifics about this rate of growth or that rate of growth. IF the rate of population growth is a steady state 3% until 2100, then both population will be 13x bigger and the economy will be 13x bigger at a minimum if we assume a similar rate of saving (non-consumption beyond minimum needed to exist) in the future as today. Any technological enhancements would only increase that number beyond 13. Even if some day we hit a technological brick wall, the economy will still grow even with a static population for the reason I outlined above (aggregate exponential growth is sustainable whereas annualized exponential growth is not).

But we must be clear on our terms, when I say the "economy" I mean the aggregate total of all goods and services in existence and produced annually. But since value is subjective this can be tricky to quantify which is why we use "money" as an "equivalence" term. But you can't just use money anymore because the government just prints up more and says we had growth. No, we didn't have growth in the economy, we had growth in the money supply. That's why you could have 100 goods in any economy in year 1 and $100 in the economy, and then in year 2 the government prints up another $100 for a total of $200 in the economy but still only 100 goods produced. The government would say our GDP doubled! Likewise if we had a hard commodity currency that could not simply be printed into existence and there were 100 units of it in year 1 and 100 goods, then in the following year the economy produced 200 units of goods but the commodity currency stayed the same at 100 units, then the government would say the economy did not grow, when in fact it did by virtue of the fact that there are now more goods in the economy (prices necessarily had to fall by half... so we have the same amount of "money" yet we are all richer because we have twice as much stuff).

That's what growth is all about - more "stuff" not more "money" Now my example relied on productivity gains to show growth, but the same occurs with no gains and simply not consuming some quantity and saving it each year. If everyone saves the stuff they don't consume each year then after 10 years there has been growth in "stuff" that people can sell to each other using the medium of exchange (money). So if the quantity of money does not change then the "stuff" has a lower money equivalent price (M/S - m=money, s=stuff, as S gets bigger then M falls). Again the government economists would say "no growth" because we have falling prices, we're in a depression because we have falling prices... yet there is more stuff in existence than 10 years ago, how on earth can that be bad?

Governments like inflating the money supply because (a) it allows them tax profit even when falling profits actually represent increasing growth and (b) inflation is a stealth tax that the masses of sheeple simply accept as a fact of life because it's all they've ever known, but in a real free economy it would not exist (witness the 19th century before the government could just print up as much money as they like.... massive productivity increases and falling prices... things that cost a $1 in 1800 generally cost $1 or less in $1900. Not true today... it now takes $100 to buy what $1 but in 1900. All of that loss in purchasing power is representative of the aggregate level of wealth the government has stolen since 1913.

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