What Is Economic Growth? (And What Is It Not?)

There is severe confusion about the meaning of economic growth.Many seem to mistakenly think that it has to do with GDP or producing stuff. It does not. Economic growth means that an economy's ability to satisfy people's wants, whatever they are--that is, to produce wellbeing -- increases.

GDP is a rather terrible way of capturing this using [public] statistics, and is thus corrupted by those benefiting from corrupting such figures. GDP is not growth. 

Likewise, having more stuff in stores isn't growth. Producing increasing quantities of stuff that nobody is willing to buy is the very opposite of economic growth: it is wasting our limited productive capacity. But note the word 'willing'. Wellbeing is not about [objective] needs, but about being able to escape felt uneasiness. It can turn out to be right or wrong, but that's beside the point. Economic growth is the increased ability to satisfy whatever wants people have, for whatever reasons they have it. 

Examples of economic growth aren't the newest iPhone or plastic toy made in China as much as it is the availability of quality housing, food and nourishment, and the ability to treat disease. 


One obvious example of economic growth since the days of Malthus is the enormous increase in our ability to produce food. The quantity and quality has increased immensely. We use less resources to satisfy more wants--that's the meaning of economic growth. Economic means simply economizing, or finding the better use of scarce resources (not only natural such.) Economic growth is thus better economizing, meaning we have the ability, which means se can afford, to satisfy more wants than just the basic needs. 

The beautiful thing with economic growth is that it applies to society overall as well as to all individuals: increased productive capacity means more ways of satisfying wants but also cheaper ways of doing so. But this does not, of course, imply that the distribution of access and ability to consume is equal and instantaneous. It spreads in stepwise fashion and will reach everyone. 

1 2 3 4
View single page >> |

Mises Institute is a tax-exempt 501(c)(3) nonprofit organization. Contributions are tax-deductible to the full extent the law allows. Tax ID# 52-1263436

How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves.


Leave a comment to automatically be entered into our contest to win a free Echo Show.