Austrian Economics Wiki

Economic growth is a rise in living standards[1]

How to achieve growth[]

Economic growth can be achieved only in a few specific ways. Either more and better resources can be found, or more and better people can be born, or technology is improved, or the capital goods structure is lengthened and capital multiplied. In practice, since resources need capital to find and develop them, since technological improvement can be applied to production only via capital investment, since entrepreneurial skills act only through investments, and since an increased labor supply is rela­tively independent of short-run economic considerations, the only viable way to growth is through increased saving and investment.[1]

Planning growth[]

On the free market, individuals decide how much they want to save, to increase their future living standards, against how much they want to consume in the present. The net result of all these voluntary individual decisions is the na­tion’s or world’s rate of capital investment.

Some economists concentrate heavily on growth, and how high it should be. From a purely economical view, it is illegitimate to endorse growth by itself. It may "sound" good to most people, but that is hardly an ade­quate ethical analysis. Many things are considered as good, but man must choose between different quantities of goods and the price for those forgone. Similarly, growth must be balanced and weighed against competing values. If it were an absolute value, why stop at 5 percent or 8 percent growth per year? Why not 50 percent?

What happens if the government decides, either by subsidies or by direct government ownership, to try to spur the social rate of growth? Then, no longer does each person choose to "grow" as he thinks best. Now, with compulsory saving and investing, in­vestment can come only at the expense of the forced saving of some individuals. In short, if A, B, and C "grow" because their standard of living rises from compulsory investment, they do so at the expense of D, E, and F, the ones who were forced to save. It can be no longer said that the social standard of living rises, or that the "society" grows. Under compulsory growth, some people clearly and demonstra­bly lose.[1]

Measuring growth[]

Economic growth is often measured by the Gross domestic product (GDP). It does not represent production, but overall spending, and is dependent on the techniques that are applied to the calculation of the respective price indices. To calculate a "real GDP", the statistical offices create a basket of goods and compare the prices of the goods in this basket to the respective reference periods. But there is no objective representative basket of GDP other than as a statistical construct based on many disputable assumptions, and there is no common standard which would allow the comparison of one period’s production to the other when in fact current output in terms of new, obsolete and modified goods and services is quite different from that of the past. Money prices do not measure anything. Prices only have a meaning as relative prices as they reflect the exchange ratios on the market.

In a private market economy the aims of economic activity are highly diverse and represent individual and subjective valuations. For an economy that is to serve multiple private needs, the calculation of economic growth makes little sense, if any at all. One may add up nationwide the various monetary prices of the goods and services that were sold, but besides the aggregation of the monetary values of diverse items – what is the true and reliable informational value of this exercise?

Each good and service has a different value for each user, and there is no common standard of value available. This is even more so the case, when new products and new kinds of services come to the market. Valuations are not only heterogeneous among persons, but also differ for the same person according to the specific circumstances. Human beings have different needs and wants in different situations, and they experience changes of taste over time. Quality itself is not an attribute inherent to the things, but it is a valuation by economic actors.[2]

When Sir John Cowperthwaite, who is credited for turning Hong Kong into a thriving global financial centre, was asked what was the one reform that he was most proud of, he said "I abolished the collection of statistics." Sir John believed that statistics are dangerous, because they enable social engineers of all stripes to justify state intervention in the economy.[3]

See also: Gross domestic product


  1. 1.0 1.1 1.2 Murray N. Rothbard. "Chapter 12—The Economics of Violent Intervention in the Market", 10. Growth, Affluence, and Government, online version of Man, Economy and State, referenced 2010-02-14.
  2. Antony P. Mueller. "What's Wrong With Economic Growth?", Mises Daily, August 10 2005, referenced 2010-02-14.
  3. Marian L. Tupy. "Sir John Cowperthwaite: A Personal Tribute", article appeared on, February 2, 2006. Referenced 2010-05-19.

External links[]