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If we talk philosophy, this is the place to expose my not understanding of some basics of economy, and ask the question: where does (global) GDP growth come from?

I just can't figure it out.

Let's take a single company that produces with profit. Is profit wealth creation? It appears to me it isn't: profit is the difference of the company expenses and receipts, but those receipts had to be there in the pocket of someone in the first place. In an economy consisting of nothing but workers who spend wages they got from companies who invest all their profit, there would be money circulation permanent zero growth [or, more realistically, GDP reduction], with the profit of some companies balancing the loss of others.

So let's introduce capitalists into the economy. Does investing money holdings in hope of getting it back with profit constitute wealth creation? It appears to me the situation is the same as before: the capitalists' profit also comes from money received from others, be them workers spending their wages, companies buying means of production or capitalists spending or investing their money.

So let's introduce wealth and wealth pricing into the model economy. If the price of stocks or houses or land rises, it can be sold for more than bought, and used for higher investment or consumption. But I don't see how this shall lead to overall growth either: higher-priced wealth should first be made money before it enters production and thus GDP, but the purchaser's money again comes from the producing economy or another object of wealth that was made money. And price hikes are fuelled by demand.

So, thinking of foreign-credit-dependent US growth, or European colonists in prior centuries, or expanding empires, maybe growth comes from conquest and takeover of others' wealth? This is a tempting picture, but doesn't explain global GDP growth.

I have two remaining thoughts, thought through only half-way.

  1. Maybe economic growth comes not from production but from absorbing new natural resources? Maybe, as money is still needed to enter the economy, gold being the most important?
  2. As the gold standard was ditched long ago, another thought: maybe GDP growth is in truth differential inflation? Maybe it all boils down to the price of different things changing relative to each other, and the measurement of inflation being more bound to stuff with less change in value?


*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Thu Jun 29th, 2006 at 08:33:19 AM EST

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