Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.
Imagine: 1 million people are expropriated of their savings which they planned to use to buy a (imported) car and that capital accumulation is used to say, build a dam?

Money is not capital.

If the government wanted to build a dam, the government could always build that dam, provided that it can mobilise the manpower, cement, turbines and rivers required. The reason that you take money from the people who wanted to buy cars is in order to free up man-hours otherwise spent selling the cars, and hard currency otherwise spent importing the cars, for use on your dam project. It is not because the money is necessary or sufficient in itself: The government can always print more money in any amount it wants (except if it's in the €-zone, since the BuBa is staffed by gold bugs).

Interestingly I think the seeds of an answer are in your own words: "minus any advances in total factor productivity".

Yes, if you can increase TFP faster than the capital plant deteriorates from lack of maintenance, then you're golden.

Unfortunately, increasing TFP is hard. Only roughly half our GDP growth in the industrial age has been from TFP increase (the other half from a combination of higher labour force participation, greater raw material use and greater capital intensity). And most of the industrial age's TFP increase is from economies of scale, which would presumably reverse if we went back to small-scale, local production.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon May 9th, 2011 at 01:33:50 PM EST
[ Parent ]

Others have rated this comment as follows:


Occasional Series