The economic growth debate: What some economists have learned but many have not

Abstract

One thing economists should have learned from the economic growth debate is the importance of defining the term “growth.” By “growth” I mean quantitative increase in the scale of the physical dimensions of the economy; i.e., the rate of flow of matter and energy through the economy (from the environment as raw material and back to the environment as waste), and the stock of human bodies and artifacts. By “development” I mean the qualitative improvement in the structure, design, and composition of physical stocks and flows, that result from greater knowledge, both of technique and of purpose. Simply put, growth is quantitative increase in physical dimensions; development is qualitative improvement in non-physical characteristics. An economy can therefore develop without growing, just as the planet Earth has developed (evolved) without growing. Neoclassical growth models notwithstanding, there is good evidence that neither the Earth’s surface nor the flux of solar energy grows at a rate equal to the rate of interest! In fact they seem not to grow at all. Yet qualitative evolution occurred and continues to occur. Two general classes of limits to “growth” in the above-defined sense can be further distinguished: biophysical limits and ethicosocial limits. In both cases it is growth, not development, that is limited. There may or may not exist limits to development, but that is another topic. Standard neoclassical economics was built on the assumption that the economy is far from both limits; i.e., that it is always biophysically possible and ethicosocially desirable for aggregate product to grow. As Abramowitz [l] put it, echoing Pigou: