There’s Nothing Fishy About Growth

Daniel James SanchezLudwig von Mises Institute

November 8, 2013

Production Product: Fish on the plate

Consumer’s Good Factors of Production

Body (labor) Fish in the sea (“land”)

Productivity Low

Poverty Little time for leisure Little time to produce anything

else they might want. Vulnerability

Wants to improve living standards New Factor

Delaying Consumption Why would he be willing to go hungry

to make a net? Ignoring risk for now. More on this

from Peter later. Capital Good: Produced factor of

production

Success! Greater Productivity To make analysis easier, let’s say that with

the net he catches 3 fish per day. Compare Production Processes

Hand Fish: Short, Low Productivity Build Net then Net Fish: Long, Greater

Productivity Chose 3 fish tomorrow over 1 fish today “Exchange” across time Baker and Charlie won’t make that

“exchange.” They have higher “time preference.” The importance of “now” or “soon” Maybe only would sacrifice if they get 5 fish

tomorrow over 1 fish today. Able has lower time preference, which

means he will be willing to save more. Savings is important because…

Saving

CapitalGoods

Productivity

Cycle of Growth

…it frees him up to make even more capital goods, which adds to his productivity, which allows him to save even more, and so on.

Able’s living standard improves with every lap around the cycle. The more he has, the less vulnerable he is. And because he is so productive, and has so much stuff, he can consume more than he used to AND save more than he used to at the same time!

This is how living standards rise in a market economy too. More on this from Mark later.

“Divvy Up!” Egalitarianism Envy Primitivism Discourage saving Breaks the Cycle of Growth Capital consumption Limits productivity

Plunder: “Or How About This?! Brigands (land “pirates”) Kings

Taxation Proscription Buried Treasure

Democracies Progressive Taxation Egalitarianism plus Plunder

Saving

Productivity CapitalGoods

Cycle of Growth

There are only so many fish Able can eat. There are only so many uses he has for nets.

Steve Jobs and iPhones Big savers can only benefit from their

savings if they use them for exchanges with other people.

Exchanges are by definition win-win. Prefer thing received over thing

given up. Savings-supported production and sale. Lending his savings at interest. Paying wages with savings. Non-savers get access to capital goods

without saving. If Able gets rich by making many

exchanges, he’s benefited many people. When egalitarianism and plunder break

the Cycle of Growth, it hurts everyone. Nothing fishy about growth. But there is

definitely something fishy about egalitarianism and plunder.