Growth & Accumulation A Theoretical & Historical Overview

Growth: Definition #1 Growth = increases in aggregate amount of goods & services produced for sale Growth = increases in aggregate amount of goods & services produced for sale  "aggregate" =  of all goods  how to sum? =  market value of goods  e.g., GNP = Gross National Product Note: GNP ignores all production that does not produce for market, eg., subsistence agriculture, housework. Note: GNP ignores all production that does not produce for market, eg., subsistence agriculture, housework.

Mathematically Speaking Aggregate GNP = Q = x1 + x xn Aggregate GNP = Q = x1 + x xn Q = f(time) Q = f(time) time (t) Q Q = f(t)

Growth: Definition #2 Growth as Accumulation Growth as Accumulation  not just more goods & services, but quantitatively:  more workers  more factories  more markets  more conflicts But also Accumulation of change But also Accumulation of change  each element being accumulated changes qualitatively  Quantitative Growth + Qualitative Change = "Development"

Why Growth? - I Population Growth  growth in output? Population Growth  growth in output?  more workers, more productive power, more needs  therefore more output to meet those needs  but, also growth in output per person "Need" must be translated into "demand" or "effective demand" "Need" must be translated into "demand" or "effective demand"  demand = f(wages, income)  population increase must be translated into more employment, wages, effective demand, output

Why Growth? - II Growth = f(competition)? Growth = f(competition)?  firms compete, faster growth helps  but why do firms compete? Greed? modern corporations too complex Greed? modern corporations too complex every new firm/product = substitute good, threat every new firm/product = substitute good, threat This view ignores: determinants of demand This view ignores: determinants of demand  workers fight for wages  consumer power to differentiate, or refuse products  too one-sided, "supply-sided"  Ignores internal dynamics of investment

Why Growth? - III Growth = f(people demand it) Growth = f(people demand it)  more people make demands  same people make increased demands  qualitative change means changed demands  workers fight to turn need into demand  technological change which raises productivity makes it easier to meet demands for higher wages & benefits  larger market share means more resources to deal with conflicts, e.g., more profit, more I, more credit

Why Growth? - IV So growth derives from: So growth derives from:  people's demands  business efforts to cope Competition thus a selection process through which those best able to cope win out Competition thus a selection process through which those best able to cope win out So Growth both result and one aspect of conflicts between workers and business over organization of life and standard of living So Growth both result and one aspect of conflicts between workers and business over organization of life and standard of living

"How" of Growth Let total output = Q = f(L,K) Let total output = Q = f(L,K) Increases in output result from Increases in output result from  increases in productive activity  increases in factors of production (L, K)  increases in productivity These increases are achieved through "investment" These increases are achieved through "investment" Investment = mobilizing new means of production to expand productive capacity and using it Investment = mobilizing new means of production to expand productive capacity and using it Investment = putting more people to work Investment = putting more people to work

Four Representations graph of investment/growth graph of investment/growth circular flow diagrams circular flow diagrams investment circuits investment circuits mathematical model of growth mathematical model of growth

Graph of Investment/Growth t Q A B q1 q2 C S MP QQ

Investment Circuits Let M = money, L = labor, MP = means of production,...P... = production, C = commodity Let M = money, L = labor, MP = means of production,...P... = production, C = commodity Investment = M - C(L,MP)... P... C' - M' Investment = M - C(L,MP)... P... C' - M' Money buys labor and machines, puts them to work producing commodity C' sold in market for M' such that M' > M, i.e., there is a profit Money buys labor and machines, puts them to work producing commodity C' sold in market for M' such that M' > M, i.e., there is a profit The M exchanged for L is wages which is used to buy consumer goods, i.e., L - M - C, and then C is consumed to "produce" more L: L-M-C...P...L* The M exchanged for L is wages which is used to buy consumer goods, i.e., L - M - C, and then C is consumed to "produce" more L: L-M-C...P...L*

Combined circuits L - M - C....P.... L*. L - M - C M - L... P... C' - M'.... P.. M - MP

Circular Flows workers business W L C W MP profit(  )

Simple Growth Model Let TP = total output Let TP = total output Let MP = capital stock or means of production Let MP = capital stock or means of production D or  = change, so  TP would be increased amt of total output and  MP increased amount of capital stock or means of production due to investment D or  = change, so  TP would be increased amt of total output and  MP increased amount of capital stock or means of production due to investment assume a technology with fixed  MP/  TP =  assume a technology with fixed  MP/  TP =  Assume quantity & quality of labor fixed Assume quantity & quality of labor fixed Let S = surplus and S =  TP Let S = surplus and S =  TP

Given I =  MP,  MP /  TP =  and S =  TP Given I =  MP,  MP /  TP =  and S =  TP And the fact that I must = S, And the fact that I must = S, We can derive the following representation of the growth rate: We can derive the following representation of the growth rate:  TP/TP =  /   TP/TP =  /  So, the greater the savings rate a, the faster growth So, the greater the savings rate a, the faster growth So, the greater the technological efficiency, the smaller  and the faster the growth rate So, the greater the technological efficiency, the smaller  and the faster the growth rate

Example Given this representation of the growth rate: Given this representation of the growth rate:  TP/TP =  /   TP/TP =  /  Then if we assume a savings rate of 20% or.20 And a  of 1/2 or.5, then And a  of 1/2 or.5, then n The rate of growth will =.2/.5 =.4 or 40% n If tech efficiency doubled to 1/4 or.25 then n The growth rate would double to.2/.25 or.8 n Same w/doubled savings rate,.4/.5 =.8

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