For some commentators, the tendency to grow is, historically, one of the most attractive aspects of capitalism and sets it apart from many earlier societies whose institutions did not tend to foster growth. From this point of view, capitalism is a very progressive historical development that brought rapid development and expansion to human society.

For others, this capitalist tendency to growth is far from an unmixed blessing. For a long time there have been those who have seen in this tendency an explanation for such phenomenon as imperialism Ñthe expansionary conquest of other lands by capitalist nation states. More recently, the desire for unrestrained growth has been attacked for ignoring the environment and natural limits on resource availability (e.g., the Club of Rome report on Limits to Growth). The capitalist philosophy of more, more, more, has come under attack for ignoring the quality of life in the pursuit of quantity.

In order to evaluate such praises and such condemnation, however, we need to look more closely at what it means to speak of growth in this kind of society.

The Meanings Of Growth

To begin, we can define growth quantitatively in two ways. First, in the manner of most economists, we can define growth as increases in the amount of goods and services produced for sale. This is a narrow definition that focuses on the end product of production.

One major measure of such output used for estimating growth is gross national product (GNP). GNP is equal to the market (dollar) value of all output produced in a given period, usually a year or a quarter of a year. Economists add up the annual production of commodities to obtain total production for one year, for example, then do the same for the next year and compare the two. If GNP in the second year is greater than the first, then there has been growth. GNP thus measures the total flow of output in a given period. Increases in that flow from one period to another are called growth.

The only difficulty lies in the process of adding up production, the process of aggregation as it is called. How do you add up machines and oranges, football helmets and automobiles? The concept of GNP is based on taking the market price of each commodity, multiplying by the number of that kind of commodity and summing over the whole range of output. For commodities which have been produced but not yet sold, i.e., added to inventory, their value is estimated on the basis of the price of the same goods that have been sold. There are a number of difficulties with this process which we will discuss later on when we explore GNP and national income accounting in greater depth, e.g., the services of housework are not counted because they are not sold on the market and thus have no market value.

However, such difficulties aside, this is the method used for aggregating output. The assigning of a monetary value to diverse objects should seem somewhat peculiar and in need of explanation and justification but we will leave that to later discussion.

Once we obtain unique money values to characterize the total amount of output produced in given periods, then we can look at the change in that value over time. This we can do either by simply looking at the changes in the numbers or by plotting the values on a two dimensional graph where one axis is measured by time and the other by dollar values.

In the growth graph used in one of the slides, we can see this graphing in which the amount of total or aggregate output is measured along the vertical axis and time is measured along the horizontal axis. In this space we can represent production at time t by a point A in the plane of the two axes. If production in a subsequent period t plus 1 has increased (represented by point B ) then we say there has been growth. The growth rate tells you at what speed production is increasing, i.e., if production rose from 100 to 110, then the rate of growth is 10 per cent. For general theoretical purposes we do not plot growth as a series of discrete points but rather assume continuity and present the pattern of output over time as a continuous function Q = f(t) .

A second definition of growth is broader. Here we can define growth as increases in all of the elements of the economy involved in the production and sale of goods and services. This would include not only increases in the number of commodities but also increases in the number of machines, factories, workers, interactions among workers, between workers and business, the expansion of training plans and education, and so on. This is clearly a more comprehensive understanding of what is included in the "wealth of nations" as Adam Smith called it.

Although this definition is broader, neither it nor the more narrow concept leave much place for qualitative considerations. They are both concerned with adding on, with quantitative change in the number of items. The focus is on "more" rather than on "what kind." Yet we intuitively know that in the growth process there is some kind of qualitative change. Economies rarely grow just by becoming larger agglomerations of the same things and of those things related in the same ways. Within growth, things change. The products change; the means of producing them change. The people who work change. The interactions among workers and between workers and business change. Growth inevitably involves not just more, but difference.

Moreover, there is conflict and struggle over the evolution of these differences. Business wants to keep change within the limits of its own survival. It wants changes which do not threaten any fundamental alteration in its own pre-eminence. Workers struggle to change their working conditions, their access to social wealth, the amount of time their lives are subordinated to work, and so on. Consumer groups demand changes in the products business dreams up; they want those products to be safer, cleaner, more useful. Many of these changes are costly to business. They raise costs and reduce profits as they challenge the autonomy of business to determine what will be produced and how. So business resists such changes and tries to shift the costs to the consumers (workers) in order to maintain its own profits.

As long as hierarchical relationships exist, there will be conflict over the distribution of wealth and power. Thus, in the capitalist system which has hierarchy at its very core, conflict over change is endemic and an unavoidable concomitant of growth.

For an individual, growing up is a process full of change and conflict. It doesn't just mean getting bigger or older, it involves qualitative change. It involves becoming more complex, learning new ways of being and doing, developing one's sensitivity, curiosity and understanding, and learning how to think critically and independently. It always means conflicts with parents over hierarchy and the distribution of power in the family. It also means conflict with self --the old childlike, dependent self that identifies with parents and the newly emerging self that must learn to cope with independence, aloneness and the world at large.

Similarly, with societal growth, there is an ever evolving conflict around complex changes in social relationships, around changes in the texture, pattern and content of relations of hierarchy and domination. Dominant social groups (such as capitalists in capitalist society) seek to retain their power to determine the direction of social evolution and those who have been dominated (workers in capitalist society) struggle to reduce or eliminate that same domination and to change distribution of power.

Historically speaking, those who emphasize the progressive character of the emergence of modern business society are partially correct. That emergence did break certain traditions of village life and feudal bonds which limited change. As they claimed new freedom for their new kinds of activity, capitalists created an ideology of diversity and freedom of action to explore the world and its possibilities without undue restraint from custom and tradition. The capitalists did open the door to a new sense of the multivariate possibilities of life. They created a new sense of the infinite Ñone very different from the old religious evocation of eternity. At the same time, however, they closed a great many other doors. As they imposed their own kind of society around the world they destroyed many others. A few cultures were assimilated, many were simply wiped out. The ideology of diversity and freedom proved to be a rationalization for the subordination-annihilation of the many by the one.

Moreover, it has become increasingly clear that just as many traditional cultures sought to bind change within limits, so too has business sought to subject and subordinate the expansion of life possibilities within its own insitututional structures: the market, profits and the state. All things are not really possible in capitalism. They are permissible only if they contribute, directly or indirectly, to profits. Anything which threatens business profits or its pre-eminence in social and political matters is resisted. Any evolution which challenges the centrality of work and production in social life is heresy and is condemned. As capitalism developed, its greatest contribution to diversity turned out to be the diversity of jobs it created and forced people to fill.

From these few observations, it should be clear that in any serious study of growth there must be concern with qualitative as well as quantitative change. For some economists this idea is embodied in the term "development" or "economic development" which they prefer to "growth." They are happy to allow the term growth to be used in the narrow sense of the expansion of output. And they use the term "development" to talk about a situation in which growth also involves qualitative change in economic structures and social relations. Unfortunately, however, the terms development economics, or theory of economic development, have come to be associated with the analysis of Third World economies and have largely lost the broader connotation of growth with change. Therefore, rather than defining two different terms, it seems simpler to specify that growth always involves change. At any rate we should be primarily interested in the basic issues and not in the choice of terms.

The Why of Growth

Once we have defined the meaning of growth and understand it to be central to the organization and evolution of society, then we can ask a number of further questions. The first of these concerns the reasons for growth. WHY does our economy grow? What are the forces which push the expansion of production and the associated increase in the amount of work? This is not a rhetorical or philosophical question; if we can understand why the economy grows then we can gain further insight into the meaning and implications of the breakdown of that growth which characterizes the present crisis.

I will review three reasons that have been offered for growth, for the "why" of growth. The first is that growth is a natural consequence of and reaction to the growth of population. Not only does the expansion of population produce more workers who by working can increase output, but the expansion in the number of people leads to an expansion in the needs of society and production is expanded to meet those needs.

To this one might respond: but there is also a growth in the amount of production per person. Even if population does not grow, production grows to meet expanding needs.

We can also respond that there is no guarantee that expanding needs of an expanding (or constant) population will in fact be translated into production. The usual explanation of the mechanism by which this happens in "market" economies is the market itself. By demanding more goods, people push prices up and make it more profitable for business to increase production. But there is a logical leap here that often goes unnoticed. Increasing needs are not necessarily translated into increasing demand in the market. The relation between need and demand is not immediate. "Demand" to economists means "effective demand" in the market, i.e., money demand, not only the willingness or desire, but also the ability to buy.

There are many starving people in the world who have vast and pressing needs. Yet if they have no money, then their needs can not be translated into demand. To use a metaphor often employed by economists, the market is like an election in which consumers vote with their money for various commodities. But this is a rigged election because those with the most money get the most votes, and those with none, get no votes at all. We should note that this difficulty can exist in state capitalist regimes, such as the Soviet Union, just as it can in market economies. Except in rural areas where people are allowed some land for their own use, most Soviet workers could only obtain consumption goods through the market and that took rubles.

Therefore, we can see that there is much to be explained between an increase in need and an actual expansion of production, i.e., growth.

The second, rather common, explanation of why growth occurs Ñat least in market economiesÑ is that growth is the result of competition among business firms. Corporations compete with one another and growth is a fundamental strategy of that competition. It is the fastest growing company that is able to take over or squeeze out its competitors. But why do firms compete?

One simple explanation is that their managers are just greedy for profits and expand to earn more money. But this is surely not satisfying. The operations of giant corporations today, with their multiple production units, dozens of subsidiaries in tens of countries, are hardly the material manifestations of one or even a few individuals' greed. Better to posit, as other have, that the need for expansion is a necessity for survival accepted as a basic law of business activity. The entrepreneur or corporate board that renounces growth will soon find it necessary to fight for survival from more aggressive rivals.

But why do these other firms encroach on the non-growth firm's territory? Being involved in business is producing products and trying to sell them. With no evidence of what the market will absorb other than inventory fluctuations, and with advertising to move products, every appearance of a new firm, or even of a new product, is, in itself, competition for the consumers' dollars and a threat to every existing product and firm in the market.

In this view, business is the dynamic growth force and it forces its growing wares down the throats of consumers with the spectacle of advertising, subliminal seduction and by playing on people's fears and insecurities (e.g., without this shampoo all the men will be looking at other women!). In this model, the general population plays only a passive role.

The problem with this view is that it ignores the autonomous demands from all sectors of the consuming labor force Ñdemands for more and better quality goods and services. It ignores the wage struggles of workers who want more money to be able to enjoy more social wealth during their free time. It ignores the demands of the destitute for access to social income. It ignores the attacks on the quality of products by consumer groups, and so on.

All of these considerations lead to a third approach: namely, that there is growth because the population demands it. This differs from the first approach because there is an assertion about what people do to guarantee that their needs are converted into output. The expansion of population produces a simple quantitative increase in needs. The self-development of those people's lives produce a qualitative change. Their desires to explore and enjoy life become more complex over time and demand new instruments of experimentation with life. Moreover, and here is the important point, people, in their roles as workers or consumers, take action to realize their desires. And by their actions, to the degree they are successful, they force business to respond. Business either meets those needs or faces social unrest and possible extinction.

In private business economies, such as that in the United States or Western Europe, much of this conflict is diffused and remains at the level of conflicts between workers in particular companies or industries and their management. Sometimes needs coalesce into confrontation with the state-as-collective business agent, e.g. in the urban upheavals of the 1960s when large numbers of urban poor demanded more wealth in a violent manner. But generally, conflict is more diffused. The multiple levels of authority act to absorb and dissipate unrest and demands that outstrip business willingness or ability to respond.

In the so-called socialist countries, such as Poland or the USSR, where the state owned most of the capital, conflicts were much more focused. This is a political weakness of such state capitalist regimes. Precisely because of their centralized control, discontent and struggle over the fulfillment of needs is directed against a single enemy. This is one reason for the widespread existence of secret police and political repression in such regimes. They are needed to offset the lack of diffusing mechanisms characteristic of the private enterprise organization of production.

In this view, competition must be understood to be the process of selection by which those managers least able to cope with meeting or controlling the demands of people tend to fall by the wayside. Simultaneously, those managers who can both meet needs (when translated into demand via money) and limit needs (the wage demands of their own workers) survive the competitive process. In other words, to be a successful manager means, on a deeper level, to be a better manager of the work and consumption of society.

If growth in output is a response to people's needs/demands/struggles, then what happens to the argument that work is central, that work is the means by which business organizes society? I would say the following: it is useful to see the actual growth process as an outcome of two forces: business efforts to retain and expand its pre-eminence in society by putting people to work and selling their products to meet those people's demands, and workers efforts to consume more and work less.

As we have seen, these worker/consumer demands cause real problems for business. To the degree that it tries to meet rising demands by raising productivity, it is often forced to substitute new technology and new machinery for workers. This reduces the need for labor. In the aggregate this meets with workers' demands but not with business'. If the number of workers required in a given production process is being constantly reduced, then in order to create enough work to keep people off the streets, business must re-invest constantly to create new production and new jobs. Competition is one process of selecting and promoting those managers who best succeed in grappling with this complex problem. Selective promotion within state capitalist regimes is another. Therefore, we can say that growth is both the result, and one aspect of the conflicts between labor and business over the organization of life and the standard of living.

The How of Growth

Let us now turn from musing on the why of growth, to ask how it is accomplished. What is involved in the growth process? What has to happen for there to be steady expansion of output?

To help us keep our thoughts clear about this question, let us return to the two-space graph of production over time for a first representation of the growth process. On the assumptions that population is constant and that equipment and plant are being used to their full capacity, then the only way to increase output in the next period will be for some part of current production to take the form not of consumption goods but of the means of further production. In other words, along with producing goods to consume in this period we must also produce some machinery or new technology that will allow our given labor force to increase its output in the next period. In order for output to grow over time, some of what is produced in each period has to be plowed back in the form of more instruments of production. (As a farmer does when he plows some of his grain harvest back into the ground to grow a new crop.)

Looking at another of the graphs used in the slides, let us suppose that at a given point in time t (1) there is production Q (1). Now some part of this production, perhaps the largest part, is going to be consumed as final goods and services (C ) . At the same time, some part of this production will be a surplus (S ) that will be produced in the form of productive equipment or means of production (MP ) . It is this extra MP which, when put to work, allows the expansion (ÆQ ) of output. (Note: Æ (delta) stands for "the change in.")

The production of Q (1) , because it involves the production of MP is going to require more work than it would if MP were not produced and Q (1) were, accordingly, smaller. The generation of growth requires either extra work or the diversion of work from present consumption to the production of MP . In short, if you want more goodies tomorrow, then you must work extra today producing new tools. Also, the amount of extra work required will diminish with the growth in productivity.

Let's look at two complications. First, it has been implicitly assumed here that equipment in place continues to function in the next period along with the new equipment. But it is more realistic to recognize that every year some equipment wears out and must be replaced, simply in order to maintain output at its present level. Because of this we know that even in a zero-growth economy there must be some surplus production each year to provide replacements, to cover wear and tear. Economists call this replacement depreciation.

Second, it may be that instead of producing more equipment for existing workers, there will also be many cases in which the expansion of output is accomplished by an expansion in the labor force as well as an expansion in the stock of equipment. Some part of the surplus may have to take the form of a wage fund to hire more labor. How much of a fund is necessary will depend upon how quickly the new labor begins paying its own way, i.e., generating the increase in output out of which it will be paid. If the new production comes on stream quickly and results in rapid sales, then the amount of initial wage fund will be small. If the products involve long term production (such as large ships) then the fund may have to be substantial. In general, it is assumed that current production pays its own way and no wage fund is required. Thus the new labor is paid out of the value of its own production and some part of ÆQ takes the form of wage goods, articles of consumption (C ) bought by the new workers.

In this case, where output is increased by putting more workers to work with no increase in productivity, there will be growth in total output ( = Æ # workers times output per worker). But by definition, because output per worker has remained the same, there will be no increase in output per capita, i.e., no increase in the standard of living. For there to be such an increase, productivity must rise.

Let's look at one last example. Let us suppose that the people in our society decide that they are going to hold population constant and are also interested as much in reducing the amount of work they have to do, as they are in increasing their consumption. In this case they will certainly want to devote some of their labor to developing new technologies to raise productivity. As we saw in the last chapter, the fruits of such increases in productivity can be taken either in the form of more wealth (as in the example above) or in the form of less work, or in some combination of the two. In the present case, if we suppose our workers want some of each, then some ofS will take the form of new technology, embodied in new kinds of MP . Thus, as output grows they will have to work less and less.

In all these cases where production has grown, the same considerations will apply to each subsequent period. What is done with the increased production will determine the level of output (and the amount of work) in the next period (e.g. t (3) , t (4) , etc.). Therefore, we can see that the rate of growth over time will depend on the amount of work and the proportion of current production devoted to immediate consumption or to the means of production.

In our discussions of growth up to this point, everything has been in terms of real material factors. The total amount of output, even though we add it up with money values, has been discussed in terms of the actual means of consumption, the means of production, machinery, plant and other equipment, work done, and so on. This is as it should be. First and foremost you should try to understand economic processes in such real, concrete terms.

However, in the real world things don't always appear immediately in such a concrete manner. There is another element: money. Before workers can consume and before business can buy its portion of output, money must be exchanged for the real goods and services. In order to be sold the commodities produced (C and MP ) must have monetary equivalents. In the simple model we are using here, we will take those equivalents or counterparts to be wages (the money exchanged for C ) and profits (the money spent on MP , and in the case of a wages fund, on labor).

To clarify the relationship between the real, concrete elements of our analysis and money, let's look at a second way of representing the economic process that produces growth, i.e., the process economists call investment.

The following representation of the investment process is useful for visualizing the sequence of events and their relationship to each other:

Business starts each period with a certain amount of money (money capital (M )). With that money it buys commodities (C) . What business buys is what it needs to produce: the means of production (MP) and, if it needs to advance wages, or hire labor (L). Naturally, it buys MP from other businesses, and it hires L from individuals or groups of workers in the labor market.

(Note: The reason I speak of "hiring" labor rather than buying labor is because what business is buying is the workers' capacity to work. Whether, or to what degree, that capacity is actually converted into real labor depends on what happens on the shop floor or in the office. As every manager and every worker know, the hiring of a worker is not the same as obtaining a given amount of labor. Even in slavery "labor" can never really be bought Ñas every slave owner knew as they bought whips and chains along with the slaves.)

With both MP and L in hand, business, if all goes well for it, then puts the workers to work with the MP in production (P ). The outcome of production is a new product, a new commodity (C' ) to be sold on the market for only (M' ). The prime in C' and M' symbolizes an increase in the value of the product over the initial investment of M - C. Now M' minus M is equal to profits (revenue minus costs) and because capitalists only invest when they earn a profit, then we assume M' - M > 0 .

This whole process makes up investment. This is what actually occurs when there is a "plowing back" of part of current output (in the form of MP ) in order to expand production. The above representation can symbolize the process from the point of view of an individual firm or from the point of view of the whole. (In the case of the firm, MP is bought from other firms. In the case of the whole MP , is simultaneously a part of C'. )

But what happens to wages? In the previous discussion total output equaled C goods and MP. If MP is bought by profits, who buys C ? The workers of course. They sell their ability to work (LP) in exchange for money wages (M ) and then turn around and spend those wages on C. We can symbolize the process like this: L - M - C.

If we take into account the way "consumption" is organized to reproduce life as labor, i.e., as the willingness and ability to work, then we can see consumption (C) as a form of work that produces new labor (L*)

L - M - C ...P... L*

We can then symbolize the entire circuit of investment together with the circuit of wages in the following manner:

circuit of labor L - M - C ...P...L*

circuit of investment in production M - C(L,MP) ... P ... C' - M'

These circuits thus represent the investment and growth process in which MP and L are mobilized in production and the outcome is a level of commodity production that was greater than before. We can see the position of money in this process, how it acts as a medium of exchange and, how as wages it is the equivalent for the consumer goods which are produced, and as profits it serves to buy new means of production and hire new labor.

Let us now look at a third representation of the growth process. (The first was the graph of output rising over time. The second the above circuits.) This third symbolization, like the second, emphasizes the exchange processes as well as the distribution of inputs and outputs.

Assume that we have our two basic social groups of capitalist society, workers and business. Workers hire themselves out in exchange for wages. Then later on they give that money back to business in exchange for consumer goods. We can symbolize this with a new circular diagram portrayed in one of your slides.

What about the means of production and the money spent on their purchase? They are not obtained from the workers but from other businesses in exchange for profits. In the right hand diagram above this is represented as an exchange that business makes with itself. It is an exchange internal to the business sector.

Please note: these three representations of the relationships involved in growth, including the relationship between the real goods and money, are simply three ways of organizing our thinking about the subject. They do not "prove" anything; they are just helpful notations.

Now, I want to give you a fourth way of thinking about the growth process which is a little different. In this case we will look at a mathmatical model of growth. Let us begin making the following assumptions:

1) TP = total output, 2) MP = the capital stock or the stock of the means of production, 3)d = change, so that dTP would be the increased amount of total production and dMP would equal the increased amount of capital stock, 4) we also assume a given technology such that there is a fixed relationship between the amount of capital stock and the amount of output. Mathematically we can represent this by letting the ratio of dMP to dTP be equal to some constant number ß (beta ). If for example ß is one half, then an increase in MP of one unit will result in an increase in TP twice as large. 5) let the quantity and quality of labor (hired and performed) be constant; 6) let S = surplus and let us assume that S can be expressed as some percentage a (alpha) of total output (TP) which is constant, so that S = aTP ; 7) let us assume that all the surplus is invested, then S will = I = dMP.

Now, if all this is true, then dMP = a(TP) . Furthermore, if we then take into account our assumptions about technology, we can draw some conclusions.

1) rearranging dMP = ß dTP (from dMP/dTP = ß, in 4) above)

2) substituting a(TP) = ßdTP (from 6) & 7) above)

3) dividing by TP gives a = ßdTP/TP

4) dividing by ß, dTP/TP = a/ß

This conclusion tells us something about the ratio of the change in total production to total production --which is to say the growth rate. If total production was originally 100 and the increase was 10, then the growth rate would be 10/100 or .1 or 10 percent. This, of course, is a measure of how fast the economy is growing. Now, what the conclusion tells us is that how fast the economy will grow will depend on the magnitudes of a and ß , that is to say by the relative size of ths surplus and by productivity. If a increases (surplus goes up), then the growth rate will increase. If ß goes down, which occurs when the change in total output associated with a given increase in MP goes up, then the growth rate will also increase. Which is to say: if technology changes so as to increase productivity, then the growth rate will be greater.

This model illustrates both the growth process we have been discussing and one of the common methods used in economics. Economists start with simple models like this one and then add new assumptions, or loosen up old ones to make the model more complicated, and hopefully, more closely representative of real life.

In simple models like this one, you should be able to see the relationship to the other things we have been talking about fairly easily. As the models get more and more complex and the mathematical manipulations more technical, the number of intermediary steps which have no empirical counterpart increase. This is what makes mathematical model building a "formalism" or a "formalistic" method. In such models, what becomes important, above all, is whether the conclusions of the formal manipulations tell us something useful about the real world.

This particular model is a classic one in economics. With some further elaboration it is known by the title of the "Harrod-Domar" growth model. It is one to which we will return.

These four representations: 1) the growth graph, 2) the investment circuits, 3) the circular flow diagrams, and 4) the growth model, are tools for thinking about the economic growth process, and thus inversely for thinking about what kinds of changes might be responsible for a crisis or breakdown in growth. The more of these tools you have, the more diverse the perspectives from which you can consider these problems.

What each one of these four representations shows is a division of the total product, between consumption and investment, between wages and profit, between consumption goods and means of production or investment goods. All of these models can be seen as theorizations of a set of relationships within which there is conflict. When workers demand more wages in exchange for their labor power, that is an assault on business profits, at least in the absence of productivity gains. When consumption expands in this case it means a reduction in the amount of production that can go into the means of production. With productivity growth, there can be a growth of both profits and wages, of consumption goods and production goods. But in the short term each decision to allocate more of the temporarily limited resources to one kind of production, means less for the other.

If this sounds familiar, it should. It is the kind of consideration common to those who understand economics to be defined as a study of the allocation of scarce resources among competing ends.

These economists often picture the trade-offs in this way: given technology, the availability of labor and the means of production or capital stock, we can produce more means of production or more consumption goods. The more you produce of the one the less you can produce of the other. We saw this in the discussion of "opportunity costs" in our previous examination of the notion of scarcity. Growth, in this diagram, is represented by an outward shift of the production possibility frontier. Balancing demands so that conflict leads to innovation and productivity growth instead of to crisis and the breakdown of growth is one of the most difficult problems faced by the managers of our business society. As we have seen, the demands of workers can force business to innovate and respond positively Ñbut, as we will see, they also risk having a negative business response create a crisis.

Concepts for Review

gross national product
aggregation
commodity
growth rate
development
need and demand
competition
depreciation
wage fund
investment
hiring labor
circuit of labor
circuit of investment
circular flow
Harrod-Domar growth model
production possibility frontier

Questions for Review

1. Explain the definition of gross national product and discuss some of the difficulties that might occur in trying to aggregate output in a country with a large subsistence peasant population.

2. Suppose GNP in 1991 was $1513.8 billion, in 1992 it was $1485.4 and in 1993 it turns out to be $1545.2. What was the growth rate from '81 to '82 and what will it have been from 82' to '83?

3. Take the two quantitative definitions of growth, compare and contrast them and then explain some of the qualitative complexities they ignore. Which ones do you think should not be ignored?

4. Explain and critique the three explanations of why growth occurs. What are their advantages and deficiencies? Have you read anything in the newspapers this semester that illustrates these explanations?

5. Explain why it is necessary to generate a surplus in order to have growth. What form must this surplus take?

6. What is a wage fund? Give some examples of where it might be necessary and where it might not be necessary.

7. Suppose you think people in society should have to work less. Under what conditions of growth (or zero-growth) would this be possible if they still wanted to maintain or raise their consumption.

8. Explain the difference between "buying labor" and "hiring labor." Does this distinction seem useful to you?

9. Suppose we were to rewrite the circuit of labor in the following manner: L - M - C ... P ... LP' so that it's form is analogous to that of the circuit of investment. What kind of interpretation would you give this revised representation?

10. Supposing the Harrod-Domar model of growth that we have discussed above, let ß equal .5 and a equal .1. What will be the growth rate of such an economy? What will happen to the growth rate if you double the proportion of output taking the form of MP ? (a rises from .1 to .2). What measures could you take to double the growth rate from its original level? Explain these measures in real terms as well as in mathematical terms.