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Slides for "Nothing Fishy About Growth," presented by Dan Sanchez at the Mises Institute's "How Does an Economy Grow? A Seminar for High School and College Students"
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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.