What is economic growth? Why is it important?

Economists usually define growth as the growth of the “real social product” per capita. The “real social product”, however, is a statistical artefact with little empirical content. Actually, it consists of a vast totality of inconceivably heterogeneous products and services —cars, electricity, therapy hours, bananas, etc. Moreover, the composition of the social product is permanently changing due to demand shifts and technical and product innovations. Only money has the numinous capacity to gauge this obscure totality. To be precise, what money measures is not the goods and services themselves (which would be impossible), but private property rights over them. Growth, then, can be defined as the increase of the sum of realized property rights in an economy within a certain period, measured in terms of money. Seen from this angle, it is evident that growth does not depend simply on the sheer quantity and variety of goods and services produced and circulated (as the popular term “productivity” suggests), but likewise on their valuation by customers and consumers. The relative importance of these factors and their interaction cannot be explained by any “general laws”, only careful case-to-case analysis can help further here.

Growth is crucial because the economic system itself and almost all non-economic subsystems and social activities depend directly or indirectly on money as a resource, which only a growing economy can provide. Without growth, employment, profits and wages will stagnate or decline, so will tax revenues and, with them, the means to finance material infrastructure, health and welfare systems, defence, education, science, etc. Despite the rise of unemployment and poverty, cuts in social spending and welfare programs may become unavoidable. Because of such consequences, state policies to promote economic growth are finding broad support across almost all relevant political camps; what is different between them is only their views about how growth can be promoted appropriately (supply vs. demand-oriented policies, “green” vs. conventional growth, etc.).