Economic Growth Generally

Economic Growth Generally

Economic Growth, generally means economic development, more specifically it may be used to describe the outward evidence of the process of economic development. Growth' is then measurable and objective: it describes expansion in the labour force, in capital, in the volume of trade and in consumption. And 'economic development' can be used to describe the underlying determinants of economic growth, such as changes in attitudes and institutions.

There are various ways of defining and measuring economic growth. An increase in total real national income over a long period is one ('real' and 'long period' because changes in the value of money due to inflation or deflation and cyclical swings in output must be allowed for). But an increase in real national income might be accompanied by even faster growth in population, so that less would be available for each person and the (average) standard of living would have been reduced. A second measure of growth is therefore to divide the increase in national income by the increase in population, so that the indicator of economic growth becomes the increase in income per head. But difficulties remain. If all the increase in national income went to a small and relatively well-off section of the population, and the share of income going to the rest remained the same while their numbers grew, most of the population would be both relatively and absolutely worse off than before. If economic growth is to be regarded as a process which raises the real standard of living of a community as a whole, a third indicator of economic growth is income per bead supplemented by information on the distribution of income and on the extent to which national resources were being used to satisfy the preferences of consumers as a whole.

This meaning of economic growth requires value judgments on what is a desirable or undesirable change in the distribution of income. The main objective of economic growth, to raise standards of living, is generally a very long-term objective that may require living standards to be depressed in the short term, e.g. by saving to accumulate capital or to build national defences. To avoid the necessity for 'welfare' judgments, and for simplicity, many economists use the figure of real national income as the measure of economic growth. If required, adjustments for increase in population can then be made separately.

Other weaknesses in the attempts to define economic growth and compare it in different countries arise from the difficulties in measuring national income over time, particularly in under-developed countries where statistics are often little better than informed guesses.

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Since then his writings have in turn been increasingly reinterpreted as a special case both by some followers and by some economists who had not wholly accepted his writings. The content of economics is in a state of change, and this consumeraffairs.org.uk site is therefore not a final statement of economic doctrine.

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