The blogosphere wants to know: during the artificial boom, how can investment and consumption grow at the same time?
There are several answers. But one aspect of the response hasn’t received the attention it deserves.
Douglass North has some wonderful books showing how social stability and secure property rights fuel the growth of wealth through the expansion of the division of labor and the ever-increasing incorporation of once marginal non-economic goods into the division of production. . North not only documents how productive inputs like land came in and out of production, and also explains the how and why of this – and the consequences for social wealth – using little more than a marginalist analysis of first year applied to work and production.
Largely ignored, Friedrich Hayek has an equally powerful discussion on the same subject, explaining the economics of the existence of unsolicited resources (therefore not scarce and non-economic) but of latent value, currently unused but potentially exploitable – potentially productive goods. exploitable once the temporal depth and complexity of the structure of capital are extended beyond its current dimension. Imagine some rare earths currently unused and usable in the production tools dedicated to the production of nuclear power plants. (See Hayek’s discussion, The Pure Theory of Capital, pp. 59-63, [Collected Works Ed., pp. 80-83] )
Put simply, during the artificial boom, the depth of the temporal and complex dimensions of the capital structure extends beyond the point where they can be maintained, temporarily adding to output – and temporarily valuing – previously latent inputs that will lose their value. value when the dimensions of time and complexity of the economy shrink. Things that were temporarily considered to be economic goods suddenly lose their economic status – they are no longer in the production chain, they are no longer in demand, and they are no longer considered scarce for economic purposes. They are simply no longer economic goods and are no longer counted in GDP. And they no longer contribute to production.
These same considerations should apply to the highly specialized skills of the workforce – noneconomic but having latent value before the artificial boom, valuable and contributing to production during the artificial boom, and again noneconomic and not not contributing to production after the boom.
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