Economic Growth: Old Theories, New Theories and Government Policy

Abstract

A consideration of what causes economies to grow is not a new one in the area of economic study. Adam Smith (1776) referred to it as An Enquiry into the Nature and Causes of the Wealth of Nations. From the time of the Industrial Revolution, industrialised countries have become accustomed to the fact that, on average, the value of their real national income and output will become greater every year. In other words, we expect economic growth to occur. We expect material living standards, as measured by per capita real income, to increase. In some ways, economic growth might be seen as fundamental to any ‘solving’ of the basic economic problem, implying that a greater number of infinite wants can be met. Despite increasing environmental concerns over the impact of economic growth upon all aspects of the world’s environment (see Chapter 6 on the economics of the environment), there remains a belief that sustainable and ‘appropriate’ economic growth is desirable. Our expectation of improving education, health services and private consumption could never be met without it.