A key factor that constrains people’s ability to generate goods and services is the scarcity of funding. Contrary to popular thinking, funding for consumption and production is not about money as such, but about real savings.
Note that various tools and machinery or the infrastructure that people have created is for only one purpose and it is to be able to produce final consumer goods that are required to maintain and promote life and well-being.
For a given consumption of final consumer goods, the greater the production of these goods the larger the pool of real funding or savings is going to be. The quantity and the quality of various tools and machinery (i.e., the available infrastructure) place a limit on the quantity and the quality of the production of consumer goods.
Through the increase in the quantity of tools and through the introduction of better tools and machinery a greater output can be secured. The increase in the quantity of tools and their enhancement requires funding to support various individuals that are engaged in the production of new tools and machinery.
This of course means that through the increase in real savings, a better infrastructure can be built and this in turn sets the platform for a higher rate of economic growth.
A higher economic growth means a larger quantity of consumer goods, which in turn permits more savings and also more consumption. With more savings a more advanced infrastructure can be created and this in turn sets the platform for a further strengthening in the economic growth.
This post was published at Ludwig von Mises Institute on Nov 10, 2017.
Follow on Twitter
Recent Comments