How can we understand what is happening to the economy if some of the basic principles are incomplete. I am thinking of the idea that there are two factors of production – labour and capital. I believe we also have to take into consideration the resource base.
This note was prompted by an article on Bloomberb by Satyajit Das titled Productivity Won’t Save the World in which the focus of the analysis is labour and capital. I do not know the origin of this idea but I understand Karl Marx promoted it. Neither a shortage of labour or a shortage of capital are satisfactory explanations for current economic problems. There are a lot unemployed or underemployed people and there is no shortage of bank credit which makes up most of the capital we need.
It seems current economists sometimes give lip service to the concept of scarce resources and then assume we have available unlimited energy and mineral resources. This writer believes current economic problems are because we have used up the most easily accessible resources. Yes, there are lots of energy and minerals on this planet but the cost of extracting them reduces their value. It is little wonder the economy is going down.
The focus on labour and capital is convenient for those who want government to control the economy.
Mr. Das starts his article with the old line that Thomas Malthus was wrong because we have survived more than 200 years since he made his dire prediction and then proceeds to point out it may now be coming true as increases in productivity are declining. Some years ago this writer took an industrial first aid course which was focused on a written and practical exam. “If the examiner asks if your patient requires rapid transport to hospital,” said the instructor, “an appropriate answer would be ‘not yet’ to show that you are monitoring the situation.”
Since Malthus made his forecast other people have warned of problems with the resource base and so for they have not happened. The lesson from the first aid instructor is valid here too. Not yet.