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Joseph Schumpeter on qualitative gains from capitalist growth

Here’s Joseph Schumpeter laying out some key features of the importance of (capitalist?) economic growth in 1942.

[This Lant Pritchett on broad based economic growth / Tyler Cowen’s Crusonia Plant a la Stubborn Attachments]

One way of expressing our result is that, if capitalism repeated its past performance [Schumpeter estimates average growth of 2% per year] for another half century starting with 1928, this would do away with anything that according to present standards could be called poverty, even in the lowest strata of the population, pathological cases alone accepted.

Nor is this all. Whatever else our index may do or may not do, it certainly does not overstate the actual rate of increase. It does not take account of the commodity, Voluntary Leisure.

[Russ Roberts makes this point about the internet and wikipedia in particular…]

New commodities escape or are inadequately represented by an index which must rest largely on basic commodities and intermediate products.

[Roberts and Cowen have different opinions about the quality of cars]

For the same reason improvements in quality almost completely fail to assert themselves although they constitute, in many lines, the core of the progress achieved—there is no way of expressing adequately the difference between a motorcar of 1940 and a motorcar of 1900 or the extent to which the price of motorcars per unit of utility has fallen.

[This is Andrew McAfee’s More from Less]

It would be more nearly possible to estimate the rate at which given quantities of raw materials or semi-finished products are made to go further than they used to—a steel ingot or a ton of coal, though they may be unchanged in physical quality, represent a multiple of their economic efficiency sixty years ago.

But little has been done along this line. I have no idea about what would happen to our index if there were a method for correcting it for these and similar factors. It is certain, however, that its percentage rate of change would be increased and that we have here a reserve that should make the estimate adopted proof against the effects of any conceivable downward revision.

Moreover, even if we had the means of measuring the change in the technological efficiency of industrial products, this measure would still fail to convey an adequate idea of what it means for the dignity or intensity or pleasantness of human life — for all that the economists of an earlier generation subsumed under the heading of Satisfaction of Wants. And this, after all, is for us the relevant consideration, the true “output” of capitalist production, the reason why we are interested in the index of production and the pounds and gallons that enter into it and would hardly be worth while in themselves.

But let us keep to our 2 per cent.

[… and back to Pritchett and Cowen]

There is one more point that is important for a correct appraisal of that figure. I have stated above that, broadly speaking, relative shares in national income have remained substantially constant over the last hundred years. This, however, is true only if we measure them in money. Measured in real terms, relative shares have substantially changed in favor of the lower income groups. This follows from the fact that the capitalist engine is first and last an engine of mass production which unavoidably means also production for the masses, whereas, climbing upward in the scale of individual incomes, we find that an increasing proportion is being spent on personal services and on handmade commodities, the prices of which are largely a function of wage rates.

Joseph Schumpeter – Capitalism, Socialism and Democracy

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