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Rethinking Economic Growth Theory From a Biophysical Perspective

Part of the book series: SpringerBriefs in Energy ((ENERGYANALYS))

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Abstract

This chapter investigates the implicit neoclassical assumption that distribution is unrelated to growth. This assumption is tested by investigating the relation between the growth of useful work (a biophysical measure of scale) and three different types of distribution: functional, debtor/creditor, and personal. In all three cases, the neoclassical distribution assumption is contradicted by empirical evidence. Instead, changes in the level of profit, the debt-to-GDP ratio, and the income share of the top 10 % are all found to be fundamentally connected to the growth of useful work. These results also provide empirical evidence that casts doubt on neoclassical exogenous money theory (in which debt plays no role in the creation of money) and trickle-down theory (which hypothesizes that an increase in income inequality should be beneficial to growth). The implication of this evidence is that a future energy contraction will likely exacerbate existing distributional issues.

The produce of the earth... is divided among three classes of the community... To determine the laws which regulate this distribution, is the principal problem in Political Economy.

{\rm– David Ricardo (1817})

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Notes

  1. 1.

    The catch is that one’s productivity depends upon one’s initial property endowment, which could be decidedly unequal. However, questions surrounding the equity of this initial endowment are generally relegated to disciplines outside economics (i.e., sociology).

  2. 2.

    We ignore the added complication that energy from food is also used to do work on systems that are external to the body (i.e., manual labor).

  3. 3.

    The rent category is complicated by the accepted practice of treating home ownership as a business activity. Thus, the BEA calculates an imputed rent for all owner-occupied buildings. To whom this rent is actually paid remains unclear.

  4. 4.

    On this topic, Keynes joked, “The [theoretical] conditions required for the “neutrality” of money... are, I suspect, precisely the same as those which will ensure that crises do not occur” (1971, p. 410).

  5. 5.

    Fisher’s original equation is \(MV \equiv PQ\), where Q is the quantity of transactions and P is the average price level. The right-hand side is equivalent to nominal GDP.

  6. 6.

    One might question how valid it is to treat banks as mere intermediaries when their business model becomes heavily geared towards speculative securities.

  7. 7.

    As Keynes pointed out, this argument falls apart if savings are hoarded rather than invested.

  8. 8.

    Note that we are comparing the change in income inequality with the change in useful work per capita (i.e., first derivatives). If we compare the level of income inequality (not its rate of change) with the rate of change of useful work per capita, there is no correlation at all (\(R^2=3.0 \times 10^{-4}\)).

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  1. Faculty of Environmental Studies, York University, Toronto, Ontario, Canada

    Blair Fix

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  1. Blair Fix
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Fix, B. (2015). Distribution. In: Rethinking Economic Growth Theory From a Biophysical Perspective. SpringerBriefs in Energy(). Springer, Cham. https://doi.org/10.1007/978-3-319-12826-9_3

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  • DOI: https://doi.org/10.1007/978-3-319-12826-9_3

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  • Print ISBN: 978-3-319-12825-2

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