On the Value of Economic Growth #4 – The limits of growth

4. The limits of growth

The aim of this thesis is primarily to elaborate on the normative meaning of growth and thus above all to criticise the second idea of the stationary state paradigm, i.e. the idea that growth is normatively irrelevant or undesirable. However, the first idea of the paradigm must also be addressed at this point – at least briefly – as the second idea of the paradigm is to a certain extent born out of the first.

4.1 The limits are too far in the future

The widespread view that constant growth is not possible is generally based on one of two arguments, which are explained in the following refutation:

1) Marginal utility argument. According to this argument, the inputs of growth – such as labour or capital – are subject to diminishing marginal utility. Ergo, the increase in input leads to a proportionally smaller and smaller increase in output until the marginal utility and thus the increase reach zero. This argument has its roots in classical and neoclassical growth theories, which identify population growth, resource consumption and/or capital accumulation as the main drivers of growth. However, current endogenous growth theories show that the cumulative effects of knowledge and technology on productivity growth do not reduce the marginal utility of the factors of production (cf. Muzhani 2014, p.326). Based on current growth theories, constant growth is therefore possible as long as humanity continues to accumulate knowledge and technology. This process does not appear to be slowing down in its exponential nature at present – on the contrary, in view of current developments, particularly in the field of artificial intelligence and robotics, an explosion of intelligence and thus an enormous increase in growth rates can be expected in the foreseeable future (cf. Bostrom 2017, p.2).

2) Planetary limits argument. This argument postulates that economic growth is limited by the limits of terrestrial ecosystems to cope with externalities of economic activity such as environmental degradation, emissions and resource consumption. In particular, the catastrophic consequences of global warming caused by industrial emissions have fuelled the idea in recent decades that the pursuit of further growth would ultimately lead to the destruction of the planet and thus the basis of human existence. The assumption that economic growth would destroy the basis of human life and thus set itself a limit is above all the premise underlying so-called post-growth or degrowth theories (cf. Schmelzer and Vetter 2021, p.19). However, these assumptions are based on an outdated economic understanding in which economic growth is inevitably accompanied by a higher throughput of resources and rising emissions (cf. Aghion 2023, p. 174) – for current growth theories, however, the accumulation of knowledge is central. Effects such as an increasing dematerialisation of the economy, better pricing of externalities through regulations and increases in the recycling rate lead to the empirically measurable effect that emissions and resource consumption have decoupled from growth in the most advanced economies in recent decades and are currently falling (cf. Ritchie 2021).

The limits of our planet in terms of resources and ecosystems do not appear to be a serious obstacle to further economic growth, as this can also go hand in hand with a reduction in resource consumption and emissions and is already doing so in many countries. In addition, the wealthiest societies in particular have the best opportunities to take measures to protect the environment. Furthermore, any existing planetary limits that are relevant to the absolute size of the economy appear to be of significance in the medium term at most. In the long term, it can be assumed that humanity can and will expand its habitat to other planets (cf. Beckstead 2014). In view of the fact that our universe is estimated to be home to around 1025 planets (cf. Siegel 2022) and that humanity would need billions of years to reach them all, let alone utilise them economically, even if we were to expand at the speed of light, it can be assumed that “the ultimate limits […] are probably tied to the energy output and computational capacity of the universe” (cf. Moller 2011, p. 182). All hard, physical limits to economic growth within our universe thus seem so unattainable for humanity at the present time as if they did not exist.

To summarise, it can be argued that, at least on the basis of current growth theories and the growth potential still available to humanity, a hard limit to economic growth cannot be identified in the foreseeable future. Even if there is a limit for absolute economic growth set by the framework conditions of our universe, it seems implausible that humanity will reach this limit in the foreseeable future, if at all, which makes these limits largely irrelevant for current discussions.

4.2 Optimistic induction and growth bet

Another reason for not assuming any limits to growth relevant to current normative discussions is that the history of economics and philosophy is littered with failed predictions regarding this limit. Adam Smith, Thomas Malthus, John Stuart Mill, John Rawls, Karl Marx, John Keynes, Herman Daly and many other influential economists and philosophers assumed that they were already at the point in human history at which the limits to growth had been reached or would soon be reached. To illustrate this with two examples – although such statements can be found among all the authors just mentioned:

Adam Smith assumed that the Netherlands had already grown close to its maximum level of prosperity in his time (cf. Smith 2007, p.79) – at that time, per capita GDP in the Netherlands was $4,431, today it is around $47,474 (Maddison Project Database 2020).

Herman Daly wrote in 1977 that achieving the level of prosperity of the USA at that time was impossible for all four billion people existing at the time and certainly not for an even larger world population (cf. Daly 2012, p.5). In 1977, per capita GDP in the USA was around $9,452. Global GDP per capita in 2021, with a world population about twice as large, was $12,236 (World Bank Open Data 2023). The impossible, according to Daly, has happened.

Historically, the growth potential has therefore always been systematically underestimated. Even if this is an induction, this experience suggests that we are also likely to underestimate growth potential today. Optimistically, we could induce from this that a great deal of growth is still possible, so that from the perspective of future generations, our current level of development will appear as precarious as that of Smith’s time, for example.

It follows from this optimistic induction that the maximum achievable plateau of prosperity and thus the limits of economic growth cannot be realistically estimated and that we can still hope for a lot of growth. If we also accept the premise that further economic growth is normatively desirable (which the paper goes on to elaborate), then it follows that we should act as if no immediate limits were imposed on growth as long as we see no evidence to the contrary. Because if we assume hard, immediate limits to growth and then, guided by this, no longer pursue growth politically and no longer try to achieve any further growth, it could happen that we are wrong. In that case, we would have foregone desirable growth simply because of our misconception that none would be possible. It is therefore more sensible to bet on this and act as if there is still more growth potential until it is actually exhausted.

Continue reading in part 5: On the Value of Economic Growth #5 – The value of infinite growth


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