Throughput of resources, a first derivative of wealth, is of two kinds, gross and net. Net throughput is the flow of goods and services in the economy. Gross throughput is net throughput plus the resources required to extract and process wealth into these goods and services.
As resource depletion proceeds, net throughput becomes an ever smaller fraction of gross. This is because the wealth base depletion forces the need for ever more work, more resource throughput, to realise each unit of goods.
If an area of sea is so depleted in fish that far more work than formerly required becomes necessary to get each fish, the money price of fish increases. But this price-increase factor is not true inflation (which will be defined later). It is a component of the second differential of wealth, that is, throughput increase (TI). It is the rate of change of the ratio of gross-minus-net throughput to net throughput. It shall hereafter be called value inflation because, other things being equal, a unit of goods, even if it stays exactly the same, becomes more valuable as the throughput necessary to bring it to market increases, and this value increase must be reflected in an increased money price. But this is not the same as money inflation, the decrease in the value of money. In value inflation, the money may hold its value but the value of the goods is increasing.
The effect of improving technology is to reduce the value inflation rate by enabling, up to a point, a progressively more efficient extraction, transport, and processing of wealth into goods and services. That is, in the steady state where throughput is no greater than renewal, improving technology can cause a negative value-inflation rate.
Where the throughput rate exceeds the renewal rate, improving technology can to some extent, and up to a point, counteract the restrictive effect of the shrinking of the wealth base.
However, technology itself requires throughput to develop and maintain it; and if resources are being depleted, then technology must improve at a rate sufficient to balance out the effect of this depletion. As depletion proceeds, the rate of improvement in technology must tend towards infinity. This is clearly impossible and nothing can stop throughput from eventually beginning to decline as resources are steadily depleted by the throughput rate continuing higher than the renewal rate.
Two further short points can be made here. First, technology can increase a renewal rate up to a point. Second, the rate of improvement of technology is slowed, not increased, by declining economic health.
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Posts in this Series
- Review of 1988 edition of Economics for a Round Earth
- Ends and Means
- Evolution Not Revolution
- Notes on Evolution Not Revolution
- Concepts and Terms – What is ‘wealth’?
- The Throughput Chain
- The Derivatives of Wealth
- Global Inequalities in Wealth
- Economic Growth Redefined
- Misconceptions in Practice
- Borrowing to Invest to Get Rich
- Environment versus Economic Progress
- Digression: Pollution Red Herrings
- Digression: Depletion and Inflation
- Value Inflation – the Trigger, not the Bullet
- Living Standard and Quality of Life
- Digression: Resource Consumption, Jobs, and Hands Off
- When the Boom comes
- The Effect of People’s Expectations
- Hard Work – Virtue or Vice?
- Who needs the Snail Darter?
- More Dollars for Conservation?
- Non-renewable Resources – Leave Them in the Ground?
- Digression: Fast Breeder Nuclear Fission Reactors
- Minerals in National Parks – Leave Them in the Ground?
- Population and Wealth
- Left, Right and The Environment
- Digression: “So Long As We Profit, Costs Elsewhere Aren’t Our Problem”?
- Limits to Growth?
- Solar Energy – a Special Case
- The Solar-Powered Car
- Money Supply, Throughput and Inflation
- Real and Money Wages: Living Standards
- Digression: Caution about “Increases” and “Decreases”
- The Idea of Proportionate Flows Applied to Wages: the Great Depression
- Deficit Financing
- The Optimum Proportionate Flow Condition
- Digression: Thrift versus Spendthrift
- Digression: the Private Motor Car – a Basic Necessity?
- The Idea of Proportionate Flows Applied to Wages – the Stagflation of the 1970’s and 80’s
- Excessive Wages Can Cost Jobs
- Fight Unemployment or Inflation First?
- Digression: Work and Jobs
- Other “Job Creation” Schemes
- Visual and Noise Pollution
- Digression: Renewal and Recycling of Resources; Wages and Jobs
- Ratio Distortion and Consumption
- Aggregate Demand – Components and Internal Ratio
- The Slave Economy
- Employment and the Steady State
- Consumer-Led Recovery
- Interest Rates and Ratio Distortion
- Demographic Trends and Living Standards
- Digression: Bad Economics Good for Conservation?
- Coping with Aging Populations
- Stabilising the Human Population
- Costs – What Really Costs Us and What Doesn’t?
- Digression: Other Comments on Statements in UN Report
- Discussion of Costs Resumed
- Budget Balancing Methods – Cost or Gain?
- Digression: Government Expenditure – Government Employees
- Expenditure on Weapons