<blockquote>
  <p>I can see how a new product can value more than the sum of its parts, but I don't understand how this can increase the wealth of a society.</p>
</blockquote>

<p>The wealth of society, in material sense, consists of what it can produce. Production of more products or services is the wealth. Economic growth is by definition a continuous increase in production. In fact the way how we most commonly measure economic growth is to just measure output per person by measuring GDP per capita.</p>

<p>Wealth is not money, money is just a measurement stick for value, storage of that value, and tool to simplify exchanges, but it’s not wealth in itself. However, because it is so ubiquitous many non economists equate it with wealth itself but that is just ‘money illusion’. If you would have billion \$ but could not buy even a loaf of bread with it you would be poor compared to a person with 0 dollars who has access to any goods or services they wish.</p>

<blockquote>
  <p>let's say a person can spend only what she earn as wage, so when a new product come out, this product is competing with all the pre existing products, someone should lose to someone else to win.</p>
</blockquote>

<p>In competitive market economy people  earn approximately what is their marginal product. When you go to work you either create goods or services for someone directly or indirectly and in competitive market you will get for that money equal to the worth of your marginal product. If you can produce more with  the same or less inputs you will also earn more money.</p>

<p>The reason why for example Solow-Swan model shows that economic growth depends on technology is that technology makes people continuously more productive year after year and allows them to produce more. This increases production is the real wealth, but besides that if people are more productive they also get pay more.</p>

<p>In real life not all markets are competitive so the above holds only approximately but empirical evidence shows that real wages indeed track net productivity over long term.</p>

<p><a href="https://i.sstatic.net/KooLX.jpg" rel="nofollow noreferrer"><img src="https://i.sstatic.net/KooLX.jpg" alt="enter image description here"></a></p>

<p>Besides increases in technology endogenous growth theory suggests that also savings rates and support for basic R\&amp;D and human capital can accelerate economic growth. The mechanism there is different than in Solow model but ultimately again what delivers growth is how the above boosts the productivity and output.</p>

CC BY-SA 4.0
2020-05-17T18:18:53.093Z
-1 without explanation is frivolous. Efficiency gains from trade (international micro)  considerations and macroeconomic growth are indeed not the same (as the other answer seems to imply).
Michael
CC BY-SA 4.0
2020-05-18T13:40:56.430Z
"Economic growth is by definition a continuous increase in production.". Products and services? But is not just increasing products, right? These products should be perceived as more valuable than old products, right? I'm starting to think that the perceive of value is more important than anything else. Kind of the bank race: if everybody wants to withdraw, it crashs, so the system depends that people believe their money is safe there, as for economic growth people needs to believe the products worth more.
Jp_
CC BY-SA 4.0
2020-05-18T13:50:04.377Z
@Jp_ it’s about both value and quantity. For example if in year t economy can produce one apple in year t+1 2 apples and in year t+2 3 apples and so on it would be considered growth. One apple may still have the same value to people but there is more apples to go around. However, also if there would be just one apple produced each year but it would be continuously improved in quality making it more valuable it would also count.
1muflon1
CC BY-SA 4.0
2020-05-18T13:56:50.557Z
But apples are consumed fast, so I might want to stick to the situation where the same amount of apples are produced every year. You are saying the growth, in this situation, comes because the apples improved in quality, but it could also be the same quality and just be advertised as better. Would it result in a real economic growth?
Jp_
CC BY-SA 4.0
2020-05-18T14:23:47.393Z
@Jp_ Apples are just as an example. You can use composite goods and services (G&S) bundles if you want to be more accurate. There is not much evidence that marketing can deliver growth. The economic growth is measured by looking at inflation adjusted growth of market value of final G&S. In order for marketing to deliver that it would have to continuously convince people that the goods produced have higher and higher value in real terms. I don’t know of any mechanism that could do that in marketing. Also, for growth it is not enough to have one of increase in value or production of something
1muflon1
CC BY-SA 4.0
2020-05-18T14:53:46.207Z
By what you are saying I see a great contribution of marketing in economic growth. And I don't mean only advertisement, our brains are easy to be tricked. A new launch with minimal changes in features (maybe only a re-brand), already obsolete the old and renew the value. I was trying to think in examples in technology, but for what I said I thought about toys for kids. But it could be extrapolate in some degrees for other markets as well.
Jp_
CC BY-SA 4.0
2020-05-18T15:01:51.543Z
@Jp_ I agree that marketing adds to the GDP of country, but let me stress again just an increases in GDP is not really economic growth it’s increase in level of GDP. Also although marketing does contributes to the economic activity it’s contribution is not as high as you might think. Marketing itself is not even big enough to have its own category on most national accounts. I tried to even find its contribution to the GDP but could not in national accounts because its coupled with other industries but I found source (see end of next comment) according to which it is about 1 percent of GDP even
1muflon1
CC BY-SA 4.0
2020-05-18T15:04:34.677Z
In the most service oriented economies such as UK or US. Also, even if you see contribution of marketing increase over time it’s is most often not due to marketing itself but underlying technologies such as internet etc. which allow for more efficient ‘production’ of marketing services. To the extent marketing grows GDP due to access to new technologies it’s the technology causing the growth not marketing. Promised source https://www.thecreativeindustries.co.uk/industries/advertising/advertising-facts-and-figures/advertising-percentage-of-gdp#
1muflon1
CC BY-SA 4.0
2020-05-18T15:09:22.700Z
To add to the previous answer. To show that marketing leads to economic growth you would have to show that assuming all other factors such as population growth or technology growth are constant/stagnant, the marketing itself can continuously increase GDP year after year. I would agree that in can raise the level of GDP one time but without technology growth or other factors I know of no mechanism how it could lead to actual economic growth.
1muflon1
CC BY-SA 4.0
2020-05-18T15:16:11.923Z
Let us [continue this discussion in chat](https://chat.stackexchange.com/rooms/108184/discussion-between-jp-and-1muflon1).
Jp_
CC BY-SA 4.0
2020-05-17T04:05:36.990Z
2020-05-17T04:17:03.303Z
2020-05-17T04:17:03.303Z
1muflon1
<p>Growth comes from resource consumption.  There are certain factors like demographics which inflate gdp. However the actual long term growth is always related to physical  reality. </p>

CC BY-SA 4.0
2020-05-18T07:15:58.553Z
2020-05-18T07:15:58.553Z
user28027
<p>I'm thinking about value generating. I hear it a lot in a innovation context, i.e. one should create a new product that a lot of people want to buy.</p>

<p>I can see how a new product can value more than the sum of its parts, but I don't understand how this can increase the wealth of a society.</p>

<p>The point of view that raised this question for me was: let's say a person can spend only what she earn as wage, so when a new product come out, this product is competing with all the pre existing products, someone should lose to someone else to win. </p>

<p>Where the economic growth of a society come from? </p>

CC BY-SA 4.0
2020-05-17T03:22:42.643Z
I would think that if we see this based on the Solow growth equation: $\ Y = A K^{1/3} L^{2/3}$. Then, the creation of new innovative products from the same pool of resources would be signified by an increase in A, the "total factor productivity".
Tan Yong Boon
CC BY-SA 4.0
2020-05-17T03:29:58.140Z
By a quick search about Solow I can see he attributes economic growth to technology change, is that right?
Jp_
CC BY-SA 4.0
2020-05-17T03:34:47.347Z
Is as if everybody is producing new products nobody loses. Would be kind of a competition between old and new.
Jp_
CC BY-SA 4.0
2020-05-18T13:51:46.517Z
1muflon1`s answer let me thinking: The perceive of value is more important than the production itself? Kind of the bank race: if everybody wants to withdraw, it crashs, so the system depends that people believe their money is safe there, as for economic growth people needs to believe the products worth more. Even if it's an old product that is advertised as more valuable..
Jp_
CC BY-SA 4.0
2020-05-18T15:17:50.083Z
Let us [continue this discussion in chat](https://chat.stackexchange.com/rooms/108184/discussion-between-jp-and-1muflon1).
Jp_
<economic-growth>
Where the economic growth of a society come from?
Jp_
# Where the economic growth of a society come from?

(Asked by: username_0 on 2020-05-17)

I'm thinking about value generating. I hear it a lot in a innovation context, i.e. one should create a new product that a lot of people want to buy.

I can see how a new product can value more than the sum of its parts, but I don't understand how this can increase the wealth of a society.

The point of view that raised this question for me was: let's say a person can spend only what she earn as wage, so when a new product come out, this product is competing with all the pre existing products, someone should lose to someone else to win.

Where the economic growth of a society come from?

**Tags:** economic-growth
> **Comments:**
> **username_1**: I would think that if we see this based on the Solow growth equation: $\ Y = A K^{1/3} L^{2/3}$. Then, the creation of new innovative products from the same pool of resources would be signified by an increase in A, the "total factor productivity".  
> **username_0**: By a quick search about Solow I can see he attributes economic growth to technology change, is that right?  
> **username_0**: Is as if everybody is producing new products nobody loses. Would be kind of a competition between old and new.  
> **username_0**: 1muflon1`s answer let me thinking: The perceive of value is more important than the production itself? Kind of the bank race: if everybody wants to withdraw, it crashs, so the system depends that people believe their money is safe there, as for economic growth people needs to believe the products worth more. Even if it's an old product that is advertised as more valuable..  
> **username_0**: Let us [continue this discussion in chat](https://chat.stackexchange.com/rooms/108184/discussion-between-jp-and-1muflon1).  

---

## 2 answers

### Answer by username_2 on 2020-05-17. Score: 5

> I can see how a new product can value more than the sum of its parts, but I don't understand how this can increase the wealth of a society.

The wealth of society, in material sense, consists of what it can produce. Production of more products or services is the wealth. Economic growth is by definition a continuous increase in production. In fact the way how we most commonly measure economic growth is to just measure output per person by measuring GDP per capita.

Wealth is not money, money is just a measurement stick for value, storage of that value, and tool to simplify exchanges, but it’s not wealth in itself. However, because it is so ubiquitous many non economists equate it with wealth itself but that is just ‘money illusion’. If you would have billion \$ but could not buy even a loaf of bread with it you would be poor compared to a person with 0 dollars who has access to any goods or services they wish.

> let's say a person can spend only what she earn as wage, so when a new product come out, this product is competing with all the pre existing products, someone should lose to someone else to win.

In competitive market economy people earn approximately what is their marginal product. When you go to work you either create goods or services for someone directly or indirectly and in competitive market you will get for that money equal to the worth of your marginal product. If you can produce more with the same or less inputs you will also earn more money.

The reason why for example Solow-Swan model shows that economic growth depends on technology is that technology makes people continuously more productive year after year and allows them to produce more. This increases production is the real wealth, but besides that if people are more productive they also get pay more.

In real life not all markets are competitive so the above holds only approximately but empirical evidence shows that real wages indeed track net productivity over long term.

[![enter image description here](https://i.sstatic.net/KooLX.jpg)](https://i.sstatic.net/KooLX.jpg)

Besides increases in technology endogenous growth theory suggests that also savings rates and support for basic R\&D and human capital can accelerate economic growth. The mechanism there is different than in Solow model but ultimately again what delivers growth is how the above boosts the productivity and output.

> **Comments:**
> **username_3**: -1 without explanation is frivolous. Efficiency gains from trade (international micro)  considerations and macroeconomic growth are indeed not the same (as the other answer seems to imply).  
> **username_0**: "Economic growth is by definition a continuous increase in production.". Products and services? But is not just increasing products, right? These products should be perceived as more valuable than old products, right? I'm starting to think that the perceive of value is more important than anything else. Kind of the bank race: if everybody wants to withdraw, it crashs, so the system depends that people believe their money is safe there, as for economic growth people needs to believe the products worth more.  
> **username_2**: @Jp_ it’s about both value and quantity. For example if in year t economy can produce one apple in year t+1 2 apples and in year t+2 3 apples and so on it would be considered growth. One apple may still have the same value to people but there is more apples to go around. However, also if there would be just one apple produced each year but it would be continuously improved in quality making it more valuable it would also count.  
> **username_0**: But apples are consumed fast, so I might want to stick to the situation where the same amount of apples are produced every year. You are saying the growth, in this situation, comes because the apples improved in quality, but it could also be the same quality and just be advertised as better. Would it result in a real economic growth?  
> **username_2**: @Jp_ Apples are just as an example. You can use composite goods and services (G&S) bundles if you want to be more accurate. There is not much evidence that marketing can deliver growth. The economic growth is measured by looking at inflation adjusted growth of market value of final G&S. In order for marketing to deliver that it would have to continuously convince people that the goods produced have higher and higher value in real terms. I don’t know of any mechanism that could do that in marketing. Also, for growth it is not enough to have one of increase in value or production of something  
> **username_0**: By what you are saying I see a great contribution of marketing in economic growth. And I don't mean only advertisement, our brains are easy to be tricked. A new launch with minimal changes in features (maybe only a re-brand), already obsolete the old and renew the value. I was trying to think in examples in technology, but for what I said I thought about toys for kids. But it could be extrapolate in some degrees for other markets as well.  
> **username_2**: @Jp_ I agree that marketing adds to the GDP of country, but let me stress again just an increases in GDP is not really economic growth it’s increase in level of GDP. Also although marketing does contributes to the economic activity it’s contribution is not as high as you might think. Marketing itself is not even big enough to have its own category on most national accounts. I tried to even find its contribution to the GDP but could not in national accounts because its coupled with other industries but I found source (see end of next comment) according to which it is about 1 percent of GDP even  
> **username_2**: In the most service oriented economies such as UK or US. Also, even if you see contribution of marketing increase over time it’s is most often not due to marketing itself but underlying technologies such as internet etc. which allow for more efficient ‘production’ of marketing services. To the extent marketing grows GDP due to access to new technologies it’s the technology causing the growth not marketing. Promised source https://www.thecreativeindustries.co.uk/industries/advertising/advertising-facts-and-figures/advertising-percentage-of-gdp#  
> **username_2**: To add to the previous answer. To show that marketing leads to economic growth you would have to show that assuming all other factors such as population growth or technology growth are constant/stagnant, the marketing itself can continuously increase GDP year after year. I would agree that in can raise the level of GDP one time but without technology growth or other factors I know of no mechanism how it could lead to actual economic growth.  
> **username_0**: Let us [continue this discussion in chat](https://chat.stackexchange.com/rooms/108184/discussion-between-jp-and-1muflon1).  

---

### Answer by username_4 on 2020-05-18. Score: -1

Growth comes from resource consumption. There are certain factors like demographics which inflate gdp. However the actual long term growth is always related to physical reality.


---

