Profits only driver of economic growth

2019-02-15 10:36

There can be nothing further away from the truth than the claim of the Reserve Bank that monetary policy can stimulate economic growth as it is the single biggest delusion in economic science. There is absolutely no evidence that can prove this claim because it is just not that simple and interest rates do not nearly play such an important role in the economy.

The question is why would the price (interest rate) of money and capital play such a much more important role in the economic performance of any business and industry than the rewards for the other three basic production factors namely, land and raw materials, labour and management? There is just no reason at all!

Economic growth is driven and created by the profit motive today all over the world even in China who has accepted capitalism as the best economic system to create economic growth and that is also why it is generally accepted that China will become the major economic power in die world before 2030.

Profits are created by two drivers, firstly, by the changes in the prices of all the inputs (for example, gold ore) that are used in the economy against the changes in the prices of all the outputs (for example, gold) that are delivered. Secondly, by the efficiency of the process to convert the inputs into outputs, which must be improved by the application of the best and new technology developments to support the producers, manufacturers and other to deliver more outputs with the same quantity of inputs or to deliver the same quantity of outputs with fewer inputs (for example, how many tons of gold ore is needed to produce one kilogram of gold). 

Economic growth is, therefore, totally dependent on the profitability of the economy and the government should create an environment that will be conducive to the increase of the profitability and sustainability of each industry in the economy to be able to make a higher contribution to economic growth. 

Growth can only be created in a capitalistic economic system, while socialism and communism can only destroy it as proven by almost all the countries in the world years ago. 

The economist from the Harvard University in the USA, professor Ricardo Hausmann, who attended the colloquium on economic growth that was organised by the Minister of Finance, Tito Mboweni, who said that there is no “miracle cure," to achieve economic growth is simply wrong because “profits” is the “miracle cure," "formula" and "best practice" in terms of economic policy that can create economic growth.

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