By Mark A. Pribonic
Mises.org
July 17, 2013

On a recent trip to Rome we spent an entire afternoon walking around the Roman Colosseum and the Roman Forum. As we trekked around the 2,000-year-old ruins that once were the epicenter of western civilization, my economic mind began to wonder. Among the rubble lining famous roads like the Via Nova laid the remains of grand government buildings, temples, and a sports arena. The Forum also served as a parade ground where military units marched in victory celebrations. It then dawned on me that the sights we marveled at and snapped family pictures in front of represented government spending.

I thought about the amount of labor, materials, and tools expended to build the wishes of government. And how did the average Roman citizen benefit from these massive public works projects? I imagined an ancient Keynesius etching a formula like C+I+G+X=Y in stone showing the increase in economic growth in Roman coinage terms resulting from the construction of the Atrium Vestae.

Flash forward to the present, when economists, financial pundits, and central bankers fret over sequestration and austerity. After all, according to the Inscriptions of Keynesius, decreases in government spending lead to less economic growth. Lost in all the formulas and theory are two questions: what is economic growth and why is it important?

Contemporary mainstream economists would say economic growth is when GDP increases, which promotes job creation. In contrast, the classical/Austrian argument begins by noting that the purpose of any economic activity is to satisfy human wants. Society experiences economic growth when an increasing number of wants are satisfied. This occurs when the factors of production, land, labor, and capital (not money) become more efficient, and thus, lowering the opportunity costs for producing goods and services. Resources are then freed up to satisfy additional wants.

In class, I use the example of digging out a backyard swimming pool by hand. I ask the students how many people would be required to finish the hole in a day. I then introduce shovels into the scenario and repeat the question. Finally, I bring a backhoe into the picture along with the question of what we do with the excess labor and shovels. The answer becomes obvious to an individual sitting in an economics principles course; they make other goods. The same amount of resources can now satisfy more wants.

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