Growth Without Illusions: South Africa’s Path To Prosperity

If South Africa wishes to achieve real, sustained growth, it must abandon the Keynesian fixation on aggregate demand and GDP gimmicks.

In modern economic discourse, “growth” has been reduced to a single number: GDP. Politicians and analysts treat it as the heartbeat of the economy – the higher it ticks, the healthier we must be. However, by design, GDP measures spending. It does not – and cannot – tell us whether that spending reflects wealth creation, productive investment, or merely the redistribution of yesterday’s output.

The problem is that for many economists today, GDP growth is economic growth. They don’t just conflate the two; they build policy on the assumption that they’re the same thing. Worse still, GDP includes government spending as one of its components, meaning a government can, in theory, “grow” the economy simply by writing itself larger checks. This is economic theatre, not economic science, and South Africa is one of the latest stages on which this play is performed.

Keynes’s legacy (and its poison)

The intellectual root of this fallacy lies in John Maynard Keynes and his emphasis on aggregate demand – the total spending in the economy – as the driver of growth. In Keynesian theory, if demand weakens, the government must step in and spend more to “stimulate” the economy. On paper, this appears neat. In practice, it is absurd.

Government spending can only come from three sources:

1. Taxation – the direct extraction of wealth from productive individuals.

2. Borrowing – which is simply future taxation.

3. Monetary expansion – printing money, which dilutes the value of the currency and manifests as price inflation.

None of these methods magically create wealth. At best, they reallocate existing wealth. At worst, they destroy capital, distort prices, and encourage unproductive consumption.

Why government spending isn’t “growth”

When a business produces goods or services, the money it receives is simply a claim on the value it has created. That exchange represents real production – a net increase in society’s wealth.

When government taxes those producers, it is diverting their productivity into politically chosen projects. Whether that project is a road, a school, or a stadium, the funds come from private producers who would otherwise have used them for their own purposes – often more efficiently and in ways better aligned with consumer needs.

Even if we set aside the economic and moral objections to forced redistribution, the process itself is inherently wasteful. The government doesn’t simply tax a business and hand that money directly to a doctor, a teacher, or a builder. It must first fund an entire bureaucratic apparatus – administrators, clerks, compliance officers, regulators – whose sole “product” is paperwork and oversight. In the private sector, such layers are ruthlessly pruned; in government, they metastasize.

Borrowing, meanwhile, is nothing but deferred taxation. Future producers will be compelled to repay the debt plus interest, which means less capital for future growth, and when the state resorts to printing money, it commits the most insidious theft of all – silently eroding the purchasing power of every unit of currency in circulation, punishing savers and rewarding debtors.

Spending is not the engine – savings are

The Austrian tradition, from Ludwig von Mises to Friedrich Hayek and Murray Rothbard, stands on the principle that sustainable growth comes not from spending, but from capital accumulation – the deliberate saving and reinvestment of resources into productive enterprises.

Spending consumes, saving builds. When individuals save, they forgo present consumption to invest in tools, training, technology, and innovation. This increases productivity, which increases the total output of goods and services available to society. Over time, this process — not government decrees, not political redistribution — is what creates growth and raises living standards.

The price signal – growth’s compass

Savings do more than just fund investment; they allow for capital allocation guided by prices. Prices, in a free market, communicate real information about scarcity and demand. Entrepreneurs, guided by these signals, direct capital toward its most valued uses. Government spending, by contrast, distorts this process. It spends according to political incentives, not market signals, which leads to overinvestment in some sectors, underinvestment in others, and waste in both.

Hayek called this the “knowledge problem” – the impossibility of central planners possessing the decentralised knowledge required to allocate resources efficiently. Every rand the state spends is a rand diverted from the private sector’s knowledge network and thrown into a political allocation process where efficiency is a distant second to political expediency.

South Africa’s path forward

If South Africa wishes to achieve real, sustained growth, it must abandon the Keynesian fixation on aggregate demand and GDP gimmicks. It must recognize that wealth creation is not a matter of how much is spent, but how much is saved and productively invested.

That means lowering the tax burden to allow individuals and businesses to retain more of their earnings for reinvestment. It means reducing the size and scope of government, freeing labor and capital from the drag of bureaucratic overhead. It means ending monetary policies that erode savings and distort investment signals.

Above all, it means trusting the spontaneous order of the market – the voluntary interactions of millions of producers and consumers – over the presumptions of central planners.

The Austrian tradition offers no quick fix, no “stimulus package,” no illusion of prosperity conjured by deficit spending. It offers something far better: a roadmap to durable, self-sustaining growth rooted in real production, guided by prices, and fuelled by capital accumulation.

Econ Bro (@EconBreau and @EconBreau2 on Twitter/X) is a Nigerian Austrolibertarian economist and an apprentice at the Mises Institute. Under the organisation name “The Freedom Institute” he teaches individual liberty, personal responsibility, private property rights, free markets, and sound money to mostly young people across Nigeria. Econ Bro is an Associate of the Free Market Foundation.