Economic growth can come from a number of sources. It can occur as a consequence of rising population, as has been common throughout recorded history, although increasing output in this way does not necessarily result in any improvement in living standards. The kind of growth which is of much greater importance economically is the sort which leads to higher output per head, or increasing productivity. This is the only way in which rising standards of living can be achieved.

Making output per head increase, in turn, can be achieved in a number of different ways. It may result from better training and more efficient work practices. It can come about as a result of investment in machinery and other capital equipment which makes it possible for those working with it to turn out, with no more time and effort being expended, more goods or services than they did before. It can happen as a result of the discovery of new raw materials or new processes, which again means that more output can be achieved with the same labour inputs as were employed previously. The key feature, in all cases, is that the market value of the goods and services produced by the labour force rises, either as a result of greater output in relation to inputs, or because greater inputs make greater outputs possible. Better education and training are prime examples of the first, and increased capital equipment of the second.

The key questions on economic growth are to determine what kind of economic activities are most likely to lead to greater output per head, and what conditions are then required to enable them to flourish. Where are the best opportunities for productivity increases to be found, and how are they to be encouraged? It might be thought that the scope for securing more output per head would be fairly evenly spread throughout the average economy, but this is not the case.