(FORTUNE Magazine) – In October 1930, in a magazine essay titled "Economic Possibilities for our Grandchildren," British economist John Maynard Keynes urged his readers not to get too caught up in the gloom of the times.

"It is common to hear people say that the epoch of enormous economic progress which characterized the 19th century is over; that the rapid improvement in the standard of life is now going to slow down," Keynes wrote. "I believe that this is a wildly mistaken interpretation of what is happening to us. We are suffering, not from the rheumatics of old age, but from the growing pains of over-rapid changes, from the painfulness of readjustment between one economic period and another."

The man had a point. In 1930, it turns out, the world's major economies were just getting going on a productivity boom that would bring unprecedented growth and prosperity. Between 1930 and 1973, when the boom fizzled out, inflation-adjusted per capita GDP in the U.S. tripled.

But first, of course, the world had to get past a little bump called the Great Depression, then a global war that killed tens of millions of people. The long-run news was great but, as Keynes had put it a few years earlier, "in the long run we are all dead."

Which offers an interesting lesson for the moment. The immediate economic picture is--while not nearly as dire as that of 1930--still cloudy. American shareholder capitalism is in disrepute. Threats of war and terrorism loom. The carefree boom times of the late 1990s seem like ancient history or even just a figment of our collective imagination.

But the most important intellectual justification for the fin-de-siecle euphoria that left us with such a hangover--the argument that, thanks to new information technologies, the U.S. economy (with the global economy presumably following its lead) has embarked on a new, sharper long-term growth trajectory--may still turn out to be on target.

The biggest factor in increasing economic growth and raising living standards over time is the economy's ability to produce more out of less, also known as productivity. And through the stock market troubles and economic setbacks and terrorist attacks of the past two years, the most watched measure of productivity--output per hour worked--has remained in robust health.

How robust? Even after August's downward revisions, labor productivity growth since 1995 remains on a trend line of about 2.2% per year--up from around 1.4% a year during the productivity slowdown of the 1970s, 1980s, and early 1990s. That may not sound like much, and it is in fact well below the growth rates of the 1960s and the most optimistic forecasts of a tech-induced "productivity miracle" a couple of years ago. But when you're talking about decades rather than years, those tenths of a percentage point do add up.

If annual productivity growth between 1973 and 1995 had been 2.2% instead of 1.4%, per capita GDP in the U.S. would now be $42,000 instead of $36,000. Stretch the growth differential a century into the future, and you get $317,000 in per capita GDP in 2102 (in 2002 dollars), vs. $145,000. Shorter workweeks and more retirees would almost certainly cut into both those numbers--but working fewer hours or retiring earlier amounts to an increase in living standards as well.

It is this kind of compound growth that created the modern world. Until the 19th century, wealth increased only in fits and starts and often fell back. Since then, especially in Western Europe, North America, and in recent decades East Asia, the trajectory has mostly been up, up, and up. From the year 1000 to 1820, estimates economic historian Angus Maddison, real annual per capita GDP growth in the West and Japan averaged 0.13%. Since then it's been 1.67%. When you compound 1.67% annually over almost two centuries, you get a populace 20 times better off--in purely economic terms, of course--than its forebears in 1820.

The main reason for this increase in affluence has been the rise of capitalism--in which wealth is put to use by reinvesting it instead of just keeping it locked up in a chest. But even when the massive contribution made by capital spending on new factories, better transport, and the like is factored in--as are improvements in workers' skills--there's been something else driving growth forward. The shorthand for it is "technology," although it's usually the societal and industrial changes made to accommodate new technologies that really bring the growth.

The last productivity boom, which by most measures began in the U.S. in the 1920s (but didn't hit Europe and Japan until later) and lasted until the early 1970s, was by the reckoning of Northwestern University economist Robert Gordon the product of "four major clusters of inventions" revolving around (1) electricity, (2) the internal combustion engine, (3) petrochemicals and pharmaceuticals, and (4) entertainment and communications. Some of those technological advances made it possible to make existing products more efficiently--which is how most of us understand productivity. Others created entirely new things to spend money on.

In the 1970s the growth boom petered out. The productivity slowdown helped bring on the inflationary disaster and economic malaise of the 1970s. It was a key reason that the prosperity of the 1980s bypassed so many. It was why people were publishing books with titles like The Age of Diminished Expectations and The End of Affluence in the early 1990s.

So the fact that since 1995 we've been getting tantalizing hints of another productivity boom, or at least a boomlet, is big, big news. There is no guarantee, of course, that this faster productivity growth will continue for decades. Skeptics simply don't believe that semiconductors and optical fiber will have as much impact as the inventions that stoked the last boom. But the majority of economists who study this stuff are coming around to the idea that--given our experience with electricity, chemicals, and the like--we're probably still in the early stages of discovering the productive uses to which silicon chips and new communication technologies can be put.

What does all this mean for the prospects for economic growth in the third quarter? Not much. Higher productivity growth increases the economy's capacity to grow, but it does nothing to stimulate the demand that would bring growth now. This disconnect is at the root of many of economics' fiercest debates. The neo-classicists or supply-siders push policies meant to boost productivity over the long run. The successors to Keynes--who, the sentiments expressed above notwithstanding, was far more concerned with the here and now than with the distant future--want to boost demand in the short run. Which is why right now you can hear arguments that Americans don't save enough--because savings are needed to fund the capital spending that makes workers more productive--at the same time you hear worries that Americans might start saving too much, thereby stalling the consumer spending that has kept the economy afloat for the past year and a half.

What's more, the changes wrought in the service of higher productivity can be wrenching: Jobs are lost, businesses are wiped out, investors looking into an uncertain if promising future make horrendously bad bets. Those are the "growing pains" Keynes wrote about 72 years ago. They can be painful as hell, and they can go on for years. Just don't confuse them with death throes.

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