I thought that the folks on this forum would appreciate this music video that I came across.
Fight of the Century: Keynes vs. Hayek Round Two
http://www.youtube.com/embed/GTQnarzmTOc
Enjoy :)
P.S. I apologize for double-posting, I realized that this forum was more appropriate. Mods, please delete the former.
I already made a topic abnout this
Oops... musta missed it. Great video though.
I actually liked the first one more, the music was a lot catchier, and it delt more with specifics on the theory.
I think that this last one did a great job explaining why the argument that war causes growth due to massive government spending is a bunch of hogwash. Wars destroy things. I never hear people arguing that Vietnam or the War in Iraq created growth, yet the argument that WW2 rescued the United States from the depression continues to be made.
Of course, WW2 did, benefit the US, but not because of the massive government spending. Quite a large portion of the manufacturing capacity in Europe was quite simply destroyed. This gave American companies a competative advantage, which allowed them to charge a premium for their products. The growth after the war was due to the fact that the US won without suffering substantial property losses.
The growth after the war was due to the fact that the US won without suffering substantial property losses.
That and the fact that Truman removed many of hte wartime/New Deal government programs that had been hindering the economy for the entire previous decade...
>>Of course, WW2 did, benefit the US, but not because of the massive government spending. Quite a large portion of the manufacturing capacity in Europe >>was quite simply destroyed. This gave American companies a competative advantage, which allowed them to charge a premium for their products. The >>growth after the war was due to the fact that the US won without suffering substantial property losses.
This is tragically wrong. America would have been far better of with more prosperous trading partners than less.
Where there is no property there is no justice; a proposition as certain as any demonstration in Euclid
Fools! not to see that what they madly desire would be a calamity to them as no hands but their own could bring
Yes and no. While some exporters of, say... luxury goods may have been significantly hurt from the shrinkage in their consumer base, people still need stuff. It's true that there was a real decline in wages in much of Europe in the years following the war because quite a lot of capital was destroyed. Workers simply had to work harder to purchase things.
So, even though Europeans were poorer after the war, they still consumed. People always consume things. And by-and-large, there were few competators to the United States in fueling that consumption.
Now, is it possible that the US could have been even more successful without European industry being decimated? Sure. One of the tragedies of economics is, unlike hard science, we cannot investigate alternative scenerios. Still, there was definately a boom in the US following WW2. Surely dismantling some of the New Deal policies may have helped, but the government in the Untied States was quite liberal after FDR and has been ever since. Federal spending has never dropped to less than 4x the pre-1930 levels (even before leaving the quasi-gold standard). I'm pretty sure the same is true for per-capita spending. Even under such a hostile environment, American businesses did very well for 30 years or so after WW2, all the way through the 1970s (until the increased cost of energy crashed the party).
I believe that the rebound of US business in that time may have indeed been aided by the lack of competition. There was no real competition for American automobile makers, aircraft manufacturers, computer companies, and scores of other capital intensive industries for many years after WW2. In a world where supply creates markets, it pays to be one of the few suppliers.
1. The q is not about rebound of US business, it is about the rise in the standard of living in the US as a whole. [Obviously, the two are not the same.] That is only helped, not hurt, by an outside world filled with wealth as opposed to one filled with poverty.
In other words, if you are the only fisherman in the world, and you have to feed everyone in the world, your American customers are as poor as everyone else, though you personally may be the lone rich man in a sea of poverty. If the world is full of fisherman, everyone, including all the Americans, eats better and cheaper, though one tiny group, the American fisherman, might be worse off.
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It's easy to refute an argument if you first misrepresent it. William Keizer
Chris,
What nigrahamNK meant was that if the capital in Europe hadn't been destroyed Europeans would've been able to manufacture goods and services, freeing up American capital to produce different goods and services which it wouldn't have been able to if it had to pick up the slack for most of the world's consumption. Alternate lines of production for American resources could be pursued as a result, satisfying more consumer wants and raising the standard of living.
In a world where supply creates markets, it pays to be one of the few suppliers.
That is a slight misunderstanding of Say's law which, ironically, is the same mistake that Keynes made in "The General Theory". Supply constitutes demand in the sense that people produce goods and services to trade in exchange for other goods and services that they desire. Supply does not create demand in the sense that if I produce a chair demand will suddenly spring into life for it, i.e. demand will always and everywhere equal supply.
Supply does not create demand in the sense that if I produce a chair demand will suddenly spring into life for it, i.e. demand will always and everywhere equal supply.
I don't disagree with the statement above, but I stated that "supply creates markets," which is something different entirely. If there's no one producing personal computers, then there cannot be a market for personal computers (even though there may be a demand). Following on with the personal computer example, there was plenty of demand for the types of machines that we have today in the 1950s, but since no supplier was able to offer the product there was no market.
American companies were able to develop mature products and offer new technologies that European companies could not deliver after the war. It simply took some time to catch up. Acquiring capital and developing technologies takes time. That's my theory, anyway.
As to the statement that the American economy would have grown faster yet if Europeans were richer, I cannot agree or disagree because it's something that simply cannot be known. Perhaps the growth in the American economy after the war is simply due to shaking off some of the shackles of the FDR administration, but I've noted that markets are rarely simple enough to boil everything down to any single contributing factor. I believe that the decimation of the former competition in Europe contributed to the success of many American companies in many sectors. The success of those companies encouraged them to invest more in workers and facilities and created wealth in America.
One way to look at it might be: If all of Intel's manufacturing facilities burned to the ground in a fire, AMD would benefit. They'd probably expanding to deal with the increased demand, hire new people, and might pay higher wages to reduce turnover. The same principle could apply to countries rather than individual companies. Remember, while many producers were in Europe and America in the mid-20th century, consumers were all over the world. Demand comes from everywhere.
However, at the end of the day, we're just splitting hairs. I think that we can agree that freer markets equal more prosperity. Keynesians think otherwise... and I think that this sentement is their own validation of their worldview that people cannot be too free for fear that they will destroy themselves.
I agree, however, that the view that catastrophes can pull people out of economic hardship is hogwash. The recent earthquake and subsequent tsunami in Japan caused massive destruction and destroyed gobs of capital. Yet, it amazes me when I see pundents state things like "Japanese growth may rebound as rebuilding efforts are likely to have an inflating effect on Q4 Japanese GDP". Rediculous Keynesian nonsense. This is the rubbish that they teach in public schools.
Chris: I thought that the folks on this forum would appreciate this music video that I came across. Fight of the Century: Keynes vs. Hayek Round Two http://www.youtube.com/embed/GTQnarzmTOc Enjoy :) P.S. I apologize for double-posting, I realized that this forum was more appropriate. Mods, please delete the former.
Oh you just thought the folks at the Mises Institute forum would appreciate this little music video you "came across" did you? I mean, thanks for trying, but it's a sequel to the hit of the 2010 scholar's conference, the maker has been interviewed multiple times by LvMI reps (and given lectures at events), and LvMI faculty are featured in the film itself. Not to mention it's a video featuring Hayek rap battling Keynes and has over half a million views already.
I think it's safe to say we know about it. It was already posted on the main site, and in this forum...twice....a week ago.
Oh you just thought the folks at the Mises Institute forum would appreciate this little music video you "came across" did you?
Wow, why the hostility? I did a quick scan of the website/forum and overlooked it. No harm was done, I hope. Yes, I "came across" this video. Do the quotes imply that there was something nefarious about that statement?
I apologize that I overlooked the previous posts, but I think that it's a great video and I wanted to share. That's all. Geesh.
Rcder:Supply does not create demand in the sense that if I produce a chair demand will suddenly spring into life for it
Supply and demand are the same thing. Or if you prefer; two sides of the same coin.
When you produce a chair, yes... there is 'suddenly' (instantenous) demad for it always and everywhere. (Hint: You forgot Reservation demand)
Chris:So, even though Europeans were poorer after the war, they still consumed. People always consume things. And by-and-large, there were few competators to the United States in fueling that consumption.
So basically, having to continue to feed the Europeans, while their capacity to feed us back had greatly diminished, has added to our prosperity?
I don't know that I agree with that. Producing worthless goods doesn't create a demand for those goods. As an example, I could cut a music CD in half and claim that I've produced a "half-CD". Yet the product would be essentally worthless, since it doesn't do anything. A product that doesn't fulfill any needs of the consumer doesn't create demand in any real terms.
The reduction in the supply of products, especially manufactured products with a high barrier to entry into the market, caused by the destruction of European companies was greater than the reduction in demand for those same products. So, yes. Low end supplys from Europe to the US were cheaper and high-end supplies from the US had less competition. The end result was the US became wealthier. That's my theory anyways.
Chris:Producing worthless goods doesn't create a demand for those goods
Then those worthless goods are no longer part of the supply of goods. But as long as they are in the possession of someone, there is always a demand for them. Until the goods are consumed, destroyed, or abandoned, in which case they are no longer part of the supply of goods.
Chris:As an example, I could cut a music CD in half and claim that I've produced a "half-CD". Yet the product would be essentally worthless, since it doesn't do anything.
See above explanation
DD5: Rcder:Supply does not create demand in the sense that if I produce a chair demand will suddenly spring into life for it Supply and demand are the same thing. Or if you prefer; two sides of the same coin. When you produce a chair, yes... there is 'suddenly' (instantenous) demad for it always and everywhere. (Hint: You forgot Reservation demand)
I'm with Rcder on this one. Demand, as used by economists, means people wanting something AND being able to pay for it.
Wikipedia says: Reservation demand is a name for the schedule of reservation prices at which a seller would be willing to sell different quantities of the good in question.
I am not sure how that whole concept is relevant here.
Say I produce gold plated luxury yachts. If I try to sell them on an island of savages who only own their loin cloths and a few fruit, there is no demand for the yachts. Nobody there can afford to pay me enough for me to make a profit. So there is no demand on that island for the yachts [even though everyone wants one badly].
If I try to sell them in a very rich country, I have a much better chance of finding buyers. So there is greater demand in the rich country.
When Say's Law says supply creates a demand, it means [unlike Keynesian misunderstanding of it] that the supplier of chairs has created and increased HIS demand ability to demand fruits and veggies and everything else, because he can trade his new chairs for other stuff. So supply of chairs does not create demand for chairs. It creates demand [=ability to pay] for whatever the chair maker wants.
Total demand = exchange demand + reservation demand.
Smiling Dave:that the supplier of chairs has created and increased HIS demand ability to demand fruits and veggies and everything else,
Or demand the chairs for his own personal use; consumption or speculative. If there was really no demand for the chair, then by definition, it would seize to be a good and is no longer part of the supply of goods. Do you understand what a good is? You can't have a good without demand.
That you are holding a chair in your living room (or warehouse) is proof that you have a demand for it. Otherwise, you would exchange it or discard it.
DD5: Total demand = exchange demand + reservation demand. Smiling Dave:that the supplier of chairs has created and increased HIS demand ability to demand fruits and veggies and everything else, Or demand the chairs for his own personal use; consumption or speculative. If there was really no demand for the chair, then by definition, it would seize to be a good and is no longer part of the supply of goods. Do you understand what a good is? You can't have a good without demand. That you are holding a chair in your living room (or warehouse) is proof that you have a demand for it. Otherwise, you would exchange it or discard it.
From Wikipedia on Demand:
In economics, demand is the desire to own anything, the ability to pay for it, and the willingness to pay[1] (see also supply and demand). The term demand signifies the ability or the willingness to buy a particular commodity at a given point of time.
There you have it. If I already own a chair, I do not, by the standard economic definition, have a demand for it. My demand for that chair disappeared when the chair became mine.
It is still a good, of course. from wikipedia on Good (Economic):
a good is a product that can be used to satisfy some desire or need.
Even if no one can afford it [=lack of demand as defined in economcs] and/or I already own it [=lack of demand on my part because I am not going to buy it ever, since that chair is already mine and I cannot buy it from myself], it nevertheless remains a good because it can be used to satisfy some desire or need. The owner can certainly use it. Other people cannot, but they would love to have it and use it for free. So it is a good for them too.
Smiling Dave:In economics, demand is the desire to own anything, the ability to pay for it, and the willingness to pay ... If I already own a chair
..then you are paying for it when you decide to forgo the next highest rank alternative use for it; exchange for money or for another commodity.
Smiling Dave:My demand for that chair disappeared when the chair became mine.
It did not disappear because you are still paying for it. I hope that is clear now.
Let me ask you this. If you already own some money, then "by standard economic definition", you have no demand for it? Can I have it then?
DD5: Smiling Dave:In economics, demand is the desire to own anything, the ability to pay for it, and the willingness to pay ... If I already own a chair ..then you are paying for it when you decide to forgo the next highest rank alternative use for it; exchange for money or for another commodity. Smiling Dave:My demand for that chair disappeared when the chair became mine. It did not disappear because you are still paying for it. I hope that is clear now. Let me ask you this. If you already own some money, then "by standard economic definition", you have no demand for it? Can I have it then?
DD5, I agree that the concept you describe exists. Owning A means foregoing some other possible pleasure.
However, that is not the standard usage of "paying" and certainly not of "buying".
Look at supply and demand curves. Do you think they are talking about people who already own the chair, and what they have to forego?
I dunno, DD5, you have introduced a world where people are constantly and eternally "paying" for what they own.
And indeed, should the outside world agree someday to redefine "pay" to conform with your new definintion of it, we would be in agreement. Until then, pay means what you give someone else in exchange for what he gives you. Not what you have to forego because you own something.
Do you think wikipedia, when it wrote "the ability or the willingness to buy" that it did not mean buy from someone else?
As for giving you my dollars because I do not have a demand for them, that is a non sequitor. Because I do not wish to buy [=from someone else] the dollars I already own [because I don't need to buy them, I already own them] does not imply I have no use for them.
Smiling Dave: Owning A means foregoing some other possible pleasure.
This means there is cost to owning A, which means you are paying for A, which means you have a demand for it.
Smiling Dave: As for giving you my dollars because I do not have a demand for them, that is a non sequitor..
It's not. See logic above.
Smiling Dave: However, that is not the standard usage of "paying" and certainly not of "buying". .
.
Smiling Dave: Look at supply and demand curves. Do you think they are talking about people who already own the chair, and what they have to forego? .
I don't know who "they" are. Most "they" understand very little.
Total demand= exchange demand + reservation demand. It is just easy sometimes to forget the latter because most supply curves on the money based market are assumed vertical. (no reservation demand). Of course, even there, if you go more 'micro', say 'nano', then there is reservation demand. Otherwise, there would be no stock ever sitting on the shelves and back in the warehouse.
Smiling Dave:Do you think wikipedia, when it wrote "the ability or the willingness to buy" that it did not mean buy from someone else? . If you could learn economics from just wikipedia, then why read Human Action, MES, or anything else for that matter?
DD5,
I certainly do think our disagreement is about the definition of words like "demand", "pay", "buy", and "purchase".
So yes, it is about semantics. I think our positions are clear to each other. So this is my last post on the subject.
Semantics or not, if you don't take into account all the components of demand (exchange + reservation) then the result will be flawed economic reasoning (such as the misunderstanding of Says law upthread....)
Please explain how Dave's explanation of Say's Law was a "misunderstood" one.
...if you don't take into account all the components of demand (exchange + reservation) then the result will be flawed economic reasoning
Time has passed and with it comes increased understanding to the fortunate.
I found that Rothbard talks about reservation demand, uses it in a different sense than the wikipedia article I quoted earlier in this thread, indeed, the very way you use it. So I stand corrected.
However, he does not go anywhere near as far as you do and say that not using all the components of demand will result in flawed economic reasoning.
What he does say is:
There is another way of treating supply and demand sched- ules, which, for some problems of analysis, is more useful than the schedules presented above.
He then goes on to explain reservation demand as you did.
So we see two things from that little quote:
1. He has just finished writing over 30 pages about suply and demand using exchange demand exclusively. He did not rip those pages out of his book and replace them with alternate pages using exchange plus reservation demand.
2. He says explicitly that at times using exchange demand is more useful than total demand, and at times the reverse is true.
Bottom line, he doesn't say that flawed economic reasoning will arise from not using total demand, quite the contrary.
Here's another quote:
The total demand-stock analysis is a useful twin companion to the supply-demand analysis. Each has advantages for use in different spheres. One relative defect of the total demand-stock analysis is....[bla bla bla]
Useful twin companions. Not one a source of correctness and the other a source of error.
such as the misunderstanding of Says law upthread....
Here's Say speaking:
the only real consumers are those who produce on their part, because they alone can buy the produce of others,
And Rothbard's explanation of Say's law [from page 44 of the pdf and on] is that there will never be overproduction and underconsumption, because all you have to do is lower the price until someone is willing to buy and consume.
He doesn't explain it by saying that the very existence of any production creates its own demand, either to sell [=exchange demand] or to hold [=reservation demand], because that would not answer the problem. The problem was that merchants are stuck with goods they want to sell [not hold in reserve] and cannot find buyers. The whole problem, and therefore its solution, must be stated in terms of exchange demand, not total demand.