Comments on: The under-consumption doctrine http://www.reasonforliberty.com/economics/underconsumption-doctrine.html Because everything has a reason! Sat, 14 Jan 2012 17:52:12 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: Taica http://www.reasonforliberty.com/economics/underconsumption-doctrine.html#comment-2399 Taica Sun, 16 Aug 2009 19:09:04 +0000 http://www.reasonforliberty.com/?p=3421#comment-2399 So, you have an economy where everybody works for apples. They cultivate apples in order to buy apples ... "You don’t pay money to bulbs and wires, do you?" You pay money <b>for</b> bulbs and wires. How those came into existence is not your concern, the seller already took care of that. "In fact, critical acclaim of this example of mine was already done by a couple of people" So stupidity runs freely in the world, what else is new! .-= Taica´s last blog ..<a href="http://economiapentrunoi.blogspot.com/2009/08/cine-nu-are-batrani-sa-nu-isi-ia.html" rel="nofollow">Cine nu are batrani, sa nu isi ia</a> =-. So, you have an economy where everybody works for apples. They cultivate apples in order to buy apples …
“You don’t pay money to bulbs and wires, do you?”
You pay money for bulbs and wires. How those came into existence is not your concern, the seller already took care of that.

“In fact, critical acclaim of this example of mine was already done by a couple of people”
So stupidity runs freely in the world, what else is new!
.-= Taica´s last blog ..Cine nu are batrani, sa nu isi ia =-.

]]> By: art shipman http://www.reasonforliberty.com/economics/underconsumption-doctrine.html#comment-2398 art shipman Fri, 26 Jun 2009 16:18:29 +0000 http://www.reasonforliberty.com/?p=3421#comment-2398 13 prashanthguevara: But my only comment on savings was that it is bad for your <b>model</b> of the economy. Anyway (if economics is science) there is no good or bad; there is only the attempt to understand. I will read more and get back to you after that. 13 prashanthguevara:
But my only comment on savings was that it is bad for your model of the economy. Anyway (if economics is science) there is no good or bad; there is only the attempt to understand.

I will read more and get back to you after that.

]]> By: prashanthguevara http://www.reasonforliberty.com/economics/underconsumption-doctrine.html#comment-2397 prashanthguevara Fri, 26 Jun 2009 12:51:14 +0000 http://www.reasonforliberty.com/?p=3421#comment-2397 Art Shipman, regarding your doubt on savings being bad for the economy; please do read this article I wrote some months back: http://www.reasonforliberty.com/employment/are-savings-bad-for-the-economy.html Art Shipman, regarding your doubt on savings being bad for the economy; please do read this article I wrote some months back: http://www.reasonforliberty.com/employment/are-savings-bad-for-the-economy.html

]]> By: Art Shipman http://www.reasonforliberty.com/economics/underconsumption-doctrine.html#comment-2396 Art Shipman Tue, 23 Jun 2009 10:55:54 +0000 http://www.reasonforliberty.com/?p=3421#comment-2396 prash, I wasn't quick enough. #11 is a response to #9. Delete it if you want... I'll get back to you on #10... I really like your blog. There is a lot of thinking going on here. PLEASE DELETE THIS ONE!   prash, I wasn’t quick enough. #11 is a response to #9. Delete it if you want… I’ll get back to you on #10…
I really like your blog. There is a lot of thinking going on here.
PLEASE DELETE THIS ONE!
 

]]> By: Art Shipman http://www.reasonforliberty.com/economics/underconsumption-doctrine.html#comment-2395 Art Shipman Tue, 23 Jun 2009 10:51:46 +0000 http://www.reasonforliberty.com/?p=3421#comment-2395 No. My arithmetic proves nothing! Watch: Time pass in Apple-town. Sadly, one of the workers dies. But technology improves. By sheer coincidence of numbers, 99 workers can now produce 100 apples. Thus, 99 workers are each paid a dollar, and 99 each buy an apple for a dollar. The land-owner recovers the cost of paying his workers, and is left with an apple as his own profit. He's not getting paid in money (and this is a flaw in the Apple-town story), but at least he makes a profit. Sheer coincidence of numbers made my previous objection sound reasonable. And sheer coincidence of numbers also makes your Apple-town story sound reasonable, I think. However, if any of the Apple-town folk decide to set something aside as savings, the problem of underconsumption must arise, don't you think? It can be postponed for 80 years or so by a combination of inflation and economic growth, but eventually Kondratieff has his day and a Great Depression ensues. Simplistic, I know. No. My arithmetic proves nothing! Watch:

Time pass in Apple-town. Sadly, one of the workers dies. But technology improves. By sheer coincidence of numbers, 99 workers can now produce 100 apples. Thus, 99 workers are each paid a dollar, and 99 each buy an apple for a dollar. The land-owner recovers the cost of paying his workers, and is left with an apple as his own profit. He’s not getting paid in money (and this is a flaw in the Apple-town story), but at least he makes a profit.
Sheer coincidence of numbers made my previous objection sound reasonable. And sheer coincidence of numbers also makes your Apple-town story sound reasonable, I think.
However, if any of the Apple-town folk decide to set something aside as savings, the problem of underconsumption must arise, don’t you think? It can be postponed for 80 years or so by a combination of inflation and economic growth, but eventually Kondratieff has his day and a Great Depression ensues.
Simplistic, I know.

]]> By: prashanthguevara http://www.reasonforliberty.com/economics/underconsumption-doctrine.html#comment-2394 prashanthguevara Tue, 23 Jun 2009 09:56:05 +0000 http://www.reasonforliberty.com/?p=3421#comment-2394 Art Shipman, I really meant it when I said 'a very simple economy'. For your satisfaction let us assume the land owner gets a dollar, in a 'little more' complex economy, by eating out $1/99 from each worker's dollar. Do you think that would cause any harm to my case? I don't think so. Because, still, cost-of-production can't be higher than the wages paid(which includes labor). I just want to clarify that, I have made my case very simple by assuming that every pay is a wage. Even the pay towards renting land or capital. Because, the money that you pay for any of the factors of production goes to owners of the factors of production(who are in turn consumers who purchase products). So every pay could be traced down to pay for labor. Take a bulb for example. The bulb receives zero pay, it is only the workers (which includes credit provider, laborer, land owner etc.) who receive pay. Art Shipman, I really meant it when I said ‘a very simple economy’.
For your satisfaction let us assume the land owner gets a dollar, in a ‘little more’ complex economy, by eating out $1/99 from each worker’s dollar. Do you think that would cause any harm to my case?
I don’t think so. Because, still, cost-of-production can’t be higher than the wages paid(which includes labor).
I just want to clarify that, I have made my case very simple by assuming that every pay is a wage. Even the pay towards renting land or capital. Because, the money that you pay for any of the factors of production goes to owners of the factors of production(who are in turn consumers who purchase products). So every pay could be traced down to pay for labor.
Take a bulb for example. The bulb receives zero pay, it is only the workers (which includes credit provider, laborer, land owner etc.) who receive pay.

]]> By: Art Shipman http://www.reasonforliberty.com/economics/underconsumption-doctrine.html#comment-2393 Art Shipman Sun, 21 Jun 2009 19:58:28 +0000 http://www.reasonforliberty.com/?p=3421#comment-2393 6 prash: "everything is a pay (wage)" // Schumpeter (I think) said all distinctions are arbitrary but if we don't make them, we can't say anything useful.  Adam Smith [The Wealth of Nations] described THREE factors of production: land, labor, and capital. His factors were important because each has a cost: rent, wage, profit. Thus Adam Smith was able to examine the interplay of three sectors of the economy, and you are not. Prash, your post provides an *excellent* description of underconsumption (including your remarks on Keynes). But in your "very simple economy of 100 persons" apparently the land-owner is working for free!  I think this is the point made in 1-GP and 3-GP. The land-owner should get a dollar also, say, so he can only pay his workers 99-cents each! Now either nobody can afford an apple, or they start to use credit. Now 7-Hank's remarks become relevant. Arthur Shipman http://sites.google.com/site/arthurianeconomics/ p.s. look for the "Stimulus Watch" google gadget.       6 prash: “everything is a pay (wage)” // Schumpeter (I think) said all distinctions are arbitrary but if we don’t make them, we can’t say anything useful.  Adam Smith [The Wealth of Nations] described THREE factors of production: land, labor, and capital. His factors were important because each has a cost: rent, wage, profit. Thus Adam Smith was able to examine the interplay of three sectors of the economy, and you are not.
Prash, your post provides an *excellent* description of underconsumption (including your remarks on Keynes). But in your “very simple economy of 100 persons” apparently the land-owner is working for free!  I think this is the point made in 1-GP and 3-GP. The land-owner should get a dollar also, say, so he can only pay his workers 99-cents each! Now either nobody can afford an apple, or they start to use credit. Now 7-Hank’s remarks become relevant.
Arthur Shipman
http://sites.google.com/site/arthurianeconomics/
p.s. look for the “Stimulus Watch” google gadget.
 
 
 

]]> By: prashanthguevara http://www.reasonforliberty.com/economics/underconsumption-doctrine.html#comment-2392 prashanthguevara Sat, 20 Jun 2009 03:01:44 +0000 http://www.reasonforliberty.com/?p=3421#comment-2392 Pankee, you are right on the fractional banking system. Even the Indian banking system is the same. Such a system allows cheap credit to make booms appear. That means 'malinvestment', which the Marxists take as 'over-production' and Keynesians take as 'lack of aggregate demand'. The problem is neither. The problem is malinvestments caused by manipulation of interest rates. Pankee, you are right on the fractional banking system. Even the Indian banking system is the same. Such a system allows cheap credit to make booms appear. That means ‘malinvestment’, which the Marxists take as ‘over-production’ and Keynesians take as ‘lack of aggregate demand’. The problem is neither. The problem is malinvestments caused by manipulation of interest rates.

]]> By: Hank E. Pankee http://www.reasonforliberty.com/economics/underconsumption-doctrine.html#comment-2391 Hank E. Pankee Mon, 15 Jun 2009 21:34:20 +0000 http://www.reasonforliberty.com/?p=3421#comment-2391 In my country, we have Bankers who loan money (which they do not actually have) to people (including business owners) which they then make a profit from in the form of interest. If my government was the entity introducing money into the economy (and not doing so for the purpose of making a profit) then our underconsumption problem would be much less dire. But for us, the underconsumption is a real phenomenon. Bankers will be the death of us all. In my country, we have Bankers who loan money (which they do not actually have) to people (including business owners) which they then make a profit from in the form of interest. If my government was the entity introducing money into the economy (and not doing so for the purpose of making a profit) then our underconsumption problem would be much less dire. But for us, the underconsumption is a real phenomenon. Bankers will be the death of us all.

]]> By: prashanthguevara http://www.reasonforliberty.com/economics/underconsumption-doctrine.html#comment-2390 prashanthguevara Fri, 15 May 2009 08:55:37 +0000 http://www.reasonforliberty.com/?p=3421#comment-2390 GP, everything is a pay (wage). You don't pay money to bulbs and wires, do you? You pay PEOPLE in exchange for such products (like bulbs and wires). So, the cost of production is nothing but money paid to labor or some sort or the other (be it manual or entrepreneurial, anything is labor). You seem to miss seeing this indirect path, and that's why the confusion. And I like it when you take it easy :) GP, everything is a pay (wage). You don’t pay money to bulbs and wires, do you? You pay PEOPLE in exchange for such products (like bulbs and wires). So, the cost of production is nothing but money paid to labor or some sort or the other (be it manual or entrepreneurial, anything is labor). You seem to miss seeing this indirect path, and that’s why the confusion.

And I like it when you take it easy :)

]]> By: GP http://www.reasonforliberty.com/economics/underconsumption-doctrine.html#comment-2389 GP Fri, 15 May 2009 03:12:29 +0000 http://www.reasonforliberty.com/?p=3421#comment-2389 Forget it dude! You treat everything as wages so no point in further fuss over it :-)..By the way , I like it when someone call it fuss :-) Forget it dude! You treat everything as wages so no point in further fuss over it :-) ..By the way , I like it when someone call it fuss :-)

]]> By: prashanthguevara http://www.reasonforliberty.com/economics/underconsumption-doctrine.html#comment-2387 prashanthguevara Thu, 14 May 2009 12:14:59 +0000 http://www.reasonforliberty.com/?p=3421#comment-2387 GP, don't try hard. Any money spent to produce a product goes to wages, either directly or indirectly. Whether it is maintenance or rent or any other cost, it still is labor cost which is paid out to producers/consumers, only that the indirect path fails to catch your eyes. Regarding my assumption of an equlibrium apple-only economy, although it does not share resemblance with reality, it still is a nice place to start from to analyze economic problems. In fact, critical acclaim of this example of mine was already done by a couple of people before it was posted here at RFL. And that's why the second part of my article was added exclusively to explaining things in terms of a two-commodity example, which enforces the scope of entrepreneurial activity. I don't understand why you still make a big fuss. GP, don’t try hard. Any money spent to produce a product goes to wages, either directly or indirectly. Whether it is maintenance or rent or any other cost, it still is labor cost which is paid out to producers/consumers, only that the indirect path fails to catch your eyes.

Regarding my assumption of an equlibrium apple-only economy, although it does not share resemblance with reality, it still is a nice place to start from to analyze economic problems. In fact, critical acclaim of this example of mine was already done by a couple of people before it was posted here at RFL. And that’s why the second part of my article was added exclusively to explaining things in terms of a two-commodity example, which enforces the scope of entrepreneurial activity. I don’t understand why you still make a big fuss.

]]> By: GP http://www.reasonforliberty.com/economics/underconsumption-doctrine.html#comment-2388 GP Thu, 14 May 2009 03:25:47 +0000 http://www.reasonforliberty.com/?p=3421#comment-2388 I only pointed out that wages in the economy will equal production cost. Can you prove me wrong on that? I bet NO! <<<<<Well, I already did ! But let me try to clarify more -- I read your article thoroughly but their are few basic flaws in your premise of -  "How consumers buy the product if producer/manufacturee did not sell them at consumer affordable rates? " is #1 -- You assumed that the workers/resources working for a particular company are the sole buyers of your product hence,how can they buy product if the product price is more than their wages --> which is quite a naive assumption. #2 -- Production cost = wages of workers + maintenance of infrastructure/machineries/tools + rentals & taxes on property, ater being used + electricity bills and all other sundry costs So I do not agree that wages being paid to workers are equal to production cost. Please Note -- I am strictly staying away from diverting this discussion to "Cut down prices to gain more market share" argument here ..coz that's not fitting here and its a part of your Marketing strategy which is not a point of discussion here!   I only pointed out that wages in the economy will equal production cost. Can you prove me wrong on that? I bet NO!
<<<<<Well, I already did ! But let me try to clarify more –
I read your article thoroughly but their are few basic flaws in your premise of -
 ”How consumers buy the product if producer/manufacturee did not sell them at consumer affordable rates? ” is
#1 — You assumed that the workers/resources working for a particular company are the sole buyers of your product hence,how can they buy product if the product price is more than their wages –> which is quite a naive assumption.
#2 — Production cost = wages of workers + maintenance of infrastructure/machineries/tools + rentals & taxes on property, ater being used + electricity bills and all other sundry costs
So I do not agree that wages being paid to workers are equal to production cost.
Please Note — I am strictly staying away from diverting this discussion to “Cut down prices to gain more market share” argument here ..coz that’s not fitting here and its a part of your Marketing strategy which is not a point of discussion here!
 

]]> By: prashanthguevara http://www.reasonforliberty.com/economics/underconsumption-doctrine.html#comment-2386 prashanthguevara Tue, 12 May 2009 03:28:50 +0000 http://www.reasonforliberty.com/?p=3421#comment-2386 GP, I did not say that producers have turned dumb to sell products at the cost of production. I only pointed out that wages in the economy will equal production cost. Can you prove me wrong on that? I bet NO! (Profits and losses arise only when 'disequilibrium' due to various reasons sets in. You should read my article on 'Overproduction' to know more) GP, I did not say that producers have turned dumb to sell products at the cost of production. I only pointed out that wages in the economy will equal production cost. Can you prove me wrong on that? I bet NO!

(Profits and losses arise only when ‘disequilibrium’ due to various reasons sets in. You should read my article on ‘Overproduction’ to know more)

]]> By: GP http://www.reasonforliberty.com/economics/underconsumption-doctrine.html#comment-2385 GP Thu, 07 May 2009 13:11:53 +0000 http://www.reasonforliberty.com/?p=3421#comment-2385 The study of a more realistic ‘disequilibrium’ market does not change the basic fact that cost of production of goods and services can never be more than the purchasing power of the workers. <<<<Your assumption seems incorrect. No businessman wants to sell his product at production cost which again could be more than purchasing power of customers ..Guess why? Reason --> he/she wants to make a profit so selling price will include his profit margin + production cost. Apple example you given seems to be height of ignorance :- ) >>>> The study of a more realistic ‘disequilibrium’ market does not change the basic fact that cost of production of goods and services can never be more than the purchasing power of the workers.
<<<<Your assumption seems incorrect. No businessman wants to sell his product at production cost which again could be more than purchasing power of customers ..Guess why?
Reason –> he/she wants to make a profit so selling price will include his profit margin + production cost.
Apple example you given seems to be height of ignorance :- )
>>>>

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