Tuesday, December 27, 2016

Whence Cometh This Demand?, I: Supply and Demand

Okay, last week we had a couple of postings on the first principle of economics, viz., that consumption is the sole end and purpose of all production.  This fits in perfectly (in our opinion, of course) with basic principles of the natural law as found in (for example) Catholic social teaching.  That’s because Catholic social teaching is based on the dignity of the person and sovereignty of the individual under God — as is the Just Third Way.

. . . at least, according to Thomas Hobbes. . . .
From the perspective of the Just Third Way, we decided that Keynesian economics doesn’t quite fill the bill.  That’s because in Keynesian economics the purpose of production is not consumption, per se.  According to Keynes, supply and demand don’t balance unless the government takes steps to make them balance . . . such as creating money out of nothing in order to stimulate demand, and artificially encouraging production to get the money-out-of-nothing into the hands of people who will use it for consumption of goods other than what was produced to generate the income.
Keynes: the State can re-edit the dictionary and change reality.
For Keynes, then, the purpose of production is not consumption, but job creation.  Keynes’s ideal product was one that could not be consumed!  Waste is essential in the Keynesian system in order to increase demand to clear existing production without increasing the supply of marketable goods and services.  In this way, people who don’t own the capital that produces the bulk of marketable goods and services can consume what capital produces by being paid to pretend to do something productive in order to be able to consume what capital produces.
Simple, no?
Simple, no!
Now, if we were thinking logically, we might reason that, if capital is producing the bulk of marketable goods and services in the world, the obvious solution is not to create fake jobs so people can have enough income to consume all that was produced by avoiding producing anything more to add to the presumed problem of market gluts.  No, given that production equals income, the “demand” needed to clear “supply” already exists.  It’s just in the wrong hands, i.e., of people who will reinvest it instead of spending it on consumption.
Not really his law, just named for him.
The problem then becomes figuring out some way that people who don’t own capital can own capital and become productive once more, bringing supply and demand back into balance.
Today, then, we’re getting into why it’s better to make people productive by owning both labor and capital, then to redistribute what belongs to owners of capital to owners of labor by messing with the money supply or taxing people beyond endurance.
It’s called “Say’s Law of Markets.”  It starts from the principle that consumption is the sole end and purpose of all production.
It is simple common sense to realize that if you want to consume something, it must first exist.  And for something to exist, it must first be produced.  Consumption cannot precede production.
Everything else being equal, there are only two ways to have something to consume.  One, you must produce what you want to consume.  Two, someone else must produce what you want to consume.
You got is, Saul . . . I mean, Paul.
So far, so good, right?  You don’t have to produce anything yourself.  You just have to be strong enough (or be friends with someone who is strong enough) to take what someone else produces for yourself.
Wrong.  Here’s the catch: if you want what someone else has produced, you have to produce something to trade with that someone else to get what he or she produced.  Otherwise, you’re just a thief.
Couldn’t you just ask for it?  Sure, and you might get it, too . . . but keep in mind that we’re keeping everything else equal.  That means that everybody around has the equal ability and means to produce something.  Why should I just give you something that I worked for, when you could do exactly the same thing for yourself if you weren’t a lazy slackass.
And please don’t start adding, “But what if . . .”  Everything else being equal means no ifs, ands, or buts.  We’re working out the rule here, not the exceptions.  And the rule is, if you want to consume, you must produce.  Period.

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