“Pure fallacy from beginning to end”

Here is Milton Friedman stating Say’s Law. He is asked this question (35 seconds in):

Isn’t there some benefit to having the government steal our money . . . . They take this money and they give it mostly to government employees. Well the government employees spend it . . . . And so the people who were robbed have to do something creative to get the money back? And isn’t this creative activity the real wealth?

In his answer, Friedman first makes the obvious point that is, unfortunately, almost impenetrable to the modern economic mind. He says that the premise behind the question is:

Pure fallacy from beginning to end.

Friedman explains why but this is his summary in his own words:

Spending isn’t good; what’s good is producing.

Play the tape for yourself and listen to the full answer. And it is interesting that Friedman states this so clearly since what he is stating is the obvious logic of a market economy, a logic now all but lost.

I wrote to Friedman in 1994 at the latter stages in the writing of my thesis to ask him if he had ever discussed Say’s Law. The problem, unfortunately, is that he intuitively understood Say’s Law as a practical explanation of how economies worked, as the above quotation unmistakeably shows, but did not know that this is Say’s Law. So in his reply – excerpted from a letter more than a page in length and personally typed – he wrote this:

I do not recall ever having written anything specifically about Say’s Law. The closest I have come would be in the various discussions of Keynes’s theory, such as my article on the quantity theory of money in the New Palgrave. The issue of whether there can be a long-run underemployment equilibrium is essentially the Say’s Law issue and my discussion of that indirectly is a discussion of Say’s Law, though not directly.

He unfortunately understood “Say’s Law” in the way it has been bequeathed to the modern world by Keynes and recognised that his explanation is indirect rather than specific. But as far as understanding how an economy worked, he most definitely understood Say’s Law in exactly the way it needs to be understood. You cannot drive an economy from the demand side.

[My thanks to JP for sending the video of MF.]

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75 Responses to “Pure fallacy from beginning to end”

  1. Julie Novak

    Friedman’s sub-point about the desirability of the decentralisation of the strictly limited array of governmental expenditures was also nicely put.

    Useful clip, thanks!

  2. MattR

    Friedman truly was a genius and one of the great men of the 20th century. If only economists were more like him these days instead of the soft-left ‘government is good and spending makes us rich’ fools that seem to be taking over.

  3. Harold

    The government employee could do something creative themselves and the other guy can do that creative thing they were expected to do anyway.

    Two creative inputs to the economy!

    Wealth production vs Wealth transfer

    Duhhhhh…

  4. Spending isn’t good; what’s good is producing.

    Amen.

  5. Alice

    Yeah producing is good when you have someone spending who can buy what you produce.

    Jesus this argument is like what comes first? Chicken or egg?

    All it does is shift the emphasis to a producer centric policy world and ignore the consumer’s ability to buy
    when everyone knows we need both. Ability to produce and ability to spend.

    So I dont agree with Milton (the monster) that its ALL about production.

  6. Alice

    Steve, as a producer of course you are gonna say that..
    Amen

  7. .

    Alice is actually arguing against production?

    Keep spinning your commie bullshit, Alice. Oh yes Milt was a monster.

    Do you denounce Lenin’s Hanging Order?

  8. Nick De Cusa

    That clip just serves to remind us how wonderful the great freedom warrior was. Here he was; capable of devastating the, fellows argument without ever getting heated … there was an effortless feel about the way he did it. Effortless like Bing Crosby’s singing voice. Notice that though here he was blunt he didn’t clumsily destroy the young man’s ego but merely took his bad thinking apart.

    It is sad now that he has been taken as being discredited. He has only been wounded by a few things he overlooked and by the mean-spirited nature of many of his followers.

  9. Toiling Mass

    Apparently some people think the public servant is entitled to purloin some of the money you have earned and, when you are forced to earn it back again, the public servant has added to the economy.

  10. Johno

    I love the way that the git asking the question decided to call taxation ‘stealing’. Presumaly he thought that Freidman would agree with him and possibily regard him as a kindred soul. Milton wouldn’t have it.

  11. Nick De Cusa

    Alice when considering the freedom warrior, should you wish to be fair to him, consider the following propositions.

    1. The warrior was open minded when it came to proposals to improve the distribution of wealth ……….. So long as this was not taken to an extreme, and so long as it wasn’t achieved via big spending.

    2. There is almost no connection between the level of government spending and inequality.

    3. It’s reasonable to assume that at the time the key problem could reasonably be thought to be government spending running amok, whereas today it’s more than clear that banking, big corporatism, and government spending are All running amok.

    4. We have the example of the great catholic convert G K Chesterton, who would clearly be mostly with Friedman, but would suggest that Capitalism needs vastly more capitalists. It strikes me that the warrior would have been more than just a little bit sympathetic to Chesterton sentiments.

  12. MattR

    Alice, when someone produces, by definition they create the ability to spend, unless they produce what isn’t demanded.

    People sell their labour to the highest bidder and can then consumer what has been produced or they can produce a good or a service that people want, thus increasing their own ability to demand the goods and services of others.

    It’s not a chicken or the egg thing at all. Supply ALWAYS comes before demand can be either created or fulfilled. You cannot consume what isn’t produced in the first place. You can have all the demand in the world, if nothing is produced it is pointless. Whereas you can create a completely new product and demand will either be created, or the product won’t be produced any more.

    Honestly, this is the most basic of logic and common sense. It really isn’t hard to grasp.

  13. Skuter

    It’s not a chicken or the egg thing at all. Supply ALWAYS comes before demand can be either created or fulfilled. You cannot consume what isn’t produced in the first place. You can have all the demand in the world, if nothing is produced it is pointless. Whereas you can create a completely new product and demand will either be created, or the product won’t be produced any more.

    Honestly, this is the most basic of logic and common sense. It really isn’t hard to grasp.

    Well said MattR.

    I would just add that decisions necessary to produce must be made before an item is supplied. Labour, capital and raw materials must be acquired and combined in order to create a product or service. People do this in order to acquire money to buy their own preferred set of consumption goods/services.

    This is mainly for Alice’s benefit. Most other contributors here would understand this.

  14. HH

    I’m certainly no expert on Say’s law (yes, I plan to read Steve’s books in the new year) and the following will probably bear this out: but it seems to me Alice’s chicken/egg rebuttal of Friedman (/Say) can be answered by considering Crusoe economics.

    1. Washed up on his desert island, Crusoe knows production comes before consumption, in that he has to find food and shelter before he can enjoy their benefits. That’s true even if it’s an idyllic place groaning with tropical fruits and tame delicious dodos, and replete with caves, firewood and flint. The GDP of the Crusoe island economy kicks off zero when, in the absence of anyone else willing to buy and consume, Crusoe lifts his butt off the sand, starts foraging for breadfruit, clears out a cave, an makes a fireplace for himself.

    True, this is not a typical exchange economy with buyers and sellers interacting. But the germ of the answer in terms of an exchange economy is present in this situation.

    2. A month later, Friday arrives, wounded and helpless. Crusoe nurses him back to health and provides from him. Still no exchange economy strictly speaking, I’d say, yet production, obviously (by Crusoe here), precedes the consumption on the part of both parties.

    3. Friday turns out in the end to be a bit of a lazy bugger, typical of his kind.

    (Did I mention that Friday is a white male Anglo public servant from Canberra? He’s called “Friday” because that’s the day he flexes off work, or takes a sickie, every week. Crusoe is an aborigine.)

    Having got him on his feet, Crusoe restricts assistance to Friday to the barest essentials. The bottom line is as in 2. above.

    [Someone may say of 2. or 3.: “Oh but there you’ve got demand creating supply, because had it not been for Friday’s demand for food, Crusoe wouldn’t have gone out to produce the extra breadfruit to feed him!” But even Keynesians would reject that analysis. Not even they would argue that the way to get an economy out of depression is for everyone to go round asking for free handouts from one another. (Though in the end, what they are proposing comes effectively down to the same thing, it seems to me.)]

    4. Friday puts up with this for a while, but then makes a crucial decision to chip in, for his own benefit. Turns out that on his (long) weekends, he became an expert fisherman up in the Brindabellas and down the South Coast. So he makes Crusoe an offer: I’ll bring in some fish, and you let me have half of your fruit and dodo meat.

    And it is at this stage that we have arrived at, albeit in microcosm, the full blown exchange economy. Friday’s offer to produce grounds the possibility of a wider array of choices for himself (and Crusoe) in the future. Production is prior to consumption. Or as Say might have put it … &c.

    [N.B. Friday’s offer to Crusoe in 4. was the third he made. The first was an offer of Australian treasury bonds (Friday worked for the Treasury) - which was fair enough, but for the fact that both understood they would be on this island, alone, for life. When Crusoe refused, Friday’s second proposal was that Crusoe bury coconuts in the sand and Friday would “earn” them by digging for them. It was only when Crusoe, in reply, accused him of being a slave of some defunct economist, that Friday came up with the offer to fish.]

  15. Nick De Cusa

    Comrade Matt, Brother Skuter. Comrade Steve ….. I’m not going to knock anything you say since the congregation of arguments that constitute Say’s law are axiomatic.

    But it sounds like you are denying the effects of 1. Monetary grow or reduction. 2. Money growth acceleration and deceleration. 3. The effect that government spending or increased consumption has on profits. 4. The effect of an increase in the demand for money for holding. 5. The effect on demand of the growth of debt or the reduction of debt.

  16. Alice

    Listen Dot (You idiot)
    you say

    Alice is actually arguing against production?

    Keep spinning your commie bullshit, Alice. Oh yes Milt was a monster.”

    How the freak you got that interpretation from my comment that production matters as much as spending is fucking beyond me’

    No-one spends them people dont produce…

    That ought to be simple for you to get. No-one produces no-one spends (they gorw their own damn vegies and barter) – no-one spends no-one produces..

    Uncle Milton is a one eyed fool to think it all depends on producers and production (and so are you).

  17. .

    That ought to be simple for you to get. No-one produces no-one spends (they gorw their own damn vegies and barter) – no-one spends no-one produces..

    No. You can be self sufficient before you trade.

    Uncle Milton is a one eyed fool

    He was an idiot wasn’t he? Your IQ, please Alice?

  18. Alice

    Skuter – you are just as much of an idiot

    with this comment
    ” Supply ALWAYS comes before demand can be either created or fulfilled. ”

    There is no supply if there is no demand. Oh sure I recognise ine the moderm world demand can be created via advertsing BUT if there is still no demand the producer is out of business.

  19. Alice

    Dot – only as one eyed as you.

  20. .

    You’re a foul fucking cow Alice. YOU routinely run to invective if you lose an argument, but after days of you lying about data, someone loses their shit about your dishonesty and rank stupidity and you have the fucking temerity and audacity to say the same about them.

    Have a very merry christmas alone, you fucking nutter.

  21. Alice

    Dot says

    “No. You can be self sufficient before you trade. ”

    Would you mind explaining this ridiculous statement that someone can be sef sufficient before they trade?

    What self sufficient from previous trades? And then before that? What? Self sufficient from givernment welfare.

    Lies Dot.

  22. Alice

    Listen Dot

    Its you thats the nutter – hav a happy Xmas yourself you you you…conservative extremsist!!
    You after a job in someone’s office?

    Jeez that was an outsnading Meryy Xmas. I reckon Im going to frame that one Dot!!

    You have a very Merry Xmas too you silly bastard.

  23. Alice

    LOL – I get a laugh Dot! What is life if you can’t have a bit of an argument in a political blog eh?
    What better place I might add?
    (anyway this site is better than JQs. Ill say that much. JQ doesnt get as much traffic so an argy bargy stands out more and poor old JQ feels like he has to wade in and moderate. At least Sinc has enough traffic and its pretty diverse traffic and he mostly leaves it alone.
    For that – I tips me hat”.

    We cant get too serious. Its an online blog for gods sake, not a June Dally Watkins forum is it?

  24. MattR

    “There is no supply if there is no demand. Oh sure I recognise ine the moderm world demand can be created via advertsing BUT if there is still no demand the producer is out of business.”

    Idiot, how many people demanded an Iphone in the 90s? How many people demanded a car in the 1850s? How many people demanded a Musket in ancient rome? Supply doesn’t always create demand, but it certainly has done so on many occaisions.

    Now, contrast that to someone who is starving. It doesn’t matter how much they demand food, what matters is that there is none for them to consume! It’s supply that matters, or the lack of it.

    Honesly, this is such basic basic commons sense it is staggering that people are still even debating it.

  25. Alice

    Matt R
    I already said that

    “Idiot, how many people demanded an Iphone in the 90s? How many people demanded a car in the 1850s? ”

    I specifically stated that demand can be created through advertising now go and read what I said PROPERLY numbskull

    I hate repeating myself or clarifying for dimwits

  26. MattR

    “What self sufficient from previous trades? And then before that? What? Self sufficient from givernment welfare.”

    100,000 years ago there was very little or no trade, yet people were self sufficient. Honestly, could you be more wrong about absolutely everything?

    “Money performs but a momentary function in this double exchange; and when the transaction is finally closed, it will always be found, that one kind of commodity has been exchanged for another.” Jean-Baptiste Say

    Money is purely a medium of exchange designed to overcome the issues with the barter system whereby you have furs, I have wheat, you want wheat and I want fish, I can simply sell my wheat to you for currency and use it to purchase fish from someone else.

    The money isn’t what’s being traded, it’s the goods that were produced that matter. Keynes felt otherwise, but Keynes was wrong about pretty much everything. If it wasn’t for the fact that the government could use his theories as an excuse to spend and spend nobody would have heard of him.

  27. Alice

    But MattR

    There has been many a producer go to the wall because people didnt like what they had to sell any more

    so where is your argument?

  28. Alice

    MattR says

    “100,000 years ago there was very little or no trade, yet people were self sufficient. Honestly, could you be more wrong about absolutely everything?”

    Do you actually read? Or are you illiterate?

    I raised barter and implicit in that is the notion of self sufficient small subsistence farmers (go visit Papua New guinea).

    No you dont read. You make brazen assumptions about what I said and then declare me “wrong!!!”

    Cheek of you.

  29. MattR

    “I specifically stated that demand can be created through advertising now go and read what I said PROPERLY numbskull”

    Honestly, and again, it’s not the advertising that’s creating the demand, it’s the fact the product is something that people want. Advertising is a tool used to differentiate products from competitors and let people know that a product is available.

    No amount of advertising could make people buy something they don’t see value in. Just as if you had a monopoly on all food production you would never need to advertise.

    “The best products sell themselves”

    Face it, you cannot win this debate because you are wrong. Stop making a fool of yourself.

  30. MattR

    “There has been many a producer go to the wall because people didnt like what they had to sell any more.”

    Of course there has been in every case this is because the product has been superceded by something better/different, thus it’s become obsolete. The demand has been moved on to other products being produced.

    “No you dont read. You make brazen assumptions about what I said and then declare me “wrong!!!””

    Blah blah blah, now you’re just getting angry and lashing out. Boring trolling.

  31. .

    What self sufficient from previous trades? And then before that? What? Self sufficient from givernment welfare.

    Lies Dot.

    What? 100 000 years ago?

    You are literally too stupid to interact with and the putative reason I am not commenting in this blog anymore.

  32. manalive

    The advance of civilisation, as in the Fertile Crescent, has been the result of there being a surplus of basic goods over and above subsistence which led to the development of markets which led to towns or cities.
    That in turn led to innovations such as the wheel, the plough, sail boats, copper tools etc. which led to more surplus and so on.
    The process was repeated in the 19th century in Britain with the industrial revolution and in the last thirty years with the growth of consumer digital products.
    The process is all so glaringly obvious, production creates demand.

  33. MattR

    “The process is all so glaringly obvious, production creates demand.”

    I dunno, maybe if we went back in time and gave the Romans $10T USD they would all buy iphones, Ferraris and fridges…

    Lol…

  34. Skuter

    Nick De Cusa,
    The issues around demand for money and credit are important as their existence allows for shifting consumption through time. People can accumulate savings by delaying consumption or can consume based on future income, which is what credit is effectively. But just because people save does not mean total spending must drop. If savings are invested through the financial system the so-called paradox of thrift disappears as interest rates would fall to reflect the increased levels of savings. If people genuinely put money under the mattress or banks start accumulating reserves, then that greater demand for money can be met by the monetary authority. The key point is that Say’s law still holds in an economy with money and credit.
    As for you Alice, there is no helping you. There are none so blind as those who won’t see…

  35. blogstrop

    Right. So I’m supposed to read a thread where Alice tells me how production and capitalism works.

  36. Anne

    Dot. She’s obsessed with you and has no genuine interest in argument or debate. She just wants attention from YOU.

    For god’s sake ignore her, just don’t bite!

  37. Zatara

    I’m bored enough to be curious Alice. In order to creat demand did Eli Whitney have to advertise/market his cotton gin? Or Robert Fulton his steam engine? Jonas Salk his polio vacine? Samuel Colt his revolving pistol? Henry Ford the automobile? Christopher Columbus his discovery of gold in the ‘new world’?

    The answer is no, the need/desire was there. The ‘products’ they invented created the market demand. Thus recognized need/desire leads to entrepeneurial supply, which leads to demand.

    Shifting gears, from what you have said here it seems you think that there can be consumers who are not also producers. How exactly does that work? I mean when the producers start waking up to the slowly encroaching entitlement society which makes their efforts literaly worth less and less what happens next?

    How about when ‘progressive’ taxation rates start making it a better choice to sit on your bum and collect your welfare check each month rather than work at all? What happens to production then?

  38. Nick De Cusa

    Skuter you’ve ignored what I said and you seem to have ascribed to me.some sort ,of Keynesian fallacy. Read what I said again until you get to where you can address what I said. Drops in demand are a serious matter. They need to be dealt with. Not by fiscal policy or consumerism. But they do need to be dealt with. Don’t keep ignoring them with all this true believer talk.

  39. Nick De Cusa

    What is the mental block with you guys that you want to be in denial of the banking system as it is? Does understanding Say’s law demand that you must fail to understand the menace of fractional reserve banking? Medieval money famines, created by fractional reserve banking could last as long as 20 years. This is important stuff. Yet listening to Kate’s it’s as though he doesn’t want to face the issue at all. But you make yourself look like idiots. You cannot rabbit on about Say’s law without also turning to monetary effects. Yet you guys keep doing this. You continue to look ignorant and stupid every time you try it on.

  40. LacqueredStudio

    All these dribbling mouth-breathers who still believe demand follows supply are either lying or wilfully stupid. Doesn’t matter how you cut it, commerce always relies on the consumer. No matter how you wankers try to skew it, product innovation will always be about anticipating demand, if not merely following it. Meanwhile, the rest of us get to listen to the likes of Gerry Harvey blame technology and anyone with a brain for gradually abandoning him and his shitty, outdated business model. But you lot probably shed a tear of sympathy for his industrialist sentiments.

    Amirite?
    Learn2marketing, dipshits.

  41. Nick De Cusa

    I mentioned five things you people were in denial of. And as if to prove my point you stayed resolutely and anally in denial of them. Five items. Listed for you.

  42. Nick De Cusa

    Spending is spending. We cannot sanctify or prejudice the spending on consumer goods or government spending. Except to note that this is where wealth goes to die.

    Spending for intermediate goods creates demand for finished goods, raw materials, and even other intermediate goods. Spending on consumer goods creates demand for other goods but its only a subset of spending in total. Fiscal policy is utterly useless for demand management as is moral suasion to try and get people to be less thrifty. Where is the money coming from? It must come from somewhere. Hence Keynesianism was always a ridiculous lie.

    But this doesn’t mean you can ignore stability of spending and demand problems that fractional reserve creates????? What is that sort of denial all about , other than the continuation of the policy of sucking up to the bankers?

  43. MattR

    OK Nick, let’s talk about the points you raise:

    1. Monetary grow or reduction. 2. Money growth acceleration and deceleration.

    When talking about increases and decreases in the money supply one needs to understand exactly what money is and how’s its value is determined. It’s not something we consume, it is simply a means of exchange, nothing more, nothing less. It is simply a way for someone who produces apples, but wants oranges and his neighbor only has pears, to obtain the oranges he wants by selling apples for currency.

    The value of money is set purely by how much there is of it in the system, nothing else.

    As such when you increase or decrease the money supply you get either inflation or deflation. The effect of this are felt only in how it effects production in the short term. When the value of money deflates and workers are unwilling to take pay cuts, unemployment increases and production decreases. Hence the reason inflation is always the ‘go too guy’ in a crisis.

    But again, it’s not an expansion of the money supply that ‘creates demand’ it’s the fact that it facilitates more production, or at least, not less production.

    In both cases the effects are only short term anyway as eventually the economy gets used to the new level of money supply and adjusts accordingly.

    3. The effect that government spending or increased consumption has on profits.

    Again, this comes under an expansion of the money supply and you clearly don’t understand where the government actually get’s its money from. It either takes money from people (businesses or individuals) or it borrows meaning either higher taxes or higher inflation. Overall, governments REDUCE the profits of business, no matter how much they spend.

    Increased consumption can only be paid for with production (as has already been clearly stated). The only way to increase consumption now without increasing production is to use credit which is a claim on your FUTURE production.

    4. The effect of an increase in the demand for money for holding

    .

    Another Keynesian myth here. Money held in the bank can be lent out for investment in other areas as a means to increase the productive value of society. If goods aren’t consumed in one country, they can be sold to another as well.

    5. The effect on demand of the growth of debt or the reduction of debt.

    As stated before, debt is a claim over future production. An increase in debt for consumption now, means a decrease in the ability to consume later, unless you become more productive.

    Also, debt can actually be viewed as a product, in the way Say viewed products, to an extent. In that, his view stated, correctly, that recessions are based on a glut of a certain product and a shortage or other products. Too much debt within a society can lead to a misallocation of resources (*cough* mortgages *cough*) which eventually leads to a recession, made all the worse by the fact that debt must be repaid regardless of profitability of investments or whether you become more productive down the track.

    Overall your 5 points are really nothing but nit picking. The basis of every economy is it’s production. Yes, the ability of an economy to produce can be affected in the SHORT term, but at the end of the day it’s still production that matters over the long term.

  44. MattR

    “What is that sort of denial all about , other than the continuation of the policy of sucking up to the bankers?”

    I’m honestly not sure where you got this impression from. I’m not a huge fan of fractional reserve banking (not sure about others though) and I certainly take issue with the way banking takes place these days. Personally I see the monetary system as a public good (obviously I take no objection to private enterprise operating within the financial system). However, when banks are allowed to dictate how much money they can lend and that they only need a small fraction of capital in reserve, it’s no surprise that they start lending money anywhere and everywhere, creating a huge glut in debt within the system, that eventually resulted in recessions around the world (and probably one in Australia too eventually). Being able to create the product you sell out of thin air, due to government decree, certainly would have it’s advantages. Especially when the money supply is made all the larger due to massive government intervention.

    Where I take very strong issue is when governments bail out banks that produced too much debt, (after the government made it too easy for them to do so) and not only does the bank survive, but the executives and shareholders do too!

    In a crisis of too much debt in a system the solution is to treat deposits as sacrosanct and let everything else collapse under it’s own weight.

    In that, individuals money (potential demand paid to them as a result of production) is saved and banks that made bad business decisions are ruined, just as businesses that produce products nobody wants is.

    Iceland did this, they suffered a lot of short term pain and were on the receiving end of a lot of international anger, but are now doing very well.

  45. .

    I thought I swore this blog off, but this needs to be busted

    All these dribbling mouth-breathers who still believe demand follows supply are either lying or wilfully stupid. Doesn’t matter how you cut it, commerce always relies on the consumer. No matter how you wankers try to skew it, product innovation will always be about anticipating demand, if not merely following it. Meanwhile, the rest of us get to listen to the likes of Gerry Harvey blame technology and anyone with a brain for gradually abandoning him and his shitty, outdated business model. But you lot probably shed a tear of sympathy for his industrialist sentiments.

    Amirite?
    Learn2marketing, dipshits.

    I am sorry but you don’t understand what demand is.

    You simply don’t know what you are talking about. I cannot be anymore polite or less blunt.

    First of all, you cannot expect to mass market something until there is a general surplus in production or aggregation of savings of some kind.

    Wants without requisite income to back it up is not “demand”.

    Note that we had to be self sufficient before we could trade. Trading before this was in group and only was a small model of the standard model of trade.

    However, Og and Ug may have discussed and planned such a trade, it would not happen if one did not produce what they agreed to. The same with countries or regions now unless they divest.

    Note that a general surplus must first be accumulated on the supply side. Yes farmers etc may purchase a new technology from an upstream supplier but in the strict sense it is not a final good and so it does belong on the supply side.

    The real effect of credit – no, the real effect of income smoothing is that credit gets invented.

    Again, there may be a want for surplus funds, but they cannot be transacted until they are supplied. The demand may or may not exist.

    Gerry Harvey? What the fuck are you babbling about? This blog is for free trade. We don’t have sympathy or allegiance to “industrialists”.

    Learn2marketing?

    Marketing is a hollow discipline without a rigourous foundation in economics. You could not teach it well.

  46. MattR

    “All these dribbling mouth-breathers who still believe demand follows supply are either lying or wilfully stupid.”

    Yep, because I had an iphone when I was 5 and my grandparents all grew up with PC’s in their home.

    It never ceases to amaze me just how wilfully ignorant so many people are.

  47. Skuter

    Hmmm, Nick I don’t understand what you are getting at. You seem to be ascribing views to me I don’t hold. If the truth be known, I support 100 percent reserve banking, so as to remove the problems associated with the destruction of inside money and make the banking system stable. I actually agree with a lot that you say, so no need for any antagonism. I feel that you are among friends here.

  48. JC

    Where did this dribbling moron come from, Dot. He sounds like a leftwing version of bird with his balls cut off

  49. Tom

    Fuck off, Alice. You’re a thread-wrecking ignoramus.

  50. JC

    Gerry Harvey? Lol…everyone here has always spoken so well of him.

  51. Max

    Check out Milt in Hong Kong in the late 70s from 9 mins in

    http://www.youtube.com/watch?v=f1Fj5tzuYBE

  52. Nick De Cusa

    No Matt you are ignorant. The demand for cash for holding is an Austrian/ Mainstream concept And yet in your ignorance you put it down as a Keynesian concept. You confuse it with savings. And then you screw things up still further by describing a banking scenario that only would be valid under 100 per cent backing.

    Stop pretending you know what you are talking about. Read more. Type less. Skuter if you were for 100 per cent backing, don’t you find it exacerbating that people going on about Say’s law talk as if anti-market debt explosions and monetary instability doesn’t matter? It makes you lose the argument. It makes you look stupid.

  53. MattR

    “The demand for cash for holding is an Austrian/ Mainstream concept And yet in your ignorance you put it down as a Keynesian concept. ”

    Actually no, I simply misread, and this still changes nothing anyway numb nuts. The Keynesian myth I talk about is the idea that holding cash is bad for the economy, it really isn’t. Supply and production build an economy, demand simply determines the price of said products and whether they can be produced profitable.

    The fact that I wrote that response and all you can do is cherry pick one spot and abuse and call names says more about you and how weak your position is than anything.

    Maybe you should do some reading first then come back when you know enough to extend your arguments to more than simply dot points and abuse?

  54. Nick De Cusa

    You got a bunch of other stuff wrong as well. I may attribute it to the problem of shorthand.

  55. Nick De Cusa

    High cash holdings are good for the economy if they ARE HIGH AND STABLE. The problem is the instability lot the demand for cash to always pussying out to the banking racket brings.

    I tend to be more extremist about this issue. I think we ought to aim at More CASH THAN DEBT.

    But there can be no doubt that the issue of the demand for cash for holding is a serious issue in demand management.

  56. brc

    Demand follows supply – that’s not even stating it right.

    It’s very simple to understand – you cannot buy something until you have produced something to trade. This you cannot demand until you have produced. It doesn’t get any easier than that, yet there seems to be an entire industry around trying to come up with ways to swap this basic fact around.

  57. Nick De Cusa

    You want to take it further than that brc. Should you care to take time out to look at the income statement of an intermediate goods producer you will find he is spending a lot of money on very many things, which in turn creates demand for all goods categories.

    NAY. Did I say CREATES DEMAND?

    Look closely at the income statement. The production doesn’t CREATE the demand. The act of production IS the demand as demonstrated, on paper, by the income statement.

    Not only is Say’s law testimony to the idiocy of fiscal policy. Used rightly its also a lens by which you can school the stupid on the full spectrum nature of the economy. Intellectuals are people who may have grown out of thinking that milk comes from a bottle…… But if so ONLY JUST.

    Yet none of this understanding constitutes an excuse for our disgraceful banking system. Nor is any of the above a substitute for understanding the disastrous spending oscillations this dysfunction produces.

    Nor ought a fixation on Say’s law excuse a working economist from getting to grips with monetary economics.

  58. john miller

    In the UK we have had this strange disease of public spending infect all political parties.

    They tell us, for instance, that we cannot afford an hour of a doctor’s time.

    However, if we give them the same amount of money, not only will they find us a doctor, they will keep 15% of our money too!

    I use this example because when the socialist government negotiated state doctors’ contracts a few years ago, not only did they inadvertently double their remuneration, but also reduced their working hours by a third!

  59. Biota

    Been thinking about this from the natural world framework that I am familiar with as a biologist. In the world of living things demand is always present but supply is not. Demand does not initiate supply. No matter how much an organism demands food, water, air or sex, supply will not result as a consequence of that demand; if supply is not there, the organism dies. Of course on balance, the essentials of life and procreation are generally supplied. Consumption can effect supply, so lightly grazed plants respond with more growth but some critters don’t know when to stop and exhaust supply (e.g. plague locusts) and die out. Many species know that supply is not forever so they bank for the bad times (squirrels storing nuts, bears becoming fat for hibernation).

    How is it that the human world should be any different?

  60. Biota

    And happy Christmas. May Santa’s supply meet your demands! Cheers.

  61. Nick De Cusa

    This is very important; The production doesn’t CREATE the demand. The production IS the demand. They are one and the same transaction. But we are not just talking about consumer goods. We are talking the entire structure of production.

    So knowing this supposing you have a fractional reserve crisis that buggers the situation all along the networks of production???

    Why would you be a Keynesian lunatic about it an focus only on the consumer end of the production network??

    Fundamentally the founder of this particular religion was ignorant.

  62. Skuter

    Indeed Fisky, I thought Bird was about, but just in case he is not…Nick, I agree with you regarding the disgraceful state of the banking system. In very simple terms, there should be ‘deposit warehouses’ with 100 percent reserves and essentially a series of equity funds. Neither would be covered by deposit insurance. In the first case, deposit insurance would be unnecessary by definition and in the second instance equity holders should never be insured by the state.
    As for the production preceding demand thing. Demand may exist for certain characteristics, but cannot be expressed until an entrepreneur brings a commodity or service that embodies those characteristics to the market

  63. JC

    Skute:

    You basically have a form of deposit warehouses now. Money market funds that invest in short term government or triple AAA securities.

    And although I agree with you that owners should not be insured, I think you may be referring to the bailout.

    Despite what lots of people say, owners weren’t really bailed. They were basically diluted to the shithouse.

    Take citigroup for instance. The stock is now trading at around 4 bucks pre-reverse split when they were around $550 bucks a share.

  64. Skuter

    JC, that’s all well and good. But it is the presence of deposit insurance and the moral hazard that creates that is the problem (and in a crunch, the knowledge that our panic merchant government would guarantee wholesale funding too). The issue is not whether deposit warehouses exist but the fact they do shows that my proposal is not so radical. The other thing is deposit warehouses wouldn’t be the sum total of the financial system, not by a long shot. Equity funds would emerge to take up the lending functions of banks but they would be 100 per cent equity funded, rather than being funded by at call deposits or wholesale debt. Prudential supervision and capital requirements would largely be redundant.

  65. Nick De Cusa

    Every sentence of this degenerate JC is wrong. A bailout denier. He ought to be hassled off this site. What an idiot. It’s the equivalent of watching Jamie Dimon testify before Congress. An idiot. A liar. Ignorant. Arrogant in the misinformation he is foisting on everyone.

  66. Nick De Cusa

    Just unwrap this moron’s first sentence. You would think he was a gibbering loon in an asylum.

  67. Nick De Cusa

    Skuter you appear to be saying that demand is only about finished goods Not so. Every business consumes and produces real goods. Spends real money, and creates real demand all along the chain/network. It’s precisely this fixation on consumer and government goods ….. This is really at the heart of Keynesian foolishness.

  68. sdfc

    Citigoup are lucky they weren’t nationalised.

  69. sdfc

    Merry Christmas everyone by the way.

  70. Nick De Cusa

    Exactly. They missed a good chance to break these incompetent parasites up and sell them off again as tiny units.

    We need to get this demand management right. Even if we need to go so far as the Hansa League and eliminate most credit transactions. For civilizations sakes we need to get this right so that no degenerate idiot can bamboozle anyone on fiscal policy or bank ponzi schemes ever again. This is no minori issue. It will determine if we can get out of Malthusian conditions again or not.

  71. JC

    Bird

    How did you get through the razor wire fence to keep you out?

  72. Nick De Cusa

    You must be one of those parasitical vermin getting in the way of a non-Malthusian future.

  73. JC

    Too bad your number didn’t abort you, Bird. Just think, there would be less pixels wasted.

    Seriously, how did you get through the fence?

  74. Nick De Cusa

    Truly you must be one who has dedicated his soul to parasitism as a way of life. Are you perchance a friend of Hank Paulson? What’s interesting about that generation of blood-suckers is their sheer brainlessness. Contrast them to old man De Rothschild? You could not go anywhere to get better analysis of the Indian economy for example. But Dimon, Paulson and that crowd are just degenerates.

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