30 Jun 2011

Oh Say, You Could See

Economics, Krugman 29 Comments

For the Keynes, Krugman, and the Crisis class, we read Say’s famous “Of the Demand or Market for Products,” from which “Say’s Law” comes. I had forgotten how awesome it was. A sample:

The same principle leads to the conclusion, that the encouragement of mere consumption is no benefit to commerce; for the difficulty lies in supplying the means, not in stimulating the desire of consumption; and we have seen that production alone, furnishes those means. Thus, it is the aim of good government to stimulate production, of bad government to encourage consumption.

In a community, city, province, or nation, that produces abundantly, and adds every moment to the sum of its products, almost all the branches of commerce, manufacture, and generally of industry, yield handsome profits, because the demand is great, and because there is always a large quantity of products in the market, ready to bid for new productive services. And, vice versâ, wherever, by reason of the blunders of the nation or its government, production is stationary, or does not keep pace with consumption, the demand gradually declines, the value of the product is less than the charges of its production; no productive exertion is properly rewarded; profits and wages decrease; the employment of capital becomes less advantageous and more hazardous; it is consumed piecemeal, not through extravagance, but through necessity, and because the sources of profit are dried up.*45 The labouring classes experience a want of work; families before in tolerable circumstances, are more cramped and confined; and those before in difficulties are left altogether destitute. Depopulation, misery, and returning barbarism, occupy the place of abundance and happiness.

Such are the concomitants of declining production, which are only to be remedied by frugality, intelligence, activity, and freedom.

29 Responses to “Oh Say, You Could See”

  1. Major_Freedom says:

    Cue Keynesian acolyte who never read Hazlitt’s debunking of Keynes “refutation” of Say’s Law in 3, 2, 1…

    • Bob Roddis says:

      No, that will never happen because the subject matter involves an explanation of how a barter economy works which makes Keynesians’ heads explode.


    • Blackadder says:

      As it happens, I have Hazlitt’s Failure of the New Economics (though I wouldn’t consider myself a Keynesian acolyte).

      Have you read Bob (Murphy’s) explanation of how a general glut is possible?

      • Jonathan M. F. Catalán says:

        If my blog still existed, I have a post where I criticize Murphy and Callahan. I can agree with a money-induced general glut (at a stretch), but I think that Murphy’s and Callahan’s argument was ridiculous.

        • Subhi Andrews says:

          What happened to your blog BTW?

          • Jonathan M. F. Catalán says:

            It was hacked and I decided to discontinue it. But, honestly, blogging is like a drug, and I’ve been itching to get a free one or something. I hate to advertise here (well, not really), but soon enough we’ll be putting out a daily newsletter as well, which can act as a replacement for my blog in some sense (except there’ll be less random thoughts and such).

      • Jonathan M. F. Catalán says:

        Btw, before getting back into that, does anybody remember what book by Sowell Callahan suggested reading?

    • MamMoTh says:

      Did you ever read the evisceration of Hazlitt’s debunking of Keynes refutation of Say’s Law? It’s been trashed since it appeared, but clearly that trashing was refuted by Keynes too.

      • Daniel Kuehn says:

        Agree. I haven’t read Hazlitt cover to cover, I’ll admit. But every portion of it that I’ve read that someone has pointed to has been quite weak.

        The guy wasn’t dumb. The guy was a good expositor of Austrian economics as Austrian economists go. Being a journalist was a great advantage in that sense. I get all that. But I’m still not clear on why he’s developed the following that he has.

        • Subhi Andrews says:

          But every portion of it that I’ve read that someone has pointed to has been quite weak.

          Care to elaborate? I haven’t read Failure of New Economcis.

          • Daniel Kuehn says:

            The section on liquidity preference stands out in my memory.

            • Major_Freedom says:

              It probably stands out because “liquidity preference” is the heart and soul of Keynesianism, and so one who adheres to Keynesianism would necessarily have to psychologically reject Hazlitt’s section on liquidity preference in order to salvage one’s worldview.

          • jjoxman says:

            Feelings on “Failure” are probably predicated on one’s own views of Keynes going in. It’s like a jury that’s already been compromised. We here so much of Keynes that it is impossible not to be prejudiced.

            • Subhi Andrews says:

              I think economists who are Keynesians, generally speaking, must have been centrists or left leaning before they learned economics. Similarly free-marketers must have been libertarians before they learned economics. I’m sure there are exceptions, but I think that theory will hold well in general. I don’t have proof though.

              Most economists, I think, are left leaning, but I also think they tend to be to the right of much of the social science academia.

              Make me hopeless. Don’t know why.

              • Daniel Kuehn says:

                I was a libertarian in high school and early college until a learned enough economics and history and thought enough about my beliefs for that to be untenable.

              • bobmurphy says:

                Ah, then I’ll stop trying to persuade you. It’s possible (though rare) to flip somebody, but to get him to admit his first flip was a flop? Impossible.

              • MamMoTh says:

                His first flip was turning libertarian.

            • Bob Roddis says:

              When I was in college (1969-1974), EVERYONE who was political was a Marxist or socialist of some stripe. Keynesianism was what capitalist warmongers like Nixon did. It was not on anyone’s radar because it involved a substantial amount of free market activity which was a completely verboten thought-crime.

              In January 1973, I specifically took a class teaching Rothbard’s “Power and Market” because I heard that Rothbard had completely debunked the idea that Roosevelt cured the depression and he showed that beloved democratic socialism did not and could not work. I wanted to know these arguments and prove them wrong. I was not convinced at first, but what ultimately convinced me was the heads of leftists exploding when I prodded them for answers to my new concerns. Just like today. And I still await those answers.

              Frankly, until a few years ago, I figured that the Keynesians were just a bunch of careerist apolitical whores just mindlessly following the establishment party line (like Krugman, inexplicably apolitical until 2000).

              It wasn’t until I starting reading Yglesias when he attacked Tom Woods in May 2009 that I realized:

              1. People actually believe Keynes (which I continue to find unfathomable); and
              2. Non-Austrians haven’t the slightest familiarity with even basic Austrian concepts, (except for Gene Callahan and Bryan Caplan).

              Socialism makes superficial sense and I suppose that “doing nothing” is somewhat counter-intuitive so I can understand why there are socialists in the world. However, Keynesianism is counter-intuitive, makes no sense at all superficially and makes even less sense once you’ve analyzed it in depth. Unfathomable.

              My conclusion is the Reagan and Pol Pot destroyed the vision of hip socialism while Keynesianism allows one to be “capitalist” while still being a hip central planner. Which I think was Keynes’ plan all along.

              • Sandre says:

                Very interesting story. I would think much of your economic education happened after that encounter with Rothbard, I presume.

        • Jonathan M. F. Catalán says:

          Well, no offense Daniel, but you’re a Keynesian, so obviously you know less than everyone else.

  2. Andrew says:

    I’m taking this class and I love it so far, I’m learning a lot already. Can’t wait until next lecture.

  3. Bob Roddis says:

    I’ve always assumed that it was quite possible for a society to worship corn (and be purposefully ignorant of nutrition) and do nothing but grow corn, more than anyone could ever reasonably need for food. They all work themselves to death and die of malnutrition and exhaustion.

    So what? People are crazy. What else is new?

    But wait. Is that really a glut, since they really wanted all that corn, if only to worship it?

    Now if they didn’t have their wacky corn religion, wouldn’t reality hit them in the face and lead them to not grow a glut of corn? Wouldn’t that apply across the board for all goods and services?

    In a barter economy, reality will hit you in the face very quickly. In a money economy, reality is disguised by the phony wealth and wacky signals of funny money.

  4. Bob Roddis says:

    1. In addition to the Hazlitt book, there is the excellent “Where Keynes Went Wrong: And Why World Governments Keep Creating Inflation, Bubbles and Busts” by Hunter Lewis.

    “Just what the world needs, and just in time. Keynes is demolished and his quack system refuted. But this wonderful book does more. It restores clear thinking and common sense to their rightful places in the economic-policy debate. Three cheers for Hunter Lewis!” — James Grant, Editor of Grant’s Interest Rate Observer.

    2. Keynes: If important classes are to have their remuneration fixed in terms of money in any case, social justice and social expediency are best served if the remunerations of all factors are somewhat inflexible in terms of money. Having regard to the large groups of incomes which are comparatively inflexible in terms of money, it can only be an unjust person who would prefer a flexible wage policy to a flexible money policy, unless he can point to advantages from the former which are not obtainable from the latter.

    Let’s start with a few areas Lord K. ignores. Theft of purchasing power from those getting the new money last, Cantillon Effects in general, distortions of the price, investment and capital structure leading to ABCT for starters. Of course, prices were out of whack in the first place due to statist policies and the WWI slaughterfest. Little stuff like that.

  5. Bob Roddis says:

    That big meanie Bob Murphy is making us read parts of Lionel Robbins’s 1934 book “The Great Depression” for his Krugman/Keynes class but Krugman says it’s load of crap:

    I picked up a copy of Lionel Robbins’s 1934 book The Great Depression in a used book shop in Norwich. It’s quite revealing: judicious in tone, full of tables and facts, clearly meant to be seen as the work of a wise observer – indeed, a Very Serious Person.

    And utterly, utterly wrongheaded.
    And after surveying the wreckage all around him, he declares that the cause of the depression was excessive government intervention, and the remedy, the thing needed to restore that all-essential confidence was … drum roll .. a return to the gold standard.

    You can sort of see how this kind of policy analysis based on superstition might have seemed plausible in 1934, although even pre-General Theory Keynes could have explained just how wrong Robbins was (and did). But one would have hoped that we were past this sort of thing today.

    Whom to believe?

  6. Tel says:

    Says Law translates directly to “money is a veil over barter” and Keynesians desperately want money to be more than that.

    From my personal perspective, the correct phrase should be: at best money is a veil over barter. We have seen that badly implemented finance delivers worse than a barter economy. Yes I agree you can do things with money that you can’t do with barter — you can play shell games, dodgy accounting tricks, confidence tricks, and find elaborate ways to break promises.

  7. David S. says:

    This is very important in barter economies. lol This is as irrelevant to anything going on today as your religious posts.