Tuesday, November 29, 2011

Drowning in Keynesian fallacies

Whenever a Keynesian, be it Paul Krugman or even the original Keynesian, try to "refute" Say's Law, they generally create a caricature or straw man, and then refute that instead of dealing with Say's basic point. And Krugman does it again in a recent blog post, this time taking on Grover Norquist.

Krugman first takes a quote from Norquist:
The idea that if you take a dollar out of the economy and then — from somebody who earned it, either through debt, or through taxes — and give it to somebody who’s politically connected, that there are more dollars around, that if you stand on one side of the lake and put a bucket into the lake, and walk around to the other side in front of the TV cameras, pour the bucket back into the lake and announce you’re stimulating the lake to great depths. We just wasted $800 billion on stimulus spending that added to debt, that killed jobs.
Krugman then writes, "OK, this is just Say’s Law." As one who has written much on Say's Law, I ask, "It is?"

In dealing with what Krugman insists is a "fallacy," first we have to remind people that Krugman actually believes that printing money CREATES real wealth, or at least it can lead to the creation of real wealth. When criticized, Krugman usually turns to the alleged "baby-sitting co-op" that "solved" its problems by printing more tickets. (You see, the "co-op" is supposed to be a perfect example of an entire economy with all of its complexities.)

Second, Keynes never "discredited" Say's Law. Instead, Keynes created a caricature and refuted that instead, something Henry Hazlitt notes in his book, The Failure of the New Economics, which thoroughly refutes Keynes' General Theory. Furthermore, in denying Say's Law, Krugman is saying in effect that factors of production for purposes of economic analysis can be treated as homogeneous.

Thus, all it takes to get the factors employed is just a monetary or spending transmission, be it via government spending (which is what is "best" in a "liquidity trap"), or by having monetary authorities drive down interest rates. Under this interpretation, inflation does not have a distorting effect upon the economy but, instead, actually stimulates economic activity and creating new wealth.

Thus, what one produces is irrelevant as long as a government can print money. There is a problem, however, and that is that if all it takes is the "courage" to print money (and most governments ALWAYS have the courage to try to produce something from nothing), then Zimbabwe should be the wealthiest nation on the planet.

Krugman would argue that the U.S. Dollar is different, but if real assets mean nothing, or if all assets for purposes of economic analysis considered to be homogeneous, then it would not matter what was produced in the country represented by a particular currency. And as for Say's Law and the Norquist quote, I would argue that Krugman's next quote does not negate the truth of what Norquist is saying, but rather exposes Krugman's fundamental ignorance of simple opportunity cost:
OK, this is just Say’s Law. We don’t know whether Norquist is honest enough with himself to realize that exactly the same logic applies to any spending, that according to his story anyone who borrows to spend, including companies making investments, is just displacing someone else’s spending.
In other words, everything is reduced to just "spending," when, in fact, investment in a free market is profitable when entrepreneurs are able to move resources from lower-valued uses to higher-valued uses as ultimately determined by consumers.

In Wonderland, no such thing happens, as one "investment" is as good as another, since all that matters is spending. Thus, the Obama administration can throw hundreds of billions of dollars at solar energy, windmills, and ethanol and claim that it is "investing in America's future." Indeed, it is diverting resources from higher-valued uses to lower-valued uses and is destroying the economic future of this nation. Furthermore, we are finding that many of the companies receiving these massive subsidies are firms that have contributed money to the Obama campaign, which to me is utter corruption. Contribute to Obama, and have the president then loot taxpayers to throw good money after bad.

The key to understanding what Krugman is saying is to remember that he does not believe resources can be moved from lower-valued to higher-valued uses, at least economically speaking. It is all spending all of the time.

205 comments:

1 – 200 of 205   Newer›   Newest»
RSS Ronald Reagan said...

"...everything is reduced to just "spending," when, in fact, investment in a free market is profitable when entrepreneurs are able to move resources from lower-valued uses to higher-valued uses as ultimately determined by consumers."

Once again, you've given me the terminology to express what I've always known instinctively. Many thanks for the services you're rendering the republic!

Django said...

Devastating.

American Patriot said...

Krugman and Keynesians in general baffle me. Their complete lack of common sense and intuition when it comes to economics is jaw dropping. Try discussing concepts like opportunity cost, Rahn's curve, etc. with them and you may as well be talking to the wall. I communicate better with my Cocker Spaniel.

young austrian said...

As a college student who is just getting interested in Austrian economics (have been keeping up for about a year now), I'm wondering if it's worthwhile, in a "know thy enemy" sort of way, to read any of Keynes' General Theory? Or will Hazlitt's The Failure of the New Economics give me everything I need to know?

I also have a lot of other reading still to do, as I've only made my way through a couple of the most basic books by the Austrians (just finished Economics in One Lesson). Does anyone have an opinion as to whether or not I should acquaint myself with Keynes for the purpose of refuting his arguments more adequately, or if there are other more valuable things to read instead? (I should add that I have never formally studied economics, so the mathematical things take me a little longer to digest)

JFF said...

young austrian:

Absolutely you should.

morse79 said...

@young austrian

That is just typical of the closing of our intellectual minds. You would rather read a critique of an important piece of economic thought (that you might end up disagreeing with) than the original?

It is not about "knowing the enemy." It is about intellectual honesty. If you frame it as a war and are already so certain after a year of economics that Keynes is the enemy, you have closed yourself off to any possibility that you might actually be wrong. Humility is the key to any intellectual honesty so read Keynes and read Mises and make up your own mind.

Mike Cheel said...

From WSJ (http://online.wsj.com/article/SB10001424052970204449804577069421505550172.html?mod=googlenews_wsj)

"NEW YORK—The Federal Reserve furthered opened the global lending spigot Wednesday, propelling stocks, the euro and other perceived risk assets higher at the expense of the dollar."

At the expense of the dollar. Let it sink in you Keynesians and MMTers. Daddy has opened the spigot.

young austrian said...

@JFF: thank you

@morse79: very good points, duly noted. thank you as well

Scott D said...

morse79,

Since when is asking a question indicative of "closing of our intellectual minds"? Not all of us have the time or resources to acquire and read everything. There is a lot of crackpot economics out there, some of it definitely not worth my time. Don't be so quick to attack someone seeking guidance.

If you want to be able to understand the Keynesian side of things, it really would be best to start from the source. Besides, occasionally Keynes did get something right.

Lord Keynes said...

Say's law in all its forms asserts propositions that are either (1) trivially true and no threat to Keynesian economics or (2) utter rubbish:

http://socialdemocracy21stcentury.blogspot.com/2010/10/myth-of-says-law.html


Moreover, Say himself repudiated the law in his later correspondence with Ricardo. Too bad you don't have the honesty to note that.

morse79 said...

@Scott D - so you are advocating more crackpot economics from people who don't read? If you are not going to read, just don't pontificate and be so self-righteous about your opinions. As I said, humility is the key to any intellectual honesty.

I don't expect everyone to get PhDs in economics. But for a first year student of economics to already be convinced that Keynes is the enemy without having read him....

I tend to see a broader closing of our intellectual minds from the left and right. We all find our "clubs" and are so sure that we are right and the other side must necessarily be evil, complete idiots, or part of some grand conspiracy. I see that closing of the mind on this blog and in the comments.

Zachriel said...

young austrian: I'm wondering if it's worthwhile, in a "know thy enemy" sort of way, to read any of Keynes' General Theory?

As Keynesianism is one of the most important economics theories of the last century, and still has a great deal of currency within economics, of course you should study Keynes.


William L. Anderson: first we have to remind people that Krugman actually believes that printing money CREATES real wealth, or at least it can lead to the creation of real wealth.

Think of it more like greasing the wheel. It's not sufficient, but necessary for the proper workings of the machine.

William L. Anderson: (You see, the "co-op" is supposed to be a perfect example of an entire economy with all of its complexities.)

Not at all. It's a simple example of a market.

William L. Anderson: Under this interpretation, inflation does not have a distorting effect upon the economy ...

Where would you get that idea about Keynesianism? Of course inflation distorts the economy.

William L. Anderson: The key to understanding what Krugman is saying is to remember that he does not believe resources can be moved from lower-valued to higher-valued uses, at least economically speaking.

This may be the crux of your confusion. Keynesianism is a theory about *markets*. While the government may control some global aspects, such as money supply, the markets continue to function on the local level making the multitude of decisions about distribution and valuation of goods and services. So when you say Krugman "does not believe resources can be moved from lower-valued to higher-valued uses, at least economically speaking," that is directly contrary to any reasonable reading of his economic thought.

Major_Freedom said...

You see, the "co-op" is supposed to be a perfect example of an entire economy with all of its complexities.

I think this actually gives the babysitting coop example more credit than it deserves.

The baby sitting coop example actually shows that Krugman's own position is wrong.

See Peter Schiff in this hilarious takedown:

http://www.youtube.com/watch?v=lCQ_N9wj41Q

Mike Cheel said...

" But for a first year student of economics to already be convinced that Keynes is the enemy without having read him..."

Why read about his economic theory? We are experiencing it first hand.

How much reading do you need to do to understand you cannot spend your way into prosperity?

How much reading do you need to do to understand flooding the world with dollars destroys the value of those same dollars? See the link earlier for a current event.

Sam said...

Stimulating an economy by forcing the populace to prepare for an alien invasion is moving from higher-valued to lower-valued goods.

Zachriel said...

Mike Cheel: Why read about his economic theory?

Because you might learn something? Just handwaving away the most influential economic theory of the twentieth century doesn't explain its wide currency, even today, among experts in the field.

Mike Cheel: We are experiencing it first hand.

If you mean the financial meltdown and ensuing recession, that was clearly caused by distortions in the market that were not in line with Keynesianism, which counsels countercyclical policy.

Bob Roddis said...

young Austrian:

I'd start with the book "Where Keynes Went Wrong" by Hunter Lewis from 2009.

http://www.amazon.com/Where-Keynes-Went-Wrong-Governments/dp/1604190175

It is very well organized and lays out the nonsensical Keynesian Koncepts in the most simple and organized manner conceivable.

Once you understand the nonsense, then you can read the original.

Major_Freedom said...

LK:

Say's law in all its forms asserts propositions that are either (1) trivially true and no threat to Keynesian economics or (2) utter rubbish:

Moreover, Say himself repudiated the law in his later correspondence with Ricardo. Too bad you don't have the honesty to note that.

Say repudiating Say's law is not the same thing as Say refuting Say's law.

Say’s law has already been introduced and verified. It does matter if the original writer later rejects it. If that were true, then you must reject the entire Keynesian paradigm because that's what Keynes did in his death throes.

The significance of the law is that Keynes is widely held by his followers to have refuted it, when in reality he just straw manned it.

And you're wrong to claim that it is either a trivial truth, or poses no threat to Keynesianism.

It is not a trivial truth, because it requires synthetic reasoning.

It poses a threat to Keynesianism because it can be used to refute many fallacious beliefs Keynesians have, perhaps the most widely believed myth being that there are genuine long run losers in freedom of competition.

Other Keynesian beliefs that can be refuted using Say's Law are the false notions that more net investment leads to perpetually falling rates of profit, that general overproduction is possible, and that wages are determined by aggregate spending.

Say's Law is this:

Under the freedom of competition, the process of production itself creates purchasing power equal to what is produced.

James Mill, who actually developed the law before Say did, stated the law thusly: "The production of commodities creates, and is the one and universal cause which creates a market for the commodities produced."

Mill's formulation becomes obvious as soon as you realize that increases in monetary demand that take place without increases in supply operate only to raise prices, and that sellers accept dollars not for their own sake, but to buy other commodities. Commodities sell for other commodities even in a money based economy.

Your blog posting is nothing but idiotic straw mans of Say's Law, and fallacious ramblings based on third party confusions of Say's law, which is exactly what is to be expected from a Keynesian wannabe.

Major_Freedom said...

LK:

You write that Say's law allegedly holds that:

"Aggregate supply could never exceed aggregate demand."

Not only is this not something that is inherent to, or follows from, or is required by, Say's law, but the contrary belief, which is presumably the position you hold, i.e. that aggregate supply can exceed aggregate demand, is nonsensical on its face. Supply and demand are two different units you idiot. One is real supply, such as t-shirts, cars, and microwaves. The other is dollars. To even conceive of the notion that the sum total of t-shirts, cars, microwaves, and all other real goods, can somehow "exceed" the number of dollars, implies that real goods and dollars are commensurable units in which differences can be measured. What utter garbage.

That belief only shows your profound ignorance of basic economic logic. It's like you are saying that the number of roast beef sandwiches and milkshakes can exceed a sum of area of plywood, or that the supply of pounds of wheat can exceed the supply of back massages.

Supply cannot exceed demand. Demand cannot exceed supply. Demand cannot even be equal to supply. One unit can't exceed the other unit because they are different, incommensurable units.

Demand, money demand, is not the basis of, or required by, Say's law. Say's law speaks of real demand, real supply, real production.

Furthermore, you make the asinine straw man that Say's law somehow requires the assumption that "money has no utility and cannot be used as a store of value." What pure, unadulterated, unmitigated rubbish. No, Say's law does not require zero utility of cash holding. Say's law is about real supply, not the quantity of dollars, or what the demand for dollars happens to be. Whatever the demand for dollars happens to be, just over 0% of net assets, or 100% of net assets, Say's law holds.

Money is money because it can be a store of value. That means it has value in holding, meaning spending later versus spending sooner. If a commodity were not valued for storage, for holding, then it could not even function as a money. It would be rejected like dog poop. Nobody holds dog poop. They get rid of it. Thus dog poop cannot be a money. Money is by definition the most highly valued commodity, meaning most highly sought after, meaning it has value being owned, meaning it has storage value, meaning it has value being held for positive periods of time.

You straw manned Say in this respect when you claimed the passage starting with this:

"Its whole utility has consisted in conveying to your hands the value of the commodities..."

Somehow means Say assumed that money has no utility for holding.

Say argued that

"Its whole utility has consisted in conveying to your hands the value of the commodities."

In other words, a commodity is valued as money only because it serves to function as a way to buy commodities. If a commodity were not so valued, then that commodity ceases to have the nature of money, and becomes a regular consumer or capital good.

The rest of your blog post is just more warped and uniformed meanderings of the absurd.

Mike Cheel said...

@Zachriel

"If you mean the financial meltdown and ensuing recession, that was clearly caused by distortions in the market that were not in line with Keynesianism, which counsels countercyclical policy."

Say what? If it isn't Keynesian then what is it?

Zachriel said...

Bob Roddis: It is very well organized and lays out the nonsensical Keynesian Koncepts in the most simple and organized manner conceivable.

While it may be wrong in whole or in part, it is unlikely that generations of economists have misled by a nonsensical theory.

Major_Freedom: perhaps the most widely believed myth being that there are genuine long run losers in freedom of competition.

Of course there are long run losers in freedom of competition. Some people simply don't have much in terms of skills or abilities to offer a competitive market, and what may be a marketable skill in one epoch may be useless in another.

Major_Freedom: Under the freedom of competition, the process of production itself creates purchasing power equal to what is produced.

Well, that's obviously not true, as the market cycle demonstrates. Supply can easily outstrip demand as manufacturers are not omniscient and have to estimate demand. So, if there is a sudden economic downturn for whatever reason, demand will drop leaving excess inventory.

Mike Cheel: Say what? If it isn't Keynesian then what is it?

Keep in mind that the financial meltdown dates to the Bush Administration.

Classically, the policy is to maintain the government budget in balance. So if the economy is growing, leading to increased tax receipts, cut taxes. If the economy is shrinking, causing reduced tax receipts, cut spending (or raise taxes). The problem is that this exasperates the market cycle, leading to booms and busts. Cutting taxes while the economy grows causes it to grow faster, leading to a bubble. When the bubble bursts, cutting spending (or raising taxes) accelerates the decline, leading to a dangerous, downward spiral.

During the expansion of the Bush Era, for instance, taxes were cut leading to deficits, while overstimulating the economy leading up to the bubble. Instead of spending the money through tax cuts, the U.S. might have put that money aside for a rainy day, in a “lock box.” Even if there had still been a financial shock, the U.S. would have been in a much better fiscal position to respond to the crisis.

Countercyclical policy means to run a surplus during times of plenty (seven fat cows), and run a deficit during times of famine (seven skinny cows). In a modern economy that means progressive taxes, which dampen growth as incomes rise, but reverses when the economy declines. Unemployment insurance and other safety net programs act as automatic stimuli. When there is a severe shock, this can require additional stimulus to stop the downward spiral in demand. Nevertheless, countercyclical policy can be and should be revenue neutral, with the money spent during the contraction being equal to the money saved during the expansion.

Major_Freedom said...

Zachriel:

"Of course there are long run losers in freedom of competition. Some people simply don't have much in terms of skills or abilities to offer a competitive market, and what may be a marketable skill in one epoch may be useless in another."

That doesn't mean there are genuine long run losers. This is just gaining, but not gaining as much as others. That's ubiquitous.

When I said there are no genuine long run losers, that means that those who lack skills, can still make gains by benefiting from other people's productivity. Just because I can't make as good handheld devices as Apple, that doesn't mean I am "losing." I am winning because I can buy Apple products.

"Well, that's obviously not true, as the market cycle demonstrates. Supply can easily outstrip demand as manufacturers are not omniscient and have to estimate demand. So, if there is a sudden economic downturn for whatever reason, demand will drop leaving excess inventory."

That doesn't serve to refute what I argued. That under freedom of competition, the production process itself creates purchasing power equal to what is produced, is a logically necessary truth. No business cycle data can ever refute it. it's true throughout.

The notion that "supply can outstrip demand", is nonsensical and absurd. Supply and demand are not commensurable units. You can't say that one outstrips the other, because that would require them to have a common denominator. But there is no common denominator between t-shirts and dollars.

"Keep in mind that the financial meltdown dates to the Bush Administration."

Economic policy under Bush was Keynesian. Lots of spending, low interest rates, and government intervention.

"Countercyclical policy means to run a surplus during times of plenty (seven fat cows), and run a deficit during times of famine (seven skinny cows)."

That implies that policy makers can even identify when the economy is in times of plenty, and in times of famine.

"During the expansion of the Bush Era, for instance, taxes were cut leading to deficits, while overstimulating the economy leading up to the bubble."

No, it was the artificially low interest rates, and massive credit expansion that created the bubble. Government deficits don't cause bubbles, unless they are financed by credit expansion and cheap money.

Oh, and nice framing of the deficit, in blaming tax cuts instead of spending increases for the deficit. It's like you believe deficits only have one factor, taxes, instead of two factors, namely, money in and money out.

"While it may be wrong in whole or in part, it is unlikely that generations of economists have misled by a nonsensical theory."

If history is a guide, it is almost guaranteed that mainstream economics is wrong. From 0 AD to the 1930s, Keynesian economics did not exist, which means you must agree that not only generations, but MILLENNIA of economists have been misled by nonsensical theory.

American Patriot said...

LK:

Says no more repudiated himself than Keynes did 10 days before his death.
Over lunch at the Bank of England, Keynes tells Henry Clay of his hopes that Adam Smith's 'invisible hand' can help Britain out of the economic hole it is in:

"I find myself more and more relying for a solution of our problems on the invisible hand which I tried to eject from economic thinking twenty years ago."
http://www.maynardkeynes.org/keynes-career-timeline.html

Now, who is being intellectually dishonest, hmmm??

Lord Keynes said...

"Says no more repudiated himself than Keynes did 10 days before his death."

Say did come to reject Say's law:

http://socialdemocracy21stcentury.blogspot.com/2011/12/say-repudiated-says-law.html

"I find myself more and more relying for a solution of our problems on the invisible hand which I tried to eject from economic thinking twenty years ago."

A remark that doesn't show Keynes repudiating the General Theory at all:

http://socialdemocracy21stcentury.blogspot.com/2011/12/keynes-repudiated-keynesianism.html

Assume for the sake of argument that Keynes did clearly recant it (though he never did), that would be as irrelevant to the truth of modern Keynesian economics as a hypothetical recanting of the Origin of Species by Darwin on his deathbed would be the truth of modern Darwinian evolution.

Theories in the natural sciences, social sciences and economics stand and fall on their merits, not on what the original inventor thought about them in his last days.
Social sc

Mike Cheel said...

@Zachriel

The government should not be manipulating the economy period (or any reserve bank).

burkll13 said...

"that would be as irrelevant to the truth of modern Keynesian economics as a hypothetical recanting of the Origin of Species by Darwin on his deathbed would be the truth of modern Darwinian evolution."

i agree, but then wouldnt that apply equally to Say? And then why would you spend so much time trying to use Say's repudiation as ammunition? doesnt that strike you as hypocritical?

Zachriel said...

Major_Freedom: That doesn't mean there are genuine long run losers. This is just gaining, but not gaining as much as others. That's ubiquitous.

Some people can't make enough to live on. Some people are disabled. Some people are old and have no family. What world do you live in?

Major_Freedom: That under freedom of competition, the production process itself creates purchasing power equal to what is produced, is a logically necessary truth.

A logically necessary truth? No one ever overproduces because they think a market will continue to grow? Demand can certainly decrease, and decrease suddenly, as recently happened in the global economy. That leaves manufacturers with excess inventory. Again, what world do you live in?

Major_Freedom: Supply and demand are not commensurable units.

Demand is the want or desire to possess a good or service with the necessary goods, services, or financial instruments necessary to make a legal transaction for those goods or services.
http://economics.about.com/cs/economicsglossary/g/demand.htm

If there are a million widgets and demand for a thousand, then we say supply exceeds demand. What did you think it meant?

Major_Freedom: Economic policy under Bush was Keynesian. Lots of spending, low interest rates, and government intervention.

Sorry, but no. Greenspan was not a Keynesian. In an expansion, Keynes recommends higher taxes and interest rates in order to temper the expansion and to pay down debt accumulated during contractions. It would have been prudent to have a small stimulus in 2002, but not large, permanent cuts in marginal tax rates.

Major_Freedom: That implies that policy makers can even identify when the economy is in times of plenty, and in times of famine.

Economic expansion and contraction.

Major_Freedom: From 0 AD to the 1930s, Keynesian economics did not exist, which means you must agree that not only generations, but MILLENNIA of economists have been misled by nonsensical theory.

Just because Einstein's Theory replaced Newton's Theory, it doesn't mean that Newton's Theory was nonsensical. Similarly, modern Keynesianism is not identical to Keynes's original theory.

Mike Cheel: The government should not be manipulating the economy period (or any reserve bank).

What? No child labor laws? No coal mine safety rules? No food inspections? In any case, the most advanced, developed economies in the world are all mixed systems.

Major_Freedom said...

LK:

Say did come to reject Say's law:

Utter nonsense. Claiming that general downturns can happen isn't a refutation or repudiation or admission that Say's law is false.

Say's law isn't a law that says markets ALWAYS clear, or that everything for sale will always find a demand at a particular price.

Say's law is a logically necessary truth that relates real supply to purchasing power. Purchasing power is borne out of real supply that is equal to itself. Whether some good is sold or whether it is held by an owner, Say's law holds.

A remark that doesn't show Keynes repudiating the General Theory at all:

False. It does repudiate the General Theory. It does not by itself refute the GT, the same way Say qualifying Say's law does not by itself refute Say's law. But you felt it important to say that Say repuidated himself, so I mentioned that Keynes repudiated himself, and more so than Say, who only qualified his ideas and didn't reject it.

Keynes admitted that he changed his views from state planning to the invisible hand he used to reject. That is far different than Say saying that his law doesn't mean the economy is always "in balance" relative to the standard of everything sold can find a price, which is not the context of Say's law at all, as Hazlitt has explained.

JFF said...

Zachriel:While it may be wrong in whole or in part, it is unlikely that generations of economists have misled by a nonsensical theory.

Why not? What is your reasoning for this? Throughout human history, people have believed various things that we now know to be "nonsensical," e.g., the Earth is flat, the Sun revolves around the Earth, "spirits" caused disease, bleeding was a good remedy for illness, maggots sprung spontaineously on the surface of rotting matter, Eugenics, etc.

Large swaths, generations of people can surely believe anything for two reasons:

1. They are conditioned to believe them from childhood, be they true or not. Before the information revolution, there was no dissent, discussion, or refutation at one's fingertips.

2. Doing so otherwise disrupts their worldview and position of power in such a profound way that it seems like a fate worse than death.

Major_Freedom said...

Zachriel:

"Some people can't make enough to live on. Some people are disabled. Some people are old and have no family. What world do you live in?"

The free market does not ban charity or families/friends helping the disabled.

What world do you live in where freedom means people don't help each other?

"A logically necessary truth?"

Yes, a logically necessary truth.

Purchasing power is BY NATURE the amount of goods that can be bought with money. The amount of goods that can be bought IS real supply, which means at any given time, the amount of real supply is what determines purchasing power.

"No one ever overproduces because they think a market will continue to grow?"

No. Entrepreneurs and investors invest in profitable opportunities. They invest according to the difference in demands, differences in values. They take what is relatively less valued, and turn it into something that is relatively more valued.

A higher price for everything through inflation can't make more investment opportunities appear. It will raise both costs and revenues, leaving the differences a function of value differences.

"Demand can certainly decrease, and decrease suddenly, as recently happened in the global economy."

When demand increases through inflation, not everything increases in price to the same degree. Some people receive the new money before other people, and so some goods increase in price before other goods. That relative price change is what throws off investors and consumers, who can't communicate to each other via price signals as well as they otherwise could. So the wrong things get produced, and the right things don't get produced. Investors embark on plans that cannot be completed because there is no not enough actual real capital in the right places to sustain it. It would be like a home builder embarking on the construction of a house believing he has more bricks than he really does.

"That leaves manufacturers with excess inventory."

That inventory represents malinvestment. When inflation increases, it makes prices for things rise more rapidly. When that happens, at some point it is profitable just to increase inventory, hold it, wait for prices to rise, and then sell it. So investors mistakenly increase inventory. Then, as the central bank stops inflating as much, in order to avoid too much inflation, the profitability of accumulating certain inventory declines, making it appear as though there is "excess inventory." More money printing cannot solve this because it is money printing that caused it in the first place.

Major_Freedom said...

Zachriel:


"Demand is the want or desire to possess a good or service with the necessary goods, services, or financial instruments necessary to make a legal transaction for those goods or services."

You see the words "financial instruments"? That means money. "Goods, services" are for barter economies. We live in a money economy. So demand is the money necessary to make a legal transaction for goods and services.

Since I was talking about money the whole time, everything I said still stands. Money and real goods are of different units. You cannot say that one "exceeds" the other, or that one "outstrips" the other.

"If there are a million widgets and demand for a thousand, then we say supply exceeds demand."

You're ignoring PRICE. If there is a quantity demanded of one thousand, it means that at the price offered, the buyers can buy one thousand widgets. If the price offered is $100, then the demand for widgets is $100,000. If the supply of widgets is 1 million, then what you actually wanted to say is not that supply outstrips demand, but rather the QUANTITY supplied outstrips the QUANTITY demanded.

Well, that has an easy solution. Since producing 1 million and having a demand of one thousand would almost certainly make this venture unprofitable, it means that investment will be reduced in this project, and the scarce resources will be reallocated to other, more highly valued uses.

Just because something is not profitable, that doesn't mean the solution is to print money to keep it profitable. That's just delaying the movement of scarce resources from where the consumers want them, to places where the money printers want them.


"Sorry, but no. Greenspan was not a Keynesian."

False. Greenspan was a Keynesian, because he lowered interest rates and increased inflation every time he thought the economy was going to go into recession. Greenspan did exactly what any Keynesian chairman would do.

Bush was a Keynesian, because he signed off on the largest (up to that time) government spending package for the purposes of "stimulating" the economy.

It's always easy to say that politicians didn't print enough and didn't spend enough, but that doesn't mean they are not Keynesians. It means they happen to be the Keynesians in charge of the state.

Major_Freedom said...

Zachriel:

"In an expansion, Keynes recommends higher taxes and interest rates in order to temper the expansion and to pay down debt accumulated during contractions. It would have been prudent to have a small stimulus in 2002, but not large, permanent cuts in marginal tax rates."

What expansion? At the time, the Keynesian advisers in charge felt that after the 2001 collapse, the economy was too weak to absorb higher taxes and higher interest rates. Plus they printed globs of money to fight wars and put everyone into houses they couldn't afford.

The notion that a Keynesian would have raised taxes and increased interest rates during booms, and decreased taxes and lowered interest rates during busts, requires the absurd assumption that policy makers can even have a clue on what the true state of the economy really will be. You're asking policy makers to know what 300,000,000 will be doing in around half to one year's time (which is around the time needed for fiscal and monetary policy to have it's intended effect).

What you see in Keynesian theory is what you have seen in practise since at least WW1.

"Economic expansion and contraction."

That implies that policy makers can even know when the economy will go into expansion, and when the economy will go into contraction. Waiting for the economy to actually go into expansion, or contraction, will already make it too late, since fiscal and monetary policy are not instantaneously affective. It requires a period of time, which means policy makers have to PREDICT when the economy is going to expand and when it is going to contract. The track record of predictions of policy makers, who have PhDs from top schools, shows it cannot be done. Theoretically, Austrians already knew it can't be done. Only Keynesians believe absurdity must be tried first before we can know absurdity doesn't work.

"Just because Einstein's Theory replaced Newton's Theory, it doesn't mean that Newton's Theory was nonsensical. Similarly, modern Keynesianism is not identical to Keynes's original theory."

Bad analogy. Keynesianism did not just add to, or supplement economics from 1 AD to 1930 AD. Keynesianism overturned and repudiated almost the entirety of it. This is why Keynesianism was called a "revolution."

"What? No child labor laws? No coal mine safety rules? No food inspections?"

Oh please. Here we go with the moralizing.

No. No. And No.

The age of starting labor was increasing under free markets before the first law was passed. Capitalism reduces the quantity of child labor over time, concomitant with It is destructive to force families not to put their children to work if the families need to eat and can't afford it unless their children work. But statists love to screw with families because THEY want to take over the role of parent/guardian.

Coal mine safety rules from government make coal mines less safe, not more safe.

It also attacks freedom of association because it interferes with coal miners who want to earn a higher wage doing a more risky job, versus making less wages at a higher cost coal company that has to abide by rules from people who don't understand coal mining.

"In any case, the most advanced, developed economies in the world are all mixed systems."

They are advanced DESPITE the fact that they are mixed. The mixed part is hurting the economies. You see this throughout Europe and North America.

The fact that rape victims aren't dead doesn't mean the raping is helping them.

Mike Cheel said...

"What? No child labor laws? No coal mine safety rules? No food inspections? In any case, the most advanced, developed economies in the world are all mixed systems."

The only legitimate function of the government is to secure the rights of the people. If these items you mention are not violating someone's rights (including contracts) then no, the government has no license in these areas.

Zachriel said...

Major_Freedom: Say's law isn't a law that says markets ALWAYS clear, or that everything for sale will always find a demand at a particular price.

Please state Say's Law, as you understand it.

Major_Freedom: Keynes admitted that he changed his views from state planning to the invisible hand he used to reject.

Keynes proposed a market-based theory.

JFK: Why not? What is your reasoning for this? Throughout human history, people have believed various things that we now know to be "nonsensical," e.g., the Earth is flat, the Sun revolves around the Earth, "spirits" caused disease, bleeding was a good remedy for illness, maggots sprung spontaineously on the surface of rotting matter, Eugenics, etc.

Quite a list. The flat earth is not nonsensical, but a result of a limited vantage. Similarly for the Earth-centric view. Spirits causing disease is without foundation, but the spontaneous formation of maggots seemed supportable from what people could observe. Eugenics is the application of husbandry to humans, so can't be considered nonsensical per se. Just immoral. In any case, you are conflating modern theories with Medieval beliefs formed before the systemization of scientific inquiry.

Major_Freedom: The free market does not ban charity or families/friends helping the disabled.

No, but that's not what you indicated. Sure, in the long run, markets can lead to increased prosperity, but in the long run you may be dead.

Major_Freedom: Purchasing power is BY NATURE the amount of goods that can be bought with money. The amount of goods that can be bought IS real supply, which means at any given time, the amount of real supply is what determines purchasing power.

Well, that's not how most people use the term "supply," which is "the total quantity of a good or service that is available for purchase." So you can have a factory with a million widgets, but demand for only a thousand, or none.

Zachriel: No one ever overproduces because they think a market will continue to grow?

Major_Freedom: No. Entrepreneurs and investors invest in profitable opportunities.

No. They invest in what they hope are profitable opportunities, but they are not always right.

Major_Freedom: That {excess] inventory represents malinvestment.

That's right. It's excess inventory, something you just said couldn't happen.

Major_Freedom: Money and real goods are of different units.

And yet, nearly all economists talk about supply and demand, with sometimes supply exceeding demand and other times demand exceeding supply.

Major_Freedom: If the supply of widgets is 1 million, then what you actually wanted to say is not that supply outstrips demand, but rather the QUANTITY supplied outstrips the QUANTITY demanded.

That's what the phrase means. It means you have more widgets (supply) than people want (demand).

Major_Freedom: Greenspan was a Keynesian ...

Oh gee whiz.

William L. Anderson said...

We have to be able to differentiate between a welfare state, in which the state determines who is "helpless" and who is not. In a free society, people hardly are prohibited from giving each other aid.

What the critics here are saying is that ONLY in a welfare state can people have their needs met. Yet, a welfare state requires that there be enough production by others that can both meet the needs of the producers and then meet the needs of everyone else. (Sorry, Keynesians, printing money is not a productive activity and does not replace the production of actual goods and services.)

What I sense in America is a growing hostility not only toward the Usual Suspects on Wall Street but also toward productive people in general. We have a president who seems to believe that we can undercut people and industries that are productive, replace them with unproductive things like large-scale "green energy" industries, and print money to finance it, and out of this will come a new and glowing economy. I don't think so.

Zachriel said...

William L. Anderson: (Sorry, Keynesians, printing money is not a productive activity and does not replace the production of actual goods and services.)

(Sorry, William L. Anderson, Keynes never said that printing money was a productive activity or that it replaced the production of actual goods and services.)

Zachriel said...

Zachriel: What? No child labor laws? No coal mine safety rules? No food inspections? In any case, the most advanced, developed economies in the world are all mixed systems.

Mike Cheel: The only legitimate function of the government is to secure the rights of the people. If these items you mention are not violating someone's rights (including contracts) then no, the government has no license in these areas.

Seriously, no child labor laws? No food inspections? You do realize that your position is rejected by the vast majority of people.

As for the purpose of government, then you would disagree with these sentiments:

We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.
http://www.archives.gov/exhibits/charters/constitution.html

JFF said...

Zachriel:"Quite a list. The flat earth is not nonsensical, but a result of a limited vantage. Similarly for the Earth-centric view. Spirits causing disease is without foundation, but the spontaneous formation of maggots seemed supportable from what people could observe. Eugenics is the application of husbandry to humans, so can't be considered nonsensical per se. Just immoral. In any case, you are conflating modern theories with Medieval beliefs formed before the systemization of scientific inquiry."

Not to nitpick, but nonsensical is probably the wrong word as it means "conveying no meaning or intelligible ideas." Keynesism is not in this sense nonsensical because it does convey ideas; however, at times, disjointed, contradictory, or incorrect logically they may be.

As for your response, I stand by the meaning of my statement; people once believed things that we now know, via whatever method, to be factually, logically, or morally incorrect or wrong. Further, people chose to believe them because they were ideas so ingrained in their culture and/or upbringing or that they so strongly challenged their worldview and/or power position, that they could not accept or even consider any alternative.

That people used scientific method to disprove certain held tenets is irrelevant, only that they did disprove them; moreover, that they held them in the first place.

Lord Keynes said...

"Sorry, Keynesians, printing money is not a productive activity and does not replace the production of actual goods and services"

Straw man.
Your statement is a caricature of Keynesianism:

http://socialdemocracy21stcentury.blogspot.com/2011/05/william-l-anderson-flunks-keynesian.htm

Mike Cheel said...

"Sorry, Keynesians, printing money is not a productive activity and does not replace the production of actual goods and services"

Printing money, moving decimals, it doesn't matter. Keynsian policies are extremely destructive to the people they are intended to be destructive to.

Also, your link doesn't work. So straw link.

William L. Anderson said...

Was it not Keynes that said that extending credit (which essentially is printing money without actually printing anything) would "turn stones into bread"?

Lord Keynes said...

"In short, the analogy with a national banking system is complete. No depositor in a local bank suffers because the balances, which he leaves idle, are employed to finance the business of someone else. Just as the development of national banking systems served to offset a deflationary pressure which would have prevented otherwise the development of modern industry, so by extending the same principle into the international field we may hope to offset the contractionist pressure which might otherwise overwhelm in social disorder and disappointment the good hopes of our modern world. The substitution of a credit mechanism in place of hoarding would have repeated in the international field the same miracle, already performed in the domestic field, of turning a stone into bread."

Jeez, let me get this straight. You seriously think Keynes believed that credit literally turns "stone into bread"?

You can't recognise a piece of rhetoric when you see one?

Yes, a private banking system allowing credit expansion causing capital goods investment raises output and employment, and produces more wealth for the community. Denying that is like denying the sky is blue on a clear day.

Anyway, the context of the Keynes's quote is his plan for an international clearing union, which would stop surplus balance of payments nations from hoarding foreign exchange reserves and reducing the global level of aggregate demand.

And by the way, if there's no such thing as aggregate demand, there is no such thing as Say's law.

Major_Freedom said...

Zachriel:

"Please state Say's Law, as you understand it."

I understand Say's law to mean the following:

Under freedom of competition, production itself creates purchasing power exactly equal to what is produced.

"Keynes proposed a market-based theory."

No, Keynes did not propose a market-based theory. He proposed a state planning theory, with less than 100% (communist) control.

That is no more market-based than rape is sexual consent based.

"The free market does not ban charity or families/friends helping the disabled."

"No, but that's not what you indicated. Sure, in the long run, markets can lead to increased prosperity, but in the long run you may be dead."

I know it's not what I indicated. I said it because it's what you didn't indicate. You said:

"Some people can't make enough to live on. Some people are disabled. Some people are old and have no family."

As if the free market IGNORES the disabled and the old. The free market isn't just competing for jobs and competing for sellers. It is also about helping people without being coerced into doing so.

Well, that's not how most people use the term "supply," which is "the total quantity of a good or service that is available for purchase." So you can have a factory with a million widgets, but demand for only a thousand, or none.

Again, you are ignoring price. At a low enough price, all 1 million widgets could find buyers. The problem is that the sellers can't sell them at that low price. That's because they had to pay too high of costs for the factors, which means the factors are more valuable elsewhere, and not in producing those 1 million widgets that can only find 100,000 willing buyers at the price that would be profitable.

No. They invest in what they hope are profitable opportunities, but they are not always right.

Semantics. Uncertain future is a given. Nobody is pretending to know the future.

When I say profitable investment opportunities, I of course mean what the individual investor thinks is profitable.

Major_Freedom said...

Zachriel:


That's right. It's excess inventory, something you just said couldn't happen.

False. I didn't say excess inventory could not happen. I said that GENERAL overproduction could not happen. If there is excess inventory, it's because too much inventory was produced, relative to other things, like capital goods that go into future inventory increases, or something else like services.

And yet, nearly all economists talk about supply and demand, with sometimes supply exceeding demand and other times demand exceeding supply.

Consensus is not science.

Supply and demand are incommensurable units. You cannot say that t-shirts "exceed" a sum of money. There is no common quality between them in the economic sense that would enable you to make such a judgment and make it coherent.

Excess supply, and excess demand and excess demand for money, these are all statements that require the existence of a common denominator. Between goods and money, there isn't any, so you can't speak of supply or demand in "excess" of the other.

That's what the phrase means. It means you have more widgets (supply) than people want (demand).

Again you are ignoring price. If the price were low enough, the widgets could be sold into the demand that exists. The problem is that doing so will incur losses, because the sellers had to pay a higher price for the factors of production on account of those factors being valuable enough in other alternative projects, which are earning profits, for that is why those factors are being bid that high in the first place. The marginal wants for other things are high enough, or at least higher than the additional widgets in question if they had to make a choice.

If the 1 million widgets seller cannot find willing buyers to pay a high enough price to make it profitable, then those 1 million widgets are PARTIAL RELATIVE OVERPRODUCTION, which means scarce resources went into the production of those widgets, instead of other things that people want with their money.

Oh gee whiz.

Oh brother wow golly gee.

Hey, this is fun.

Major_Freedom said...

LK:

Yes, a private banking system allowing credit expansion causing capital goods investment raises output and employment, and produces more wealth for the community.

False. Credit expansion, the creation of new money, does not bring into existence a single new capital good. Output cannot be increased with credit expansion.

The only way to produce more wealth is by increasing the supply of capital goods, which requires saving and investment. Creating new money can only raise prices of existing capital. It cannot bring into existence new capital.

Denying this is denying basic economic logic.

Anyway, the context of the Keynes's quote is his plan for an international clearing union, which would stop surplus balance of payments nations from hoarding foreign exchange reserves and reducing the global level of aggregate demand.

Aggregate demand does not drive employment. Saving and investment drives employment, and saving and investment in part drives aggregate demand.

You have cause and effect reversed.

And by the way, if there's no such thing as aggregate demand, there is no such thing as Say's law.

False. Say's law is not contradicted or refuted if one denies that aggregate demand has a coherent meaning. I think it has a coherent meaning, but it's necessary before Say's law holds. Say's law is about real production, not how many dollars are floating around versus held.

Major_Freedom said...

LK:

Jeez, let me get this straight. You seriously think Keynes believed that credit literally turns "stone into bread"?

You can't recognise a piece of rhetoric when you see one?

Jeez, let me get this straight. You seriously think Anderson thinks Keynes believed that credit literally turns "stone into bread"?

You can't recognize it that if Keynes wrote that credit is a "miracle", akin to turning stones into bread, he didn't at least believe that credit expansion was a productive activity in itself?

Zachriel said...
This comment has been removed by the author.
Major_Freedom said...

Zachriel:

When it comes to the use and meaning of terminology, then consensus is authoritative.

When it comes to truth and falsehood, consensus is irrelevant.

If you insist upon using well-established terminology in a non-standard manner, you should use scare-quotes, or simply coin a term appropriate to your meaning.

If you insist on believing that consensus and authority have any bearing on the truth or falsehood of the argument you, myself, or anyone else here are making, you should stop pretending to have an intellectual discussion, and instead go on some Jersey Shore fansite.

Keynes advocated a mixed economy, with the markets constituting the greatest portion.

Keynes' contribution was to add the government intervention part. As such, Keynes' contribution was government planning, not free markets.



Nobody claimed demand is money. Demand is the money that is expended in purchases.

My argument is that demand cannot exceed or not exceed supply. They are incommensurable units.

When we say that demand exceeds supply, it means that we may have 100 t-shirts (supply), but potential sales for a thousand (demand).

If there are 100 t-shirts in supply, then there are 100 potential sales of t-shirts.

What you mean to say is that the quantity of t-shirts offered is greater than the quantity of t-shirts demanded, AT A GIVEN PRICE.

The price offered is profitable only if the price is greater than the full costs.

Each price has a quantity demanded associated with it. It is absurd to say that supply offered exceeds quantity demanded, without mentioning price. For with a low enough price, quantity offered can match quantity demanded. But if the lower price will incur losses, then the solution is to reduce investment in that product, and redirect resources away from that project and into another project.

Supply is 100 t-shirts. Demand is whatever sum of money is going to the purchases of t-shirts.

These are the proper definitions and meanings of supply and demand.

Demand varies based on price

Only for particular goods relative to other goods.

In the aggregate, price varies based on supply, given a particular aggregate demand that is a function of the quantity of money. In the aggregate, demand tends to be a function of the quantity of money.

Keynes didn't see credit as production. It's a necessary lubricant for the machinery of commerce.

Keynes saw credit expansion as PRODUCTIVE, not as the production of goods.

That is why he likened it with turning stones into bread.

And credit expansion is not a "necessary lubricant for the machinery of commerce." What a ridiculous metaphor. What is necessary for commerce is respect for private property rights, and economic freedom. Credit expansion is not necessary, and is destructive.

If there is a desire for loans, then loans can be financed through voluntary savings. Printing money is not only not necessary, but causes the business cycle.

Zachriel said...

Major_Freedom: When it comes to truth and falsehood, consensus is irrelevant.

If people define a tree as a perennial woody plant, then that's what the term means. Demand is defined as the desire for a good or service along with the wherewithal to purchase the good or service at a given price.

Major_Freedom: Keynes' contribution was to add the government intervention part. As such, Keynes' contribution was government planning, not free markets.

Of course Keynes didn't invent markets. Markets predate economics as a study. Markets predate coinage. You really aren't making a lot of sense.

Major_Freedom: Nobody claimed demand is money. Demand is the money that is expended in purchases.

No. Demand refers to how much (quantity) of a product or service is desired by buyers.
http://www.investopedia.com/university/economics/economics3.asp

Demand, the amount of a particular economic good or service that a consumer or group of consumers will want to purchase at a given price.
http://www.investorwords.com/1396/demand.html

Demand, the quantity of a commodity or service wanted at a specified price and time
http://www.merriam-webster.com/dictionary/demand

Major_Freedom: My argument is that demand cannot exceed or not exceed supply. They are incommensurable units.

Then you don't know "the most fundamental concepts of economics." No wonder you are so confused.

We've provided a citation from two economics glossaries, an investment encyclopedia, and the dictionary. Not sure what else to do to help you.

Major_Freedom said...

If people define a tree as a perennial woody plant, then that's what the term means. Demand is defined as the desire for a good or service along with the wherewithal to purchase the good or service at a given price.

I am not concerned with definitions. I am only concerned with meanings, because that is the basis of the arguments that people are making.

Arguing over definitions is what anti-intellectuals do when they can't argue over meanings. You're playing semantics.

Of course Keynes didn't invent markets. Markets predate economics as a study. Markets predate coinage. You really aren't making a lot of sense.

It's not necessary that Keynes invent free markets. Unlike Mises, and Rothbard, Keynes' legacy was an attack on the free market, and a program of government intervention designed to assist violent powers in exploiting the masses.

No. Demand refers to how much (quantity) of a product or service is desired by buyers.

No, that's quantity demanded. Demand refers to the money spent on goods.

Price is determined by supply and demand. If demand were how many of a product is desired, then price would be a dimensionless number relative to another dimensionless number, like 2 t-shirts demanded relative to 3 or 4 or 2 t-shirts offered. Price cannot be determined in this way.

Demand is in dollars, not quantity of supply wanted.

P = D/S

If demand for computers is $1 million, and the supply of computers is 1,000, then the average price of computers is $1,000,000/1,000 = $1,000.

http://www.investopedia.com/university/economics/economics3.asp

Irrelevant.

Demand, the amount of a particular economic good or service that a consumer or group of consumers will want to purchase at a given price.

That's what I call quantity demanded, not demand.

http://www.investorwords.com/1396/demand.html

Irrelevant.

Demand, the quantity of a commodity or service wanted at a specified price and time

That's what I call quantity demanded, not demand.

http://www.merriam-webster.com/dictionary/demand

Irrelevant.

Then you don't know "the most fundamental concepts of economics." No wonder you are so confused.

False. I do know what YOU mean by demand, but your definition of demand is what I call quantity demanded.

You are confused.

I refer to demand as the amount of dollars spent on goods.

You cannot tell me I am wrong, because we are free to define words in any way we want. You're arguing semantics.

We've provided a citation from two economics glossaries, an investment encyclopedia, and the dictionary. Not sure what else to do to help you.

We? Are you speaking for others? Or are you trying to pretend that your side has a greater number than my side, and hence I am allegedly wrong?

You're not in a position to help me, because I am correcting you on your errors, instead of the other way around.

Anonymous said...

Major Freedom, you are severely confused.

Demand is a function of price, and supply is a function of price.

Surely, at some point in your life you've seen the supply and demand curves intersecting on a P v Q graph at some point- its a staple of highschool economics. The point is that there exists some price where Supply = Demand, and the market clears.

Major_Freedom said...

Anonymous @ 1:54

Major Freedom, you are severely confused.

No Anonymous, I am clear.

Demand is a function of price, and supply is a function of price.

False. Price is a function of supply and demand.

Surely, at some point in your life you've seen the supply and demand curves intersecting on a P v Q graph at some point- its a staple of highschool economics.

Well, unlike you I've moved on from high school economics.

The point is that there exists some price where Supply = Demand, and the market clears.

Supply cannot equal demand. They are not of the same units of value. One is real goods, the other is money, and they are valued differently. That's why exchanges are taking place.

Money and real goods trade against each other, but that doesn't mean that they are equal to each other in terms of units or in terms of value.

You adhere to an ancient prejudice that has existed since at least Aristotle, of fallaciously equating value in trades, rather than realizing that there is offsetting and opposite values by the exchange parties.

Saying supply = demand is like saying 4 back massages equals = 5 turkey dinners.

You need to go beyond high school economics.

Joseph Fetz said...

MF said, "Supply cannot equal demand. They are not of the same units of value. One is real goods, the other is money, and they are valued differently. That's why exchanges are taking place."

Although I would not have used the same terminology, that pretty much sums up the argument right there. Keynesians really have no concept of the price distortions created by their efforts to increase demand.

I must say that I would be quite interested to hear the inner workings of the elusive "Keynesian Price Theory".

Zachriel said...
This comment has been removed by the author.
Zachriel said...

Major_Freedom: I am not concerned with definitions. I am only concerned with meanings, because that is the basis of the arguments that people are making.

The meanings of words do matter when attempting to understand others. Let's look at one of your statements on the subject.

Major_Freedom: Supply and demand are two different units you idiot.

As you are not using the terms correctly, it is doubtful you can understand what Keynes or any economist means when they talk about supply and demand. Demand is the quantity of a commodity that people will purchase at a given price.

You might look at a demand curve. Q represents the demand, that is, the quantity of a commodity that people will purchase at a given price.
http://people.hofstra.edu/geotrans/eng/ch7en/meth7en/img/supplydemandprice.gif

Major_Freedom: No, that's quantity demanded. Demand refers to the money spent on goods.

We've pointed you to multiple independent sources. Not sure what else to do to help you.

Major_Freedom: That's what I call quantity demanded, not demand.

You can call it what you want, but when trying to understand what Keynes or other economists are saying, you have to use the term in the manner they use it.

Sam said...

Zachriel, you are either intellectually dishonest or you just lack any basic economic knowledge.

From Investopedia.com:

"What Does Demand Mean?
An economic principle that describes a consumer’s desire and willingness to pay a price for a specific good or service. Holding all other factors constant, the price of a good or service increases as its demand increases and vice versa."
http://www.investopedia.com/terms/d/demand.asp#ixzz1fO2GsmS8


"What Does Quantity Demanded Mean?
A term used in economics to describe the total amount of goods or services that are demanded at any given point in time. The quantity demanded depends on the price of a good or service in the marketplace, regardless of whether that market is in equilibrium. The quantity demanded is determined at any given point along a demand curve in a price vs. quantity plane."
http://www.investopedia.com/terms/q/quantitydemanded.asp#ixzz1fO29HFCL

Anonymous said...

Surely, at some point in your life you've seen the supply and demand curves intersecting on a P v Q graph at some point- its a staple of highschool economics.

I do remember this, and I do remember trying to understand how the teacher expected me to believe he could turn a very, very, very complex capital structure and turn it into those wonderful curves where he could know where those lines intersect, generating a "optimum point". I decided economists had super-human intellectual abilities.

But hey, I must be some kind of weirdo, because even in Ecology teachers told me there were such a mind-numbingly huge number of variables it was really impossible to have a bunch of estimates tell much about a large ecossystem. Those teachers would always say the things we don't see often make your models yield largely false results. Human beings must me much simpler, I guess.

Zachriel said...

Sam: An economic principle that describes a consumer’s desire and willingness to pay a price for a specific good or service. Holding all other factors constant, the price of a good or service increases as its demand increases and vice versa.

That's correct. So as people demand more widgets (quantity), the price of widgets tends to increase. From the same resource, it gives a straightforward definition, how much (quantity) of a product or service is desired by buyers.
http://www.investopedia.com/university/economics/economics3.asp

Supply and demand are often represented on the same graph with Q representing both the quantity of supply and demand.
http://people.hofstra.edu/geotrans/eng/ch7en/meth7en/img/supplydemandprice.gif

The key to this discussion is that Major_Freedom is claiming that economists he disagrees with, including the most important economists of the last century, are not just wrong, but incoherent because of a simple fallacy about the definition of demand. That is clearly not the case.

Zachriel said...

Anonymous: I do remember this, and I do remember trying to understand how the teacher expected me to believe he could turn a very, very, very complex capital structure and turn it into those wonderful curves where he could know where those lines intersect, generating a "optimum point". I decided economists had super-human intellectual abilities.


Sort of like the astronomy professors drawing planets with elliptical orbits, which only works on the blackboard, but not with real planets. It's a simplification of an important relationship.

Sam said...

Zachriel,

I agree with Major_Freedom. I would have failed economics in college if I had used the terms as you do.

Put simply:

Demand = demand curve
Quantity Demanded = the quantity associated with a point on the demand curve.

Isaac"Izzy"Marmolejo said...

@young austrian

You are not going to learn crap about Keynesian economics if you only read Austrian interpretations of it, and I have to admit as a fellow Austrian, most interpretations of Keynes are simply wrong in the Austrian literature. If you seriously want to really understand the economics of Keynes, read Post-Keynesian stuff. The key thing to note is that the economics of Keynes is not the same as mainstream Keynesianism, for some reason, the majority of Austrian do not grasp this concept.

Major_Freedom said...

Zachriel:

The meanings of words do matter when attempting to understand others. Let's look at one of your statements on the subject.

Nobody is denying that meanings matter.

As you are not using the terms correctly, it is doubtful you can understand what Keynes or any economist means when they talk about supply and demand.

False. I am using the terms correctly. You are using the terms incorrectly.

Demand is the quantity of a commodity that people will purchase at a given price.

No, that's quantity demanded. Demand is how much money people are able and willing to spend on goods, which is observable through monetary purchases.

You might look at a demand curve.

A demand curve is not demand.

A demand curve is derived by estimating what the quantity demanded will be, given different prices that don't currently exist, or will never exist.

The price is the intersection between demand IN MONEY, and supply.

Q represents the demand, that is, the quantity of a commodity that people will purchase at a given price.

No, that's quantity demanded. The demand is the quantity demanded multiplied by the price of a unit of quantity.

http://people.hofstra.edu/geotrans/eng/ch7en/meth7en/img/supplydemandprice.gif

Irrelevant.

Major_Freedom: No, that's quantity demanded. Demand refers to the money spent on goods.

We've pointed you to multiple independent sources. Not sure what else to do to help you.

You're not in a position to help me on this, because I am correcting your errors.

Major_Freedom: That's what I call quantity demanded, not demand.

You can call it what you want, but when trying to understand what Keynes or other economists are saying, you have to use the term in the manner they use it.

Bingo, which is EXACTLY what Keynesians DON'T do when they critique Say's law.

Say was a classical, and classical economists use the definition of demand I SUGGESTED.

Thanks for playing.

Major_Freedom said...

Zachriel:

Sam: An economic principle that describes a consumer’s desire and willingness to pay a price for a specific good or service. Holding all other factors constant, the price of a good or service increases as its demand increases and vice versa.


That's correct. So as people demand more widgets (quantity), the price of widgets tends to increase. From the same resource, it gives a straightforward definition, how much (quantity) of a product or service is desired by buyers.

That's correct? That's correct?!?! That definition Sam provided explicitly states that demand is NOT quantity of good desired, but my definition, which is that demand is the money that buyers are able and willing to spend!

The statement "An economic principle that describes a consumer’s desire and willingness to pay a price" is another way of saying a consumer's desire and willingness to expend a sum of money in exchange for a good.

That is the classical definition of demand, not the one you're preaching.

Zachriel said...

Deardorffs' Glossary of International Economics:

Demand, The act of offering to buy a product, the quantity offered to buy, The quantities offered to buy at various prices; the demand curve.

Supply, The act of offering a product for sale, the quantity offered for sale, the quantities offered for sale at various prices; the supply curve.

(Notice the symmetrical definitions.)

Major_Freedom said...

Zachriel:

Deardorffs' Glossary of International Economics:

Demand, The act of offering to buy a product, the quantity offered to buy, The quantities offered to buy at various prices; the demand curve.

That's quantity demanded, not demand.

Supply, The act of offering a product for sale, the quantity offered for sale, the quantities offered for sale at various prices; the supply curve.

(Notice the symmetrical definitions.)

Yes, note how price cannot be explained by these definitions of demand and supply.

The argument that price is a function of supply and demand can only be coherent if demand is in money units, not quantity demanded units.

You can't take a price as a "given", when you are trying to EXPLAIN the determinants of prices.

If the determinants of price are to be explained, via supply and demand, then demand MUST be in money terms, not quantity wanted terms.

The context is Say's law, and the classical definition of demand is money able and willing to be spent.

You can cite neoclassical definitions of demand until the cows come home. It won't matter. You'd only be arguing over semantics, and trying to inject a definition of demand that does not apply to the context of this discussion.

Try again.

Zachriel said...

Major_Freedom: That's quantity demanded, not demand.

It's the definition provided for "demand." You might want to let the editors know.

Zachriel said...

Major_Freedom: The argument that price is a function of supply and demand can only be coherent if demand is in money units, not quantity demanded units.

The demand curve and the supply curve provide the relationship to money. Yes, like many such terms, demand has more than one sense, and sometimes we will aggregate demand into a dollar figure, for instance, just as a supplier will aggregate his supply into a dollar figure. But to say that economists don't notice this is a strawman.

Joseph Fetz said...

Zachriel,

Demand only appears as a result of an exchange. Sure, I can offer to buy 20 Ferraris, but it means nothing until I actually purchase them.

Zachriel said...

Joseph Fetz: Demand only appears as a result of an exchange.

No. Demand is the desire and ability to purchase. It is potential exchanges.

Joseph Fetz: Sure, I can offer to buy 20 Ferraris, but it means nothing until I actually purchase them.

It means everything to a business person. If you have a hundred of your new t-shirts, and a thousand people with cash in hand clamoring to get them, then we say "demand exceeds supply," and it represents a business opportunity. What did you think it meant?

burkll13 said...

"If you have a hundred of your new t-shirts, and a thousand people with cash in hand clamoring to get them, then we say "demand exceeds supply," and it represents a business opportunity. What did you think it meant?"

it means you raise the price of the T shirts until there are only 100 people willing to pay that price for the t shirt.

and then you take those profits and figure out how to make the shirts better/cheaper/more abundant.

the way you are stating it, prices are static, which confuses the entire point of supply/demand.

Major_Freedom said...

Zachriel:

It's the definition provided for "demand." You might want to let the editors know.

There is no "the" definition. Definitions are subjective.

This is why you have to take into account the context. The context is Say's law, and classical economics. That means the definition for demand that should be used is the one I gave, not the one your proposing, which by the way takes price and supply as a given. It just leads to your confusion.

The demand curve and the supply curve provide the relationship to money.

No, the quantity of money provides the relationship of money to the economy, including prices.

Yes, like many such terms, demand has more than one sense, and sometimes we will aggregate demand into a dollar figure, for instance, just as a supplier will aggregate his supply into a dollar figure.

Supply is the actual goods themselves.

No. Demand is the desire and ability to purchase. It is potential exchanges.

No. Demand is the ability and willingness to spend a sum of money. It is money spent.

It means everything to a business person. If you have a hundred of your new t-shirts, and a thousand people with cash in hand clamoring to get them, then we say "demand exceeds supply," and it represents a business opportunity. What did you think it meant?

It doesn't represent a business opportunity unless those thousand people have enough cash on hand, i.e. demand, to make the sale of 100 t-shirts profitable, given the costs of producing those t-shirts.

There will always be a greater desire for wealth than can be produced.

Even if 100,000 new t-shirts are desired (quantity demanded), and there are only 100 that can be supplied, then this by itself does not mean there is a profitable business opportunity. Not unless we know the DEMAND for t-shirts. For 100,000 people could make available a demand that is less than the costs of producing 100 t-shirts.

Oh, but you will say "given a price", well, that's my point. The price is itself a function of supply AND demand, and so you can't say demand (in the quantity terminology) is a function of demand (in the money quantity). You'd be going in circles. You yourself would be compelled to use demand in two different senses in the same argument.

I just use two different words the whole time, so that I don't have to use the same word for two different phenomena.

You can point to as many dictionary definitions as you want. They are not objective. They are a function of the knowledge and ideas of the people who write those definitions.

There is no reason why anyone should be limited to the definitions set for by everyone else but themselves. If that upsets you, because it means miscommunication is possible, then that is exactly why I say context context context is so important. You swoop in here with definitions that are applicable to a different context that the arguments you are considering. Therefore you are responsible for the miscommunication here.

burkll13 @ 12:07:

You have it exactly right. We have to take demand as a given, and find out what the price is given a supply. Your thinking is sound.

Zachriel said...

burkll13: it means you raise the price of the T shirts until there are only 100 people willing to pay that price for the t shirt.

Actually, to maximize profits, you might raise prices some, but you would almost certainly make more t-shirts, too.
http://lug.wsu.edu/files/final_paper_html_m33ae3f3f.png

Zachriel said...

Major_Freedom: There is no "the" definition. Definitions are subjective.

Terms may have more than one sense, but are not subjective: Definitions are determined by convention. In any case, if you want to make sense of what economists are saying, you have to understand how they are using the terms.

Major_Freedom: This is why you have to take into account the context. The context is Say's law, and classical economics. That means the definition for demand that should be used is the one I gave,

Jean-Baptiste Say defines demand in the ordinary sense as the desire for a commodity limited by the ability to pay for it.

A Treatise on Political Economy 1803: "The utility of a product is not confined to one human being, but applies to a whole class of society at the least, as in the case of particular articles of clothing; or to a whole community, as in that of most of the articles of food that are adapted to human consumption in general, without distinction of sex or age. For this reason, the demand for a specific object, or product, or act of productive exertion, has a certain degree of extent. The aggregate demand for sugar in France is said to exceed 500,000 quintals per annum. Even the individual demand of a specific product for individual consumption may be more or less urgent. Whatever be its intensity, it may be called by the general name of demand; and the quantity attainable at a given time, and ready for the satisfaction of those who are in want of the specific article, may be called the supply or amount in circulation.

"But this must be understood with some limitation; for there is no object of pleasure or utility, whereof the mere desire may not be unlimited, since every body is always ready to receive whatever can contribute to his benefit or gratification. There must, therefore, be some bounds to demand; and the most effectual limitation is, the ability to give some other equivalent product for the object of desire."

Notice that demand has an intensity, and the measure of demand is in quintals of sugar. If you read Say's work, it is quite clear he is using the term in its conventional manner.

Zachriel said...

Major_Freedom: Oh, but you will say "given a price", well, that's my point.

The demand curve shows the relationship between price and demand. Generally, as the price increases, demand drops.

Major_Freedom: The price is itself a function of supply AND demand,

That's correct. As the supply curve illustrates, when supply increases, the price drops.

Major_Freedom: You swoop in here with definitions that are applicable to a different context that the arguments you are considering.

Actually, you introduced the confusion when you said, "Supply cannot exceed demand. Demand cannot exceed supply. Demand cannot even be equal to supply. One unit can't exceed the other unit because they are different, incommensurable units." You are arguing that others have confused the terms, when you are the one trying to draw a distinction based on your own use of the terms.

Now, if you just want to point out that the quantity demanded in a market varies on price, well, that's fine, but it's not something overlooked by economists, certainly not by Keynesians.

Major_Freedom: Supply cannot exceed demand. Demand cannot exceed supply. Demand cannot even be equal to supply. One unit can't exceed the other unit because they are different, incommensurable units.

Say: A large arrival and immediate sale of foreign articles all at once, lowers their price, by the relative excess of supply above demand.

Supply *exceeds* demand.


Say: Its relative value, like that of every other commodity, rises in direct ratio to the demand, and inverse ratio to the supply.

Say: Demand and supply are the opposite extremes of the beam, whence depend the scales of dearness and cheapness; the price is the point of equilibrium, where the momentum of the one ceases, and that of the other begins.

Major_Freedom said...

Zachriel:

Actually, to maximize profits, you might raise prices some, but you would almost certainly make more t-shirts, too.

The context is that 100 t-shirts is the supply capable of being offered given the company's productivity. More profits can enable them to invest more and produce more.

Major_Freedom: There is no "the" definition. Definitions are subjective.

Terms may have more than one sense, but are not subjective: Definitions are determined by convention.

That means definitions are subjective. Conventions are not objective. They are subjective.

The Earth does not orbit the Sun because that is the consensus or convention. It is because the Earth objectively orbits the Sun regardless of what people believe or what words they use.

In any case, if you want to make sense of what economists are saying, you have to understand how they are using the terms.

That is precisely why you are confused.

Major_Freedom said...

Zachriel:


Major_Freedom: This is why you have to take into account the context. The context is Say's law, and classical economics. That means the definition for demand that should be used is the one I gave,

Jean-Baptiste Say defines demand in the ordinary sense as the desire for a commodity limited by the ability to pay for it.

Notice that demand has an intensity, and the measure of demand is in quintals of sugar.

You have to be aware of the context of EVERY TIME Say says "demand."

"That, in every community the more numerous are the producers, and the more various their productions, the more prompt, numerous, and extensive are the markets for those productions; and, by a natural consequence, the more profitable are they to the producers; for price rises with the demand." - pg 137

Here, Say is saying that when demand (in money) increases, so do prices.

It is impossible for demand to be quantity demanded here if prices are going to rise with a rise in demand. For if demand were interpreted as quantity desired, then a rise in quantity demanded would make the prices FALL, all else equal.

"As it is with carriages, so is it with specie likewise. The demand is limited; it can form but a part of the aggregate wealth of the nation. That wealth can not possibly consist entirely of specie ; for other things are requisite besides specie." - pg 158

Here, Say is saying that aggregate demand is limited to the supply of specie. That means demand is in money. Say is saying here that money (source of demand) can form a part of the nation's wealth, but not all, because people desire and need things other than money.

"In fact, if a particular commodity, by the time it has reached the French market, costs the English exporter 20 dollars, his trouble, &c. included, and the same commodity could be bought in France at the same or a less rate, there is nothing to give him exclusive possession of the market. But if the British government pays a bounty of 2 dollars upon the export, and thereby enables him to lower his demand from 20 to 18 dollars, he may safely reckon upon a preference." - pg 171

Here, Say is talking about how a government subsidy of 2 dollars can enable a producer to sell a product for 18 instead of 20, where the demand for the product can lower from 20 to 18 dollars.

"A dealer, having in his warehouse 100,000 lbs. of wool at 20 cents per lb., is worth 20,000 dollars; if, by reason of an extraordinary demand, wool should rise to 40 cents per lb., that portion of his capital will be doubled," - pg 304

Here, Say is saying that an increase in demand will raise the price of a good. If he were talking about quantity demanded, then a higher quantity demanded would lower its price, not increase its price, all else equal.

Major_Freedom said...

Zachriel:


Major_Freedom: Oh, but you will say "given a price", well, that's my point.

The demand curve shows the relationship between price and demand. Generally, as the price increases, demand drops.

You means quantity demanded drops. The reason why is because demand is assumed constant.

Major_Freedom: The price is itself a function of supply AND demand,

That's correct. As the supply curve illustrates, when supply increases, the price drops.

Because demand is presumed constant, which means a rise in supply, given a demand, will make prices fall.

Major_Freedom: You swoop in here with definitions that are applicable to a different context that the arguments you are considering.

Actually, you introduced the confusion when you said, "Supply cannot exceed demand. Demand cannot exceed supply. Demand cannot even be equal to supply. One unit can't exceed the other unit because they are different, incommensurable units." You are arguing that others have confused the terms, when you are the one trying to draw a distinction based on your own use of the terms.

I am using the concept of demand used by the classicals, which is the context here. You introduced confusion.

Now, if you just want to point out that the quantity demanded in a market varies on price, well, that's fine, but it's not something overlooked by economists, certainly not by Keynesians.

It is almost universally overlooked by Keynesians, which is why they constantly, CONSTANTLY conflate good price deflation with bad price deflation, and say that all price deflation is a bad thing, even if it's on account of higher productivity. Demand and costs can remain the same, and profits can remain positive, and increases in production can make supply of real goods grow over time, with prices and unit costs falling, and almost every Keynesian believes that means a depression is taking place. Note their labeling of the 1870s a depression, even though, as Friedman and Schwartz pointed out, was a time of tremendous economic growth which made prices and unit costs fall.

Major_Freedom: Supply cannot exceed demand. Demand cannot exceed supply. Demand cannot even be equal to supply. One unit can't exceed the other unit because they are different, incommensurable units.

Say: A large arrival and immediate sale of foreign articles all at once, lowers their price, by the relative excess of supply above demand.

Here he means quantity demanded, and here he means relative (partial) overproduction.

Supply *exceeds* demand.

Quantity demanded exceeds quantity supplied.

Demand can never exceed supply because they are not of the same units.

Zachriel said...

Major_Freedom: The context is that 100 t-shirts is the supply capable of being offered given the company's productivity. More profits can enable them to invest more and produce more.

That may be what is available today, but it is doubtful that it is all the t-shirts that will ever be available. Sure, you could raise prices somewhat, but raise them too much and people won't come back when the new shipment comes in. Rather, to maximize profits, you might raise the price somewhat, but ordering more t-shirts is the obvious and most common business solution.

In any case, it's clear that demand, the desire and ability to purchase a product, is a meaningful concept. Relative value rises in direct ratio to the demand, and inverse ratio to the supply.

Major_Freedom: That means definitions are subjective. Conventions are not objective. They are subjective.

Um, no. Subjective means based on or influenced by personal feelings, tastes, or opinions. Conventional means a general agreement about basic principles or procedures. The difference is that you may subjectively say that the Earth is a Sun, but that's not what the term means.

Major_Freedom: Quantity demanded exceeds quantity supplied.

He said "demand." He also measured demand in quintals. You said you were using the term just like Say. One of you is wrong. Either Say isn't using the term as Say does, or you aren't. There is just no way around your contradiction. Here it is again:

Major_Freedom: Supply cannot exceed demand.

Say: ... excess of supply above demand.

Supply *exceeds* demand.

Major_Freedom said...

Zachriel:

That may be what is available today, but it is doubtful that it is all the t-shirts that will ever be available.

We're trying to find the determinants of prices NOW. It is irrelevant to consider possible futures when it comes to what actually determines prices in the present.

In the present, you have to take supply as a given. If supply changes, then so will prices, and we will never be able to explain prices because you'r not holding any variables constant.

Sure, you could raise prices somewhat, but raise them too much and people won't come back when the new shipment comes in.

This is exactly why burkll13 said that prices can rise to that level which will lower the quantity demanded down to 100 t-shirts (supply).

Rather, to maximize profits, you might raise the price somewhat, but ordering more t-shirts is the obvious and most common business solution.

You can't order more t-shirts if the demand for your t-shirts doesn't rise and the costs don't fall.

In any case, it's clear that demand, the desire and ability to purchase a product, is a meaningful concept.

Nobody denies it is meaningful. The confusion you have is how to interpret it when people are making arguments.

Major_Freedom: That means definitions are subjective. Conventions are not objective. They are subjective.

Um, no. Subjective means based on or influenced by personal feelings, tastes, or opinions.

That is exactly what underlies conventions. People's tastes and preferences. That is subjectivity par excellence.

Subjective means it is DETERMINED by the individual's values, rather than physical laws through cause and effect.

It is preferences ans tastes that determine definitions, not scientific laws or logical necessities of nature.

Conventional means a general agreement about basic principles or procedures.

Based on subjective values and preferences.

The difference is that you may subjectively say that the Earth is a Sun, but that's not what the term means.

If the convention is that the planet English people call Earth is defined as "Sun", then that is the definition of Earth.

Major_Freedom said...

Zachriel:


Major_Freedom: Quantity demanded exceeds quantity supplied.

He said "demand." He also measured demand in quintals. You said you were using the term just like Say. One of you is wrong. Either Say isn't using the term as Say does, or you aren't.

When Say says demand, you have to always take into account the context. If you don't, then you don't know if he means quantity desired or money spent. I've given no less than three quotes from Say that show him treating demand as money spent. There are more quotes he has given, these are just a few.

To repeat, these examples were:

"That, in every community the more numerous are the producers, and the more various their productions, the more prompt, numerous, and extensive are the markets for those productions; and, by a natural consequence, the more profitable are they to the producers; for price rises with the demand." - pg 137

"As it is with carriages, so is it with specie likewise. The demand is limited; it can form but a part of the aggregate wealth of the nation. That wealth can not possibly consist entirely of specie ; for other things are requisite besides specie." - pg 158

"In fact, if a particular commodity, by the time it has reached the French market, costs the English exporter 20 dollars, his trouble, &c. included, and the same commodity could be bought in France at the same or a less rate, there is nothing to give him exclusive possession of the market. But if the British government pays a bounty of 2 dollars upon the export, and thereby enables him to lower his demand from 20 to 18 dollars, he may safely reckon upon a preference." - pg 171

"A dealer, having in his warehouse 100,000 lbs. of wool at 20 cents per lb., is worth 20,000 dollars; if, by reason of an extraordinary demand, wool should rise to 40 cents per lb., that portion of his capital will be doubled," - pg 304

Major_Freedom: Supply cannot exceed demand.

Say: ... excess of supply above demand.

Already dealt with.

Supply *exceeds* demand.

No, quantity demanded can exceed quantity supplied. In the aggregate, supply can never exceed quantity demanded. The desire for goods is practically infinite.

Demand can never exceed supply because they are of different units. One is in money, the other is in real goods.

Zachriel said...

Major_Freedom: We're trying to find the determinants of prices NOW.

Actually, we're examining your statement that "supply cannot exceed demand." You cited Say who specifically says that supply can exceed demand.

Major_Freedom: Demand can never exceed supply because they are of different units.

Say: ... excess of supply above demand.

It's hard to be more explicit than that.

Anonymous said...

Major Freedom, please provide a reference to anyone other than yourself who suggests that demand and supply are in different units.

I have four micro economics books in my office ranging from highschool to grad level, and none of them use a money-valued idea of demand. All of them use 'demand' and 'quantity demanded' interchangeably, just as they use 'supply' and 'quantity supplied' interchangeably.

I also have a copy of "Principles of Political Economy and Taxation" by Ricardo (a contemporary of Say) on my Kindle (its free), and his chapter "On the Influence of Demand and Supply on Price" makes it very clear that even in Say's time Ricardo was NOT talking about a money-valued concept of demand.

Your concept appears to be unique to you- not a concept of economics. Its important when discussing technical fields to stick to the definitions that the field uses. If you want to advocate for a new concept, call it 'money valued demand' or something similar. Don't call it 'demand' and insist every single economist is wrong and you are right just because you changed the meaning of the word!

Your concept is particularly distorting when discussing Say's law, because (to quote Say) "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." Say's law should hold true even in a barter economy. There is no special role of money.

Major_Freedom said...

Actually, we're examining your statement that "supply cannot exceed demand."

The context of that is in the aggregate. Regardless of which definition of demand you use, it is an impossibility.

You cited Say who specifically says that supply can exceed demand.

PARTIAL RELATIVE OVERPRODUCTION, yes. You're still confused.

Major_Freedom: Demand can never exceed supply because they are of different units.

Say: ... excess of supply above demand.

That's partial relative excess of supply to quantity demanded.

Major_Freedom said...

Anonymous:

Major Freedom, please provide a reference to anyone other than yourself who suggests that demand and supply are in different units.

J.B. Say, "A Treatise on Political Economy."

John E. Cairnes, "Some Leading Principles of Political
Economy Newly Expounded"

I have four micro economics books in my office ranging from highschool to grad level, and none of them use a money-valued idea of demand.

Every single one of them have their own definitions which differs from the predominant definition of demand that is expenditure of money as used by most classicals, and J.B. Say as shown by the passages I quoted.

All of them use 'demand' and 'quantity demanded' interchangeably, just as they use 'supply' and 'quantity supplied' interchangeably.

All of them are "contemporary" textbooks.

Your concept appears to be unique to you- not a concept of economics.

False. The definition of demand in terms of money is the predominantly classical definition of demand.

I've given no less than 3 passages from Say that show as much, and if you read Cairnes, he too used the money definition.

Its important when discussing technical fields to stick to the definitions that the field uses.

Correct, which is why when you read Say saying "demand", you have to be aware of the context in which he writes it, every time he writes it. In his text, he uses the word demand in at least 3 different uses.

Classical economics in general used the money definition.

If you want to advocate for a new concept, call it 'money valued demand' or something similar. Don't call it 'demand' and insist every single economist is wrong and you are right just because you changed the meaning of the word!

I am not saying anyone is "wrong" for using one definition over another.

Don't you call it "demand" when what you mean is quantity demanded. Don't insist Zachriel is right and I am wrong just because I am using a different definition than he is using.

Your concept is particularly distorting when discussing Say's law, because (to quote Say) "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."

Wrong. It is precisely the defining demand as quantity of goods desired that distorts the meaning of Say's law, because, to quote Say:

"In fact, if a particular commodity, by the time it has reached the French market, costs the English exporter 20 dollars, his trouble, &c. included, and the same commodity could be bought in France at the same or a less rate, there is nothing to give him exclusive possession of the market. But if the British government pays a bounty of 2 dollars upon the export, and thereby enables him to lower his demand from 20 to 18 dollars, he may safely reckon upon a preference." - pg 171

Say's law should hold true even in a barter economy.

There is no special role of money.

It is precisely understanding the role of money that in part allows one to understand that there can never be a general overproduction.

Anonymous said...

I've read Cairnes, and he uses demand like Ricardo- i.e. demand is a shorthand for quantity demanded, supply a shorthand for quantity supplied. Even Say used this. Even your quote from Say:

"But if the British government pays a bounty of 2 dollars upon the export, and thereby enables him to lower his demand from 20 to 18 dollars, he may safely reckon upon a preference."

Here he is using "demand" as in "the price the exporter is demanding", i.e. the english use of the word not the more technical economics concept. I recommend you read the chapter in Ricardo I suggested.

Now, Say's law depends on goods being paid for with goods. As Say believed, a rational business man wants to get rid of money because its value is also perishable, and so goods are paid for with goods.

This ignores at least one important aspect of money- it always time preference. With money, I can produce today in order to consume tomorrow. The problem being, if everyone tries to produce today in order to consume tomorrow, things start to go wrong.

Major_Freedom said...

Anonymous:

I've read Cairnes, and he uses demand like Ricardo

No, Cairnes uses the money spending definition of demand.

"Mr. Mill, indeed, fully recognizes — no one more fully — the importance of keeping in view the strict analogy of Demand and Supply ; and it is apparently, at least in part, with a view to this end that he gives the peculiar definition of "demand " which is to be found in the chapter from which I have quoted. Demand, as there defined, is to be understood as measured, not, as my definition would require, by the quantity of purchasing power offered in support of the desire for commodities, but by the quantity of commodities for which such purchasing power is offered. There is no doubt that, as thus conceived, that is to say, as quantity demanded and quantity supplied. Demand and Supply are perfectly analogous facts; but, as I think I have shown, this way of regarding them is by no means necessary in order to render them analogous, while it seems to me that the idea of "demand" as quantity demanded, though not foreign to economic discussion, is very far from being adequate to the general purposes of the science.

"I quite admit that it may be convenient occasionally to employ "demand" in other senses; and though the employment of the same economic term in different senses is not free from objection, it is an expedient to which the economist must, in the dearth of language, occasionally have recourse; nor will much harm result, if we only bear in mind that the senses are distinct, and do not confound them in argument. Moreover, I am willing to allow that the meaning given to "demand" by Mr. Mill in the passage in question expresses a sense in which it is sometimes convenient, perhaps necessary, to use the word. But, while conceding this much,
I must still contend for the correctness of my own definition,
as expressing the principal and proper sense of the term in economic science — meaning by this a sense more important and fundamental than any other to which the term in that science is applied — a sense indispensable to economic exposition, and which "demand" easily and naturally expresses."


"The importance and fundamental character of a scientific idea must, I apprehend, be judged by the place which it occupies in the theories of a science. Now I have no need to go beyond Mr. Mill's work to show that the sense assigned to "demand" in my definition may be justified by this criterion."

"I take three capital theories of the science — wages, money, and foreign trade. In each of these Supply and Demand form the pivots of the doctrine, the two poles on which the exposition turns. But when we come to consider in what sense "demand" is used in those theories, we find that in every instance it is regarded as represented and measured by the purchasing power ordered, not by the quantity of commodities or services demanded." - J.E. Cairnes, "Some leading principles of political economy newly expounded", pgs 87-88.

I hope that made it very, VERY clear.

Joseph Fetz said...

Zachriel, would you consider submarginal buyers as representing a portion of demand?

Joseph Fetz said...

Zachriel said, "If you have a hundred of your new t-shirts, and a thousand people with cash in hand clamoring to get them, then we say "demand exceeds supply,"

Your example means nothing without talking about price. Apparently the unsaid price in your example is below the price dictated by the intersection of supply and demand (in your example). I think that you're kind of dismissing what it is that determines price and/or you're confusing past prices as reflective of current supply/demand, which is actually pretty amusing considering the topic (Say's law).

Zachriel said...

Major_Freedom: I hope that made it very, VERY clear.

Yes you did. Cairns is arguing against the standard definition. Turns out we can measure both supply and demand in either quantity or value. If you ask someone about his t-shirt inventory, he might answer he has a hundred t-shirts or a thousand dollars worth of t-shirts. The latter assumes his normal asking price. If you ask someone about his purchase of t-shirts, he might answer he bought a hundred t-shirts, or he might answer he bought a thousand dollars worth of t-shirts. Again, the latter statement encompasses the purchase price. In either case, supply and demand can be compared. Either can say they exchanged a hundred t-shirts or a thousand dollars worth of t-shirts. Aggregate demand is often stated in dollar terms.

Regardless, Say was using the term in its normal sense. We know this because he directly compared them.

Joseph Fetz: Zachriel, would you consider submarginal buyers as representing a portion of demand?

In a more complicated analysis, sure. People waiting for the price to drop are part of the market, certainly. Keep in mind that we can vary the sense of a term depending on our usage—as long as we are clear. What you can't do is declare that all economists we disagree with are incoherent because they use the term in a different sense than what you insist is the only correct definition, especially when the economists are using the term in its most conventional manner.

"I quite admit that it may be convenient occasionally to employ
'demand' in other senses; and though the employment of the same economic term in different senses is not free from objection, it is an expedient to which the economist must, in the dearth of language, occasionally have recourse; nor will much harm result, if we only bear in mind that the senses are distinct, and do not confound them in argument."

Joseph Fetz: Your example means nothing without talking about price.

We discussed price above, ...

Zachriel: Actually, to maximize profits, you might raise prices some, but you would almost certainly make more t-shirts, too.
http://lug.wsu.edu/files/final_paper_html_m33ae3f3f.png


... but we will elaborate. People have been aruging that price is the only variable, but supply is also something that can vary.

The shopkeeper has a t-shirt with a new design. He has a hundred on hand, and thinks himself optimistic. He opens the shop with the t-shirts marked at $10. A thousand people clamor for the new t-shirt. Sure, he can raise the price somewhat. People will probably pay $12, but not $100.

His supply is a 100 at $10. The demand is 1000 at $10, which are orders he can fill. Perhaps, he will sell an additional 800 at $12, and increase his gross by 6%. But demand in this case is probably volatile. He may be better off selling the preorders for $10.

Sam said...

How can one sell 800 when his inventory is only 100?

Major_Freedom said...

Zachriel:

Yes you did. Cairns is arguing against the standard definition.

It's more than that. He said that

"the idea of "demand" as quantity demanded, though not foreign to economic discussion, is very far from being adequate to the general purposes of the science."

and

"Moreover, I am willing to allow that the meaning given to "demand" by Mr. Mill in the passage in question expresses a sense in which it is sometimes convenient, perhaps necessary, to use the word. But, while conceding this much, I must still contend for the correctness of my own definition, as expressing the principal and proper sense of the term in economic science - meaning by this a sense more important and fundamental than any other to which the term in that science is applied — a sense indispensable to economic exposition, and which "demand" easily and naturally expresses."

In other words, Cairnes considered demand in the money sense as superior for the purposes of the science of economics. Yes, both definitions were used, but the money terms definition was to Cairnes superior. I agree with that position.

I am not saying you "can't" define demand as quantity desired. It just makes little sense on its own because in general, quantity desired is always greater than quantity supplied (hence Say's law that general overproduction is impossible), and in particular markets, quantity desired rests on prices, which itself is a function of demand in money terms.

So the dynamic between supply and demand always comes back to demand in the money sense, especially when explaining prices.

Contemporary economists ONLY use demand in the quantity desired sense, whereas the classicals predominantly used demand in the money spending sense, but did use both.

In order to understand Say's law, demand in the money sense is a necessary component.

Turns out we can measure both supply and demand in either quantity or value.

Sure, nobody denied that. Definitions are subjective. They can anything anyone wants them to be.

If you ask someone about his t-shirt inventory, he might answer he has a hundred t-shirts or a thousand dollars worth of t-shirts.

The latter takes for granted demand in money terms.

If we are to explain prices, then demand must be in money terms, because if it isn't, then we'll just have to include it anyway.

Regardless, Say was using the term in its normal sense. We know this because he directly compared them.

No, again you have to take into account the context every time Say says "demand."

Joseph Fetz: Zachriel, would you consider submarginal buyers as representing a portion of demand?

In a more complicated analysis, sure. People waiting for the price to drop are part of the market, certainly.

You can't observe these people in the market in question, so you can't say they are a part of the market in question.

Joseph Fetz: Your example means nothing without talking about price.

We discussed price above, ...

By taking into account demand in the money sense.

Major_Freedom said...

Zachriel:


Zachriel: Actually, to maximize profits, you might raise prices some, but you would almost certainly make more t-shirts, too.

You can't make more t-shirts unless there is a gain in productivity. You make it sound like a company that has 100 t-shirts in supply can increase it to any arbitrary level.

But the company won't invest in more t-shirt production unless the profitability of t-shirts increases, which means either costs have to fall (increase in efficiency and productivity), or demand in money terms has to rise, or both.

If more t-shirts are demanded, that won't make the company produce and sell more t-shirts unless that increase in quantity demanded is on a foundation of higher demand in money terms or a fall in unit costs and hence prices, the latter which is itself a function of demand in the money sense.

So by only considering quantity demanded, you make the absurd assumption that a rise in quantity demanded means prices necessarily rise, or that a rise in quantity demanded is founded upon fixed prices, instead of what is usually the case, which is falling prices.

This is why it is better to define demand in the money sense, so that you can know the implications and causes of a changed quantity demanded.

People have been aruging that price is the only variable, but supply is also something that can vary.

Price is a function of demand and supply. You cannot consider changes in supply and changes in prices as if they are independent.

Price is the dependent variable. Supply and demand are independent variables. If you are speaking of prices, you are immediately speaking of supply and demand.

The shopkeeper has a t-shirt with a new design. He has a hundred on hand, and thinks himself optimistic. He opens the shop with the t-shirts marked at $10. A thousand people clamor for the new t-shirt. Sure, he can raise the price somewhat. People will probably pay $12, but not $100.

You see? You have no firm foundation on what to think because you aren't using the money definition of demand. You can't claim prices won't rise to $100. Not unless you know the demand for t-shirts in, you guessed it, money terms.

For if the demand for t-shirts is $10000, then the prices of those 100 t-shirts can in fact be raised to $100 a pop, so that the quantity demanded is decreased down to quantity supplied.

And this is how prices are formed for some goods.

His supply is a 100 at $10. The demand is 1000 at $10, which are orders he can fill. Perhaps, he will sell an additional 800 at $12, and increase his gross by 6%. But demand in this case is probably volatile. He may be better off selling the preorders for $10.

Your confusion here of giving the t-shirts a dollar value, independent of demand in the money sense, is why you can't know what the prices will tend towards, and are relegated to "may"'s.

Neither you nor the seller can say that the value the t-shirts are $10, or $12, unless there is a market for those t-shirts at $10 or $12, which means unless there is a demand for t-shirts of $1000 or $1200, respectively.

For if the demand for those t-shirts is $10000, then the value you thought was $10, is in fact $100.

This is why you cannot ignore demand in the money sense.

Major_Freedom said...

Sam:

How can one sell 800 when his inventory is only 100?

Exactly. Zachriel is confused because he is considering only quantity desired, and fudge factoring in a price of $10, when the price is what we are trying to find the determinants of (which includes demand in the money sense) in the first place.

His confusion here is EXACTLY the reason why Cairnes' definition of demand (money spent) is better suited to economic science, even though both definitions have meaning and both can be used.

Major_Freedom said...

Joseph Fetz:

"Zachriel said, "If you have a hundred of your new t-shirts, and a thousand people with cash in hand clamoring to get them, then we say "demand exceeds supply,"

Your example means nothing without talking about price. Apparently the unsaid price in your example is below the price dictated by the intersection of supply and demand (in your example). I think that you're kind of dismissing what it is that determines price and/or you're confusing past prices as reflective of current supply/demand, which is actually pretty amusing considering the topic (Say's law).

Bingo. You share the intuition that I am trying to get across, but you said it better.

Zachriel seems to believe that just because people WANT more t-shirts than are supplied at any given time, and have "cash on hand" (which by the way totally glosses over the very point under discussion, which is demand in money terms!) that the price will rise. But the price won't necessarily rise, because it could be the case that the rise in quantity demanded requires, and cannot take place unless there is, a fall in prices, where the increased quantity demanded will only last as long as the prices are lower, such that a given demand (in money terms) can buy the supply.

He just takes prices for granted, and takes demand in money terms as a given, which is indeed strange considering the topic of Say's law. Hopefully he now understands the extreme limitations of sticking to a definition of demand as "quantity desired."

Zachriel said...

Major_Freedom : In other words, Cairnes considered demand in the money sense as superior for the purposes of the science of economics. Yes, both definitions were used, but the money terms definition was to Cairnes superior. I agree with that position.

It doesn't make someone's position incoherent because he uses the term in a different sense, as you suggested above.

Major_Freedom : In order to understand Say's law, demand in the money sense is a necessary component.

As Say's Law applies to a barter economy, that's obviously not true.

Major_Freedom : No, again you have to take into account the context every time Say says "demand."

Of course you do, and Say uses it in its conventional manner directly comparing supply and demand.

Major_Freedom : By taking into account demand in the money sense.

By taking into account the relationship between demand, supply and price.

Major_Freedom : For if the demand for those t-shirts is $10000, then the value you thought was $10, is in fact $100.

Just because a thousand people are willing to pay $10 doesn't mean you will have a hundred willing to pay $100. The demand curve is not linear.

Zachriel said...

Major_Freedom: He just takes prices for granted, and takes demand in money terms as a given, which is indeed strange considering the topic of Say's law. Hopefully he now understands the extreme limitations of sticking to a definition of demand as "quantity desired."

Please read more carefully. Demand is the desire and the wherewithal to buy — at a given price. This is illustrated in the demand curve, which shows the demand at each price point.

In any case, the only issue we raised on this thread is your suggestion that people who use the term demand differently than yourself are advancing an incoherent position, as if that claim alone renders every argument against your position invalid. You appear to have backed off that somewhat here:

Major_Freedom: I am not saying you "can't" define demand as quantity desired.

Major_Freedom said...

Zachriel:

"Major_Freedom : In other words, Cairnes considered demand in the money sense as superior for the purposes of the science of economics. Yes, both definitions were used, but the money terms definition was to Cairnes superior. I agree with that position."

It doesn't make someone's position incoherent because he uses the term in a different sense, as you suggested above.

Even if you use demand in the quantity desired sense, it is still incoherent without the inclusion of demand in the money sense.

Major_Freedom : In order to understand Say's law, demand in the money sense is a necessary component.

As Say's Law applies to a barter economy, that's obviously not true.

You're missing the point. In a division of labor economy, our economy, it is necessary. In a barter economy, it is not necessary.

It would be like saying that just because AIDS can be understood in rats, that it immediately means it can be understood in humans. No.

Major_Freedom : No, again you have to take into account the context every time Say says "demand."

Of course you do, and Say uses it in its conventional manner directly comparing supply and demand.

Not every time he uses it.

Major_Freedom : By taking into account demand in the money sense.

By taking into account the relationship between demand, supply and price.

Demand in the money sense.

Major_Freedom said...

Zachriel:


Major_Freedom : For if the demand for those t-shirts is $10000, then the value you thought was $10, is in fact $100.

Just because a thousand people are willing to pay $10 doesn't mean you will have a hundred willing to pay $100. The demand curve is not linear.

I didn't say that, and it doesn't have to be linear. I said that IF THE DEMAND is $1000, then a thousand people wanting 100 t-shirts can, and in the free market it tends towards, the price rising to that which levels down the quantity demanded, given a particular demand.

Of course elasticities complicate this somewhat, but in the aggregate, where Say's law matters, then what you're talking about is offset, and we can speak of demand as a given, by basing it off the quantity theory of money.

Major_Freedom: He just takes prices for granted, and takes demand in money terms as a given, which is indeed strange considering the topic of Say's law. Hopefully he now understands the extreme limitations of sticking to a definition of demand as "quantity desired."

Please read more carefully. Demand is the desire and the wherewithal to buy — at a given price. This is illustrated in the demand curve, which shows the demand at each price point.

The given price DEPENDS on demand in the money sense! PLEASE READ MORE CAREFULLY!!!!

You say "given price" as if it comes out of nowhere, independent of demand in the money sense. No, prices are DETERMINED, in part, by demand in the money sense. This doesn't mean that demand is fixed for specific markets. It means that whatever price exists, demand in the money sense is in part a determinant.

This is the confusion you have which is preventing you from understanding.

In any case, the only issue we raised on this thread is your suggestion that people who use the term demand differently than yourself are advancing an incoherent position, as if that claim alone renders every argument against your position invalid. You appear to have backed off that somewhat here

No, I still stand by it. If one denies demand in the money sense, then demand exceeding quantity does become incoherent. You can't say it is coherent by saying "given a price", because that itself already presupposes demand in the money sense, which we are ignoring for the purposes of argument.

Major_Freedom: I am not saying you "can't" define demand as quantity desired.

Yes, provided the context calls for it, and doesn't require another definition, which is the case in your example of "supply exceeds demand."

Zachriel said...

Major_Freedom: Even if you use demand in the quantity desired sense, it is still incoherent without the inclusion of demand in the money sense.

It has to be tied to price or a trade of some sort, yes. The most usual way is with the demand curve.

Major_Freedom: In order to understand Say's law, demand in the money sense is a necessary component.

Zachriel: As Say's Law applies to a barter economy, that's obviously not true.

Major_Freedom: You're missing the point. In a division of labor economy, our economy, it is necessary. In a barter economy, it is not necessary.

So to understand Say's law does not require understanding demand in the money sense. In fact, Say's Law is very generalized and definitely does not require money.

In any case, understanding that demand has to do with price doesn't mean you have to use a particular definition. Few disagree with the basic relationship between supply, demand and price.

Major_Freedom: I said that IF THE DEMAND is $1000, then a thousand people wanting 100 t-shirts can, and in the free market it tends towards, the price rising to that which levels down the quantity demanded, given a particular demand.

Well, yes. That's just a sloppy restating of the demand curve. However, any real-life business person also considers the supply curve, and in the case of a shopkeeper, he will certainly find he can maximum profits better by increasing his supply rather than through a dramatic increase in price.

The rest of your comment is just a rehash of your insistence of "demand in the money sense" as if you are saying anything more than what the demand curve already illustrates.

Major_Freedom said...

Zachriel:

Major_Freedom: Even if you use demand in the quantity desired sense, it is still incoherent without the inclusion of demand in the money sense.

It has to be tied to price or a trade of some sort, yes. The most usual way is with the demand curve.

Demand curves are based on price, and price is based on demand as I define it.

Major_Freedom: In order to understand Say's law, demand in the money sense is a necessary component.

Zachriel: As Say's Law applies to a barter economy, that's obviously not true.

It doesn't matter if Say's law applies to barter economies no less than division of labor money based economies.

When the context is division of labor economies, one MUST understand demand and one MUST take it into account. If one doesn't, like most economists, the result is making the absurd claims that because supply can exceed quantity demanded in local markets, it means Say's law doesn't hold.

One must understand and take into account demand, if one is to avoid this mistake.

Major_Freedom: You're missing the point. In a division of labor economy, our economy, it is necessary. In a barter economy, it is not necessary.

So to understand Say's law does not require understanding demand in the money sense.

That does not follow from my statement above. I said that in order to understand Say's law in division of labor, money based economies, demand in the money sense is required.

In fact, Say's Law is very generalized and definitely does not require money.

To understand it in a division of labor economy, yes, it absolutely does require money.

In any case, understanding that demand has to do with price doesn't mean you have to use a particular definition.

It helps, as is clear from your confusions, and from Cairnes' arguments.

Few disagree with the basic relationship between supply, demand and price.

Few understand Say's law.

Major_Freedom said...

Zachriel:


Major_Freedom: I said that IF THE DEMAND is $1000, then a thousand people wanting 100 t-shirts can, and in the free market it tends towards, the price rising to that which levels down the quantity demanded, given a particular demand.

Well, yes. That's just a sloppy restating of the demand curve.

No, the demand curve is just a sloppy restating of what I said.

However, any real-life business person also considers the supply curve, and in the case of a shopkeeper, he will certainly find he can maximum profits better by increasing his supply rather than through a dramatic increase in price.

False. Just increasing supply out of inventory will only put downward pressure on the firm's prices, which decreases profits on capital invested. Only if the demand rises, will a firm earn more profit on goods sold out of inventory.

Beyond selling goods out of inventory, the firm will only increase production if it expects to earn a profit by doing so. You are taking costs of goods sold for granted (because you don't take into account demand = money). If a firm sells more goods, its costs of goods sold per unit won't decrease. It will still earn the same rate of profit if all it did was sell more goods out of inventory or existing slack.

A firm can earn more profits only by decreasing its costs, or increasing the demand for its products. Physical productivity, is not the main driver of profits.

You are fallaciously presuming that sellers can arbitrarily increase their production to any degree they want to match the quantity demanded at a particular price. You can't do that. When demand rises, most firms can only increase their production to a limit. Beyond that, prices tend to rise. In a healthy economy, large changes in demand cannot instantly generate a changed supply.

The rate of profit on capital invested in a firm does not necessarily increase if a firm sells more goods.

The rest of your comment is just a rehash of your insistence of "demand in the money sense" as if you are saying anything more than what the demand curve already illustrates.

The demand curve is just a rehash of taking into account demand in an indirect way as if the graph is saying anything more than what supply and demand in the money sense already fully illustrates.

Zachriel said...

Major_Freedom: No, the demand curve is just a sloppy restating of what I said.

The demand curve can represent empirical data rather than simply a qualitative statement.

Major_Freedom: Demand curves are based on price, and price is based on demand as I define it.

Redefining the word doesn't change the intrinsic relationship. All you are doing is restating the relationship in quatloos. However, it can lead to confusion, especially when you insist that you can't compare supply and quatloos, er, demand.

Major_Freedom: If one doesn't, like most economists, the result is making the absurd claims that because supply can exceed quantity demanded in local markets, it means Say's law doesn't hold.

While supply certainly can exceed demand in local markets, something you said is an incoherent statement, this doesn't directly address Say's Law, which deals with the question of a general glut. Nor does it take a redefinition of terms to understand that the global and local may not have the same relationship.

Major_Freedom: Few understand Say's law.

You may want to publish your unique insights in an economics journal, then. In any case, we weren't discussing Say's Law, but your claim that supply can't be compared to demand.

Major_Freedom: False. Just increasing supply out of inventory will only put downward pressure on the firm's prices, which decreases profits on capital invested. Only if the demand rises, will a firm earn more profit on goods sold out of inventory.

My Goodness! You don't know the first thing about business. If all the kids and all their friends want to buy your t-shirts, you order more t-shirts!

Major_Freedom: Beyond selling goods out of inventory, the firm will only increase production if it expects to earn a profit by doing so.

Of course. Per the scenario, the shopkeeper is making money at $10 per t-shirt. The only question is how to maximize profits. Too sharp a price rise, and the kids will move on to the next fad. Increasing the supply is the obvious solution. It's what most any shopkeeper will do when demand far exceeds supply. It's a simplified example, but one that nearly every one of our readers is familiar with. It doesn't represent the entire economy, or even every situation the shopkeeper might encounter (such as where a commodity is not easily available), but even then, you show great confusion about how a shopkeeper acts in the market.

Major_Freedom: The demand curve is just a rehash of taking into account demand in an indirect way as if the graph is saying anything more than what supply and demand in the money sense already fully illustrates.

Yes, all you are doing is redefining the terms, and restating the very same relationship. But you seem very confused on the simple story of the shopkeeper who sees demand far exceeding supply.

Sam said...

"If all the kids and all their friends want to buy your t-shirts, you order more t-shirts!"

Completely ignores the time and cost of acquiring more t-shirts.

jason h said...

y Goodness! You don't know the first thing about business. If all the kids and all their friends want to buy your t-shirts, you order more t-shirts!

Actually no. You increase you prices until the quantity demanded equals the quantity supplied. Thus maximizing your profit margin on each shirt. It is more profitable to sell 100 shirts @ $100 than 1000 shirts at $10.

Zachriel said...

jason h: It is more profitable to sell 100 shirts @ $100 than 1000 shirts at $10.

Sure. It's even more profitable to sell one t-shirt at $10,000. If you can get it.

In real-life, the shopkeeper might increase the price to $12 or $15, and take preorders. That would probably maximize his profits. Raising the price to $100 would just result in a lot of very angry shoppers and few if any sales.

Sam: Completely ignores the time and cost of acquiring more t-shirts.

Seriously? You don't think the shopkeeper would order more t-shirts to meet demand? In what world?

Major_Freedom said...

Zachriel:

Major_Freedom: No, the demand curve is just a sloppy restating of what I said.

The demand curve can represent empirical data rather than simply a qualitative statement.

False. What I said about demand represents empirical data. Demand in dollars, supply in goods, prices in dollars per good, these are logical necessities that have an exact correspondence with empirical reality.

Furthermore, it is not surprising that you would believe demand curves "represent empirical reality." In fact demand curves DON'T represent empirical reality. The only thing about demand curves that represents empirical reality is the point of intersection with the supply curve. The entire rest of the demand curve is a qualitative guesstimate. As times passes, every change in price, every change in supply, can be accompanied by an entirely new demand curve, where again the only representation of empirical reality is the intersection (price).

You just want to BELIEVE that drawing lines on charts somehow makes it more "accurate", but in reality you'd only be deluding yourself. Economics is better conveyed as a verbal system, not a mathematical symbolic system, because verbal reasoning is more encompassing and precise. In economics, ALL mathematical symbols, graphs and charts, only have meaning when they have correspondence to verbal reasoning.

Many errors are created by taking a verbal proposition, translating it to mathematical symbols and equations, and then trying to extrapolate arguments from the symbology that contradicts economic logic.

My argument about demand, supply, and prices, is actually more encompassing than demand curves. Nothing about what I argued is guesstimated. It is true for all prices. Demand curves are hypothetical beyond the intersections with supply curves.

Major_Freedom said...

Zachriel:

Major_Freedom: Demand curves are based on price, and price is based on demand as I define it.

Redefining the word doesn't change the intrinsic relationship. All you are doing is restating the relationship in quatloos.

Redefining demand to mean quantity demanded doesn't change the intrinsic relationship between price and demand. All you are doing is restating the relationship in "quatloos."

However, it can lead to confusion, especially when you insist that you can't compare supply and quatloos, er, demand.

You can't compare supply and demand. You can only compare supply offered and quantity demanded. It leads to your confusion to ignore demand and only focusing on quantity demanded, and then trying to explain prices without referring to demand.

Major_Freedom: If one doesn't, like most economists, the result is making the absurd claims that because supply can exceed quantity demanded in local markets, it means Say's law doesn't hold.

While supply certainly can exceed demand in local markets, something you said is an incoherent statement

It is incoherent without demand in the money sense, because prices are a function of this demand...

Major_Freedom said...

Zachriel:

this doesn't directly address Say's Law, which deals with the question of a general glut.

I know it doesn't directly address it. But the people who take partial overproduction in some markets believe that Say's law is being violated, precisely because they are not taking into account money, both in the individual markets, and in the aggregate (aggregate money spending).

Nor does it take a redefinition of terms to understand that the global and local may not have the same relationship.

There is no "redefinition". That's Orwellian for "your definition is not correct, mine is." Definitions are not objective.

I could just as easily say that you are "redefining" demand to mean something else other than what I define it as.

And yes, in a division of labor economy, demand is a required concept that must be understood, before one can understand Say's law. You cannot understand Say's law by ignoring it.

Major_Freedom: Few understand Say's law.

You may want to publish your unique insights in an economics journal, then.

I don't need to. It's already been published enough.

In any case, we weren't discussing Say's Law, but your claim that supply can't be compared to demand.

Demand cannot be compared to supply because demand is in money and supply is in real goods.

And the context is Say's law, so if we are going to argue about it in a money based economy, demand is integral.

Major_Freedom said...

Zachriel:

Major_Freedom: False. Just increasing supply out of inventory will only put downward pressure on the firm's prices, which decreases profits on capital invested. Only if the demand rises, will a firm earn more profit on goods sold out of inventory.

My Goodness! You don't know the first thing about business. If all the kids and all their friends want to buy your t-shirts, you order more t-shirts!

YOU CAN'T DO THAT UNLESS THE NEW DEMAND MAKES THE NEW PRICE PROFITABLE!

If all the kids want more t-shirts, but they are only willing to buy more t-shirts if the prices for t-shirts fall, then the company cannot increase its production of t-shirts.

You are taking demand for granted, you are taking price for granted, and all you're doing is focusing on supply offered and supply wanted. THAT is why you are confused about how business actually sets prices and when they invest and when they don't.

Please. YOU don't know the first thing about business. Businesses cannot just increase sales by whim or by willy nilly, as jason h, Sam, Joseph Fetz, and myself, have tried to drill into your head. At some point I guess, some people are just lost causes. There is little more that can be said to get you to understand why you are confused.

If you ever ran a business you'd know that you can't just increase your production if people want more of your goods. You don't make decisions to sell more based on quantity demanded. You sell more based on price, which is based on demand in money and on supply. It is NOT based on quantity demanded. Quantity demanded is just what people want. It doesn't matter if people want it. It matters if they are willing to put forth a demand or not that makes the price profitable.

You speak as if companies have infinite resources. They don't.

It doesn't matter if everyone in my house, my neighborhood, indeed my entire city, desire a new ferrari. If they aren't willing to put forth a demand that makes the price profitable, ferrari the company won't assemble more cars for sale.

If the demand for ferraris rises, and/or if ferrari can increase its productivity with the same money costs to produce more cars, that can allow them to lower their price per unit, thus become able to sell more cars into a given demand, can ferrari sell more cars.

Major_Freedom: Beyond selling goods out of inventory, the firm will only increase production if it expects to earn a profit by doing so.

Of course.

PRICE IS DETERMINED BY DEMAND, not quantity demanded!

Per the scenario, the shopkeeper is making money at $10 per t-shirt.

Saying that the quantity demanded increases, based on the same $10 price, is just saying demand in money terms increased.

Major_Freedom said...

Zachriel:

The only question is how to maximize profits. Too sharp a price rise, and the kids will move on to the next fad.

Are you that forgetful? We are saying the company can increase the price to level down the quantity demanded to equal the supply. We're not saying to increase the price to any arbitrary level that reduces the quantity demanded BELOW the supply.

Stay in context.

The company can increase its price to as high a level as would decrease the quantity demanded down to what the company can produce at that time.

After it raises its price to level down the quantity demanded to supply, it can take its profits, and reinvest them into the company, and increase production, which may then increase demand even more as previously submarginal buyers start to buy more t-shirts.

At any given time, a company is selling at a price that is high enough that levels down the quantity demanded to the supply the company can produce. If demand changes after that, then they change their investments because now their profits are changed.

Increasing the supply is the obvious solution.

No, you can't assume that they can increase supply, not unless the increased quantity demanded is accompanies by an increase in demand that makes the selling prices profitable.

You speak as if companies don't raise prices to whatever level generates a quantity demanded that is equal to the supply it can produce at a given time. You have no conception of basic economic processes.

Major_Freedom said...

Zachriel:


It's what most any shopkeeper will do when demand far exceeds supply.

No, most shopkeepers will not do that. They will not increase production unless there is an increase in demand, or they lower their costs.

If the quantity demanded increases, the shopkeeper will not produce more unless that desire is accompanied by a higher demand, IN MONEY, to make the price profitable. If buyers are only willing to buy more goods, if the price falls, then it doesn't matter if the seller is told that people want more of his goods. He will make the decision based on demand, not quantity demanded.

You can't hold prices constant when there is a change in demand in money. You are taking prices as a given and then asking what the demand should be, when it is precisely prices that are determined BY demand, not the other way around!

It's a simplified example, but one that nearly every one of our readers is familiar with. It doesn't represent the entire economy, or even every situation the shopkeeper might encounter (such as where a commodity is not easily available), but even then, you show great confusion about how a shopkeeper acts in the market.

You're just adding to the confusions you have already shown.

Major_Freedom: The demand curve is just a rehash of taking into account demand in an indirect way as if the graph is saying anything more than what supply and demand in the money sense already fully illustrates.

Yes, all you are doing is redefining the terms, and restating the very same relationship.

No, I am not "redefining" any terms, for that would imply that your chosen definitions are somehow correct and my definitions are somehow wrong.

I am saying that demand is defined by money spent. If you want to define it differently, if you want to call demand "quantity desired, given a price, the latter of which is determined in part by demand in money", then go right ahead.

Major_Freedom said...

Zachriel:

But you seem very confused on the simple story of the shopkeeper who sees demand far exceeding supply.

The shoe is on the other foot. YOU are confused about the simple story of the shopkeeper, because you're ignoring demand. You're only focusing on quantity demanded, given a price, when price is not a given, but a function of demand.

jason h: It is more profitable to sell 100 shirts @ $100 than 1000 shirts at $10.

Sure. It's even more profitable to sell one t-shirt at $10,000. If you can get it.

So you agree that it is DEMAND that is the determining factor, not quantity desired.

In real-life, the shopkeeper might increase the price to $12 or $15, and take preorders.

YOU DON'T KNOW THAT, UNLESS YOU KNOW THE DEMAND.

That would probably maximize his profits. Raising the price to $100 would just result in a lot of very angry shoppers and few if any sales.

You're just making that up. You're only taking your own possible psychological reaction, and pretending that others who ARE willing to pay $100, are similarly distraught. You can't do that. You can't take your own attitude and impose them on others.

If people are able and willing to spend $100 per shirt, then you can't then just say that people would not be willing to pay that price, and they get all upset, and they stop buying t-shirts.

If the shopkeeper raises his prices, and he can succeed in doing so such that former buyers of t-shirts become submarginal buyers, and the resulting buyers are able and willing to spend $100, then that is the price the shopkeeper will set. He doesn't care if his price results in some people not able and willing to buy his goods. No business owner, if he wants to survive, will sell his goods at such low prices that he incurs losses. If his prices "price out" you and your friends, then tough. He sells to make profits, which means those who are able and willing to spend $100 per t-shirt, will be his customers that he worries about.

Of course, his pursuit of profit will, almost indirectly but not quite, result in higher production, as the owner reinvests his profits from selling t-shirts at $100. He will reinvest his profits, which will allow him to produce more t-shirts, and ask a lower price given the new demand.

Sam: Completely ignores the time and cost of acquiring more t-shirts.

Seriously? You don't think the shopkeeper would order more t-shirts to meet demand? In what world?

In a world of economic scarcity. In other words, in our world, called Earth. But you'll probably redefine planet Earth to say something else if enough people redefine it as well.

Zachriel said...

-Major_Freedom: Demand in dollars, supply in goods, prices in dollars per good, these are logical necessities that have an exact correspondence with empirical reality.

Not logical necessities, but a result of market forces and human nature.

Major_Freedom: Furthermore, it is not surprising that you would believe demand curves "represent empirical reality." In fact demand curves DON'T represent empirical reality. The only thing about demand curves that represents empirical reality is the point of intersection with the supply curve.

It's quite easy to test the demand curve by changing prices and observing results.

Major_Freedom: Economics is better conveyed as a verbal system, not a mathematical symbolic system, because verbal reasoning is more encompassing and precise.

Really? Who knew?

Zachriel said...

Major_Freedom: You can't compare supply and demand. You can only compare supply offered and quantity demanded.

Yes, that's what people mean when they say "demand exceeds supply."

Major_Freedom: But the people who take partial overproduction in some markets believe that Say's law is being violated, precisely because they are not taking into account money, both in the individual markets, and in the aggregate (aggregate money spending).

Right. Because economists are not aware of the role of money in the economy.

-Major_Freedom: Demand cannot be compared to supply because demand is in money and supply is in real goods.

When someone says supply exceeds demand, they mean there is more inventory than there are orders. It's not that complicated. You can state it in quantity or in dollars, assuming a given price.

"We have a thousand widgets, but only orders for a hundred. Let's lower the price to increase demand, and reduce our orders going forward to lower our supply.

"We have a thousand dollars worth of widgets, but orders for two thousand dollars worth. We can probably increase the price. Let's also increase our supply going forward to meet the demand."

Major_Freedom: If all the kids want more t-shirts, but they are only willing to buy more t-shirts if the prices for t-shirts fall, then the company cannot increase its production of t-shirts.

But that's not the scenario. Rather, it was given that demand exceeds supply, i.e. there are more potential sales than supply. That's because of the really cool design on the t-shirts. Hot item.

Here's the scenario again: The shopkeeper has a t-shirt with a new design. He has a hundred on hand, and thinks himself optimistic. He opens the shop with the t-shirts marked at $10. A thousand people clamor for the new t-shirt.

Major_Freedom: They will not increase production unless there is an increase in demand, or they lower their costs.

The scenario was more orders than supply on hand.

Major_Freedom: I am saying that demand is defined by money spent.

Um, no. Think about it again. The shopkeepers opens his doors and a thousand people swarm in with cash in hand to buy his t-shirt with the newfangled design. The swarm represents the demand.

Major_Freedom: You're only focusing on quantity demanded, given a price, when price is not a given, but a function of demand.

The price is set by the shopkeeper. He bases it on his supplies, costs and how he hopes to maximize his profits.

Zachriel: Sure. It's even more profitable to sell one t-shirt at $10,000. If you can get it.

Major_Freedom: So you agree that it is DEMAND that is the determining factor, not quantity desired.

There is probably zero demand for $10,000 t-shirts.

Major_Freedom: YOU DON'T KNOW THAT, UNLESS YOU KNOW THE DEMAND.

Shopkeepers makes these judgments all the time.

-Major_Freedom: You're only taking your own possible psychological reaction, and pretending that others who ARE willing to pay $100, are similarly distraught.

$100 t-shirts. Remind us not to shop in any store you might open.

Major_Freedom said...

Zachriel:

-Major_Freedom: Demand in dollars, supply in goods, prices in dollars per good, these are logical necessities that have an exact correspondence with empirical reality.

Not logical necessities, but a result of market forces and human nature.

No, they are logical necessities that have correspondence with empirical reality. The meaning of logical necessities just means that we have a very firm foundation for knowing parts of empirical reality.

Major_Freedom: Furthermore, it is not surprising that you would believe demand curves "represent empirical reality." In fact demand curves DON'T represent empirical reality. The only thing about demand curves that represents empirical reality is the point of intersection with the supply curve.

It's quite easy to test the demand curve by changing prices and observing results.

False. You can't do that. Each demand curve is specific to each price. If prices change, then you get NEW demand curves.

Major_Freedom: Economics is better conveyed as a verbal system, not a mathematical symbolic system, because verbal reasoning is more encompassing and precise.

Really? Who knew?

Wow, what an empty reply.

Major_Freedom: You can't compare supply and demand. You can only compare supply offered and quantity demanded.

Yes, that's what people mean when they say "demand exceeds supply."

Not all people. Stop talking as if your definitions are how "people" define them, as if I'm not a person.

Major_Freedom: But the people who take partial overproduction in some markets believe that Say's law is being violated, precisely because they are not taking into account money, both in the individual markets, and in the aggregate (aggregate money spending).

Right. Because economists are not aware of the role of money in the economy.

Straw man. You're losing it.

Major_Freedom: Demand cannot be compared to supply because demand is in money and supply is in real goods.

When someone says supply exceeds demand, they mean there is more inventory than there are orders.

Only if by demand they mean quantity demanded.

It's not that complicated.

You can state it in quantity or in dollars, assuming a given price.

No, you can't state it in dollars GIVEN a price, because PRICE is a FUNCTION of dollars! Egads man, are you really this dense? Prices are not a given. They are determined, in part, BY demand. You can't say demand exists independently of prices. Demand in part DETERMINES prices.

"We have a thousand widgets, but only orders for a hundred. Let's lower the price to increase demand, and reduce our orders going forward to lower our supply.

No, firms cannot necessarily do that, because they could incur losses by doing so.

If firms have a thousand widgets, but orders for only one hundred, then they will reduce further investment in the production of widgets, and if necessary, sell the widgets they have to earn SOME profits, or cut their losses and lower their prices and sell at a loss.

In any event, this cannot be sustained. With a reduced investment, production declines, and that reduces supply, which then raises unit prices back up (given a demand).

Major_Freedom said...

Zachriel:

"We have a thousand dollars worth of widgets, but orders for two thousand dollars worth. We can probably increase the price. Let's also increase our supply going forward to meet the demand."

Hahaha, no, they just have to increase prices so that they can earn $2000 in revenues. If the demand is $2000, then they can sell the goods at higher prices. They can then take their profits, reinvest them, and produce more, which then reduces the prices, and reduces the profits back down.

Major_Freedom: If all the kids want more t-shirts, but they are only willing to buy more t-shirts if the prices for t-shirts fall, then the company cannot increase its production of t-shirts.

But that's not the scenario.

Yes, it is. The scenario is supply = 100.

Rather, it was given that demand exceeds supply, i.e. there are more potential sales than supply. That's because of the really cool design on the t-shirts. Hot item.

That doesn't change the context of supply being 100.

Here's the scenario again: The shopkeeper has a t-shirt with a new design. He has a hundred on hand, and thinks himself optimistic. He opens the shop with the t-shirts marked at $10. A thousand people clamor for the new t-shirt.

If he has 100 on hand, how can he sell 1000? He can't. Not immediately. Immediately, he can raise his prices to level down the quantity demanded to his supply of 100. THEN he can reinvest, and produce more t-shirts.

You continue to talk like resources are infinite. They are not. They are scarce. If the context is supply of 100, then stick to that context and don't just assume supply can be raised to 100 bajillion just because there is a larger quantity demanded, or higher demand.

Major_Freedom: They will not increase production unless there is an increase in demand, or they lower their costs.

The scenario was more orders than supply on hand.

I know. That doesn't change economic laws.

If there are more orders than supply, then the company can raise prices to level down to the quantity the company can supply.

Major_Freedom: I am saying that demand is defined by money spent.

Um, no. Think about it again.

Um no? UM NO? It's a definition! You can't tell me that definitions are "wrong."

The shopkeepers opens his doors and a thousand people swarm in with cash in hand to buy his t-shirt with the newfangled design.

You mean a thousand people swarm in with a specific demand in money terms.

Major_Freedom said...

Zachriel:


The swarm represents the demand.

No, they don't. You're fallaciously presuming that each person buys one shirt, and you're ignoring the demand in money that is being presented for t-shirts.

Major_Freedom: You're only focusing on quantity demanded, given a price, when price is not a given, but a function of demand.

The price is set by the shopkeeper. He bases it on his supplies, costs and how he hopes to maximize his profits.

Profits are a function of demand. You're again ignoring demand in money.

Zachriel: Sure. It's even more profitable to sell one t-shirt at $10,000. If you can get it.

Major_Freedom: So you agree that it is DEMAND that is the determining factor, not quantity desired.

There is probably zero demand for $10,000 t-shirts.

You don't know that UNLESS YOU KNOW THE DEMAND IN DOLLARS.

You remain ignorant and you keep having to say "may" and "probably" because you keep failing to take into account demand.

Major_Freedom: YOU DON'T KNOW THAT, UNLESS YOU KNOW THE DEMAND.

Shopkeepers makes these judgments all the time.

BASED ON DEMAND!

Major_Freedom: You're only taking your own possible psychological reaction, and pretending that others who ARE willing to pay $100, are similarly distraught.

$100 t-shirts. Remind us not to shop in any store you might open.

You see? You don't have an answer other than "but but but but I don't like it!"

I don't care about your empty psychological hangups. I have customers able and willing to pay $100 for t-shirts. That's who producers sell to. Our customers. If they want to pay $100, and I agree as well, then that's the price. Nothing what you say is remotely relevant. Just because YOU wouldn't pay that much, that doesn't mean others necessarily own't.

The principle here that you fail to comprehend is that prices are a function of demand. You seem to believe that prices are autocratic judgments from heavenly inspired dictators. As Krugman would say, but in a different context, It's demand stupid!

Zachriel said...

Major_Freedom: You remain ignorant and you keep having to say "may" and "probably" because you keep failing to take into account demand.

We say "may," because maybe Andy Warhol painted a t-shirt once in limited editions.

Major_Freedom: The principle here that you fail to comprehend is that prices are a function of demand.

Of course prices are a function of demand. We've provided a number of citations of the definition of demand. You might want to provide a concise definition of how you are using the term.

Major_Freedom: The meaning of logical necessities just means that we have a very firm foundation for knowing parts of empirical reality.

Add logical necessities to the list of things you are ignorant about.

Major_Freedom: False. You can't do that. Each demand curve is specific to each price.

Huh? Take a look. Price is the y-axis, and shows the relationship to quantity demanded.
http://upload.wikimedia.org/wikibooks/en/c/c1/DemandCurveMovementExample2.png

Vary the price and demand changes. It's easy to test. The shopkeeper puts out t-shirts for $12 and sees how many he sells. Then he puts them out for $10 and $8 to see how much sales increase. That's the demand curve.
http://upload.wikimedia.org/wikibooks/en/c/c1/DemandCurveMovementExample2.png

Major_Freedom: Wow, what an empty reply.

You actually said, "Economics is better conveyed as a verbal system, not a mathematical symbolic system, because verbal reasoning is more encompassing and precise." Most readers know that economics requires mathematics as it involves money and quantities and money.

Zachriel said...

Major_Freedom: Only if by demand they mean quantity demanded.

That's what most economists mean when they say supply exceeds demand.

Major_Freedom: No, you can't state it in dollars GIVEN a price, because PRICE is a FUNCTION of dollars!

The shopkeeper says, "We have about $1000 worth of t-shirts on hand," based on their marked price of $10 each. More particularly, there may be $10,000 worth of demand at $10 per t-shirt, but $0 at $100 per t-shirt.

Major_Freedom: Prices are not a given. They are determined, in part, BY demand. You can't say demand exists independently of prices. Demand in part DETERMINES prices.

You are confusing the model with the thing itself. Prices are set by shopkeepers and customers, buyers and sellers, all acting individually. We model this by assuming something called a "market" where as supply increases, prices tend to drop, if prices increase, supplies tend to increase, and so on.

Demand and supply are the opposite extremes of the beam, whence depend the scales of dearness and cheapness; the price is the point of equilibrium, where the momentum of the one ceases, and that of the other begins.

Zachriel said...

Zachriel: We have a thousand widgets, but only orders for a hundred. Let's lower the price to increase demand, and reduce our orders going forward to lower our supply.

Major_Freedom: No, firms cannot necessarily do that, because they could incur losses by doing so.

Firms take losses all the time. They bought the wrong widget at the wrong time perhaps. Of didn't lower their price soon enough. Most of the time, such fire sales don't incur losses, but even if it does, it is sometimes necessary to move out old products that won't sell to free up capital and to make room for the new.

Major_Freedom: If firms have a thousand widgets, but orders for only one hundred, then they will reduce further investment in the production of widgets, and if necessary, sell the widgets they have to earn SOME profits, or cut their losses and lower their prices and sell at a loss.

Yes. Of course.

Major_Freedom: Hahaha, no, they just have to increase prices so that they can earn $2000 in revenues.

The demand curve is not usually linear. Demand for $2 widgets may be negligible.

Major_Freedom: The scenario is supply = 100.

The supply *on-hand* is 100. But, as anyone including the shopkeeper knows, there are plenty more t-shirts in the world.

Major_Freedom: If he has 100 on hand, how can he sell 1000? He can't.

The shopkeeper picks up the phone, and orders more. Maybe even get them the following day. Did you really think there were only 100 t-shirts in the world? The shopkeeper can even sell pre-orders.

Major_Freedom: You continue to talk like resources are infinite.

They're not. If we were talking about millions of t-shirts, then the supply chain might become important. But it's simple example of demand. There are 100 t-shirts on hand marked at $10 each, a.k.a. supply. There are 1000 buyers with $10 cash in hand, a.k.a. demand.

As for the shopkeepers problem—a problem all shopkeepers would like to have—, the solution for maximizing profits is to increase supply as quickly as possible. Raising prices to $100 on t-shirts will almost certainly reduce his profits as the demand for $100 t-shirts is probably nil. A savvy shopkeeper might announce a new price of $12, but if you preorder, you can get the $10 price.

Major_Freedom: I am saying that demand is defined by money spent.

Then the swarm of people with money in hand are not demand. That's silly. We say the shopkeepers t-shirts are in high demand.

Major_Freedom: You mean a thousand people swarm in with a specific demand in money terms.

That's right. It's not "money spent," but the desire to buy the t-shirt at the marked price.

Zachriel: There is probably zero demand for $10,000 t-shirts.

Major_Freedom: You remain ignorant and you keep having to say "may" and "probably" because you keep failing to take into account demand.

Feel free to open up your own t-shirt shop and sell $10,000 t-shirts. Let us know what you determine.

jason h said...

The supply *on-hand* is 100. But, as anyone including the shopkeeper knows, there are plenty more t-shirts in the world.

You two are still speaking different languages. In the context of Say's Law (where this all began...) there are no more T-shirts.

As Say is speaking in Macro terms, Supply is the entire sum of goods in the market. Because everyone must bring something to exchange in the market Demand cannot exceed Supply.

i.e. If the market produces 100 widgets, then Demand cannot exceed 100 widgets. Printing money does not bring new widgets into existence, so stimulus cannot increase Demand.

Zachriel said...

jason h: You two are still speaking different languages. In the context of Say's Law (where this all began...) there are no more T-shirts.

We weren't discussing Say's Law, but just what is meant by demand. The context was a shopkeeper selling a t-shirt with a new design.

jason h: As Say is speaking in Macro terms, Supply is the entire sum of goods in the market. Because everyone must bring something to exchange in the market Demand cannot exceed Supply.

That's right. Say's Law concerns the entire market or economy. Demand requires that a desire be backed by the ability to pay, that is, it requires bringing something in exchange.

Say's Law works somewhat in a barter economy, but in a money economy, people may hoard cash. When that occurs, then there can be oversupply. Presumably, when there is a glut, prices fall; but when prices start to fall, then people hoard money even more. Why buy when the price will be lower later? People slow production, but inventories remain high. This can create a general glut. We know this is true, because it actually happens.

Essentially, money creates a flywheel effect between supply and demand, and capacitance can be built up, especially when markets are volatile. And sometimes, as history has shown, the gears of the machine can break.

jason h: Printing money does not bring new widgets into existence, so stimulus cannot increase Demand.

If the government borrows money to buy widgets, then the markets will tend to produce more widgets. The effectiveness of a stimulus then depends on the overall economic conditions. If there is excess capacity, idle workers, then it will increase overall production. If there is no excess of capacity, it will just increase inflation as government purchases compete against existing demand.

jason h said...

…just what is meant by demand…
Ok,
At time, t=t0
Demand for T-shirts @ $10/shirt = $10,000 (1,000 T-shirts)
Demand for T-shirts @$20/shirt = $8,000 (400 T-shirts)
Demand for T-shirts @$25/shirt = $2,500 (100 T-shirts)
Demand for T-shirts @$40/shirt = $800 (20 T-shirts)
Demand for T-shirts @$10,000/shirt = $0 (0 T-shirts)

jason h said...

...people may hoard cash. When that occurs, then there can be oversupply

There is no oversupply. This cash ‘hoarding’ means at the current prices, consumers prefer certain commodities over others.

Why buy when the price will be lower later?

The death spiral is a myth - debunked by the consumer electronics industry...and every other industry when normalized to a non-depreciating medium of exchange.

We know this is true, because it actually happens

Its happens, but Keynes is confused as to why.

The gears of the machine can break

The market is not a mechanical system. It is a biological system. No grease needed for traction.

If the government borrows money to buy widgets, then the markets will tend to produce more widgets.

Again, there are no more widgets. Supply is Supply. The market can only produce so much.

Besides, the market doesn't want more widgets at the current prices (this is why inventories remain high)

Zachriel said...

Zachriel: You can state {demand} in quantity or in dollars, assuming a given price.

Major_Freedom: No, you can't state it in dollars GIVEN a price, because PRICE is a FUNCTION of dollars!

jason h: Ok,
At time, t=t0
Demand for T-shirts @ $10/shirt = $10,000 (1,000 T-shirts)


Okay.

jason h: This cash ‘hoarding’ means at the current prices, consumers prefer certain commodities over others.

If you mean they prefer to keep their cash and not buy anything, then yes.

jason h: The death spiral is a myth - debunked by the consumer electronics industry...and every other industry when normalized to a non-depreciating medium of exchange.

Economies do become depressed or recessionary.

jason h: Again, there are no more widgets. Supply is Supply. The market can only produce so much.

Widgets do not represent everything produced by an economy, but a particular commodity. If the government purchases widgets, the markets will generally respond by making more widgets. Again, this distorts the economy, and you may end up with too many widgets, but you can't say it doesn't happen. When the government orders rockets or tanks, they get rockets and tanks that would otherwise never be produced.

Major_Freedom said...

Zachriel:

Major_Freedom: You remain ignorant and you keep having to say "may" and "probably" because you keep failing to take into account demand.

We say "may," because maybe Andy Warhol painted a t-shirt once in limited editions.

No, because we already said that supply is 100.

Major_Freedom: The principle here that you fail to comprehend is that prices are a function of demand.

Of course prices are a function of demand.

Of course you keep ignoring this fact.

We've provided a number of citations of the definition of demand.

I've provided citations of the definition of demand as money spent.

You might want to provide a concise definition of how you are using the term.

Two words: Money spent.

You might want to provide a concise definition of how you are using them term.

Major_Freedom: The meaning of logical necessities just means that we have a very firm foundation for knowing parts of empirical reality.

Add logical necessities to the list of things you are ignorant about.

LOL, add logical necessities to the list of things YOU are ignorant about.

Major_Freedom: False. You can't do that. Each demand curve is specific to each price.

Huh? Take a look. Price is the y-axis, and shows the relationship to quantity demanded.

THAT IS SPECIFIC TO THE GIVEN PRICE THAT IS THE INTERSECTION.

The lines that extend away from the intersection are hypothetical and not observed. There are in practise an infinite number of ways that the lines can extend out.

Add demand curves to the list of things you are ignorant about.

Vary the price and demand changes. It's easy to test.

No, you cannot test demand curves by changing the price. Each price has its own demand curve.

Major_Freedom said...

Zachriel:

The shopkeeper puts out t-shirts for $12 and sees how many he sells.

There will be a new demand curve associated with the $12 price. You cannot presume that the demand curve is true over time. EVEN IF you observe the future price and quantity demanded to actually reside on the line you drew in the past, that doesn't mean that your previous demand curve was "confirmed", for you would be making the egregious error that there exists constancies in human action. There do not. Even if you see the quantity demanded reside exactly on the line that you originally drew, that does not mean that the quantity demand "rose up or down along the demand curve." There is no "the" demand curve that is true over time and for ranges of prices. Finally, if you do the idiotic thing and over time you observe the different prices and different quantities demanded, and you try to draw a demand curve associated with those points, and then you believe you have drawn "the" demand curve associated with that good, in reality all you would have done is construct a line of past data concerning prices and quantity demanded. The CURRENT demand curve cannot be considered the same as the chart you have drawn. History is over and done with. A change in price back down to $10, and then another change in price up to $12, could result in a different change to quantity demanded than was the first result when the price changed from $10 to $12 in the past.

Then he puts them out for $10 and $8 to see how much sales increase. That's the demand curve.

No, that's history. There is no "the" demand curve that you can draw from past data and believe that in the indefinite future, every time the price change from $10 to $12, that you will get the same change in quantity demanded. Humans aren't robots who react in the same way to every same stimuli. The same change in price could have DIFFERENT responses for the same person, or the same group of people, and different stimuli can have the same responses for different people.

Major_Freedom: Wow, what an empty reply.

You actually said, "Economics is better conveyed as a verbal system, not a mathematical symbolic system, because verbal reasoning is more encompassing and precise."

I know. Your response of "Really? Who knew?" was empty.

Most readers know that economics requires mathematics as it involves money and quantities and money.

You're a follower. You just go with what most people believe.

The fact that money is in number units, doesn't mean that ECONOMIC THEORY is best explained using mathematical symbology. It is best conveyed using verbal reasoning, because mathematical symbology and equations cannot accommodate market processes. It can only be narrowly focused with final states of rest.

Major_Freedom said...

Zachriel:

Major_Freedom: Only if by demand they mean quantity demanded.

That's what most economists mean when they say supply exceeds demand.

Irrelevant. If most economists believed in the labor theory of value, then according to you we should all believe in it as well.

Major_Freedom: No, you can't state it in dollars GIVEN a price, because PRICE is a FUNCTION of dollars!

The shopkeeper says, "We have about $1000 worth of t-shirts on hand," based on their marked price of $10 each.

No. The shopkeeper takes into account the demand, and then realizes that with a demand of $10,000 he can sell a supply of 100 shirts for $10.

More particularly, there may be $10,000 worth of demand at $10 per t-shirt, but $0 at $100 per t-shirt.

More particularly, there may be $10000 in demand for t-shirts, and the quantity desired at $10 vastly outstrips his supply, and so the shopkeeper realizes that if he raises the price to $100, the quantity demanded can fall to 100, which is his supply.

Major_Freedom: Prices are not a given. They are determined, in part, BY demand. You can't say demand exists independently of prices. Demand in part DETERMINES prices.

You are confusing the model with the thing itself. Prices are set by shopkeepers and customers, buyers and sellers, all acting individually.

You are confusing reality with the wrong model. Prices of manufactured goods like t-shirts tend towards the costs of his production plus a competitive profit. If the demand rises such that the selling price goes above costs plus competitive profit, then more investments will be made in shirt production, which will increase the supply of shirts, and when supply increases, given the new demand, prices tend to fall. They will fall back down to costs plus competitive profit. Similarly, if the demand for shirts falls such that the selling price goes below costs plus competitive profit, then fewer investments will be made in shirt production, which will decrease the supply of shirts, and when supply decreases, given the new demand, prices tend to rise. They will rise back up to costs plus competitive profit. So the prices of t-shirts will tend towards costs plus competitive profit, which in the case of our example, $100 t-shirts will more than likely generate an abnormally high rate of profit, and with more investment, if tshirts can now be made for $5 each, and competitive profit (markup) is 20%, then shirts will tend to sell for $6 each, given the new demand for and the costs of producing shirts.

We model this by assuming something called a "market" where as supply increases, prices tend to drop, if prices increase, supplies tend to increase, and so on.

You keep saying "we" as if you're speaking for anyone but yourself.

And that model you just gave, REQUIRES knowing demand in money terms. You can't just pretend that a higher quantity demanded will accompany a higher demand in money, because it is possible that the higher quantity demanded hinges on the price falling, with an unchanged demand. Maybe people don't want more t-shirts unless their price falls, because they are not willing to reduce their demand for other goods.

Major_Freedom said...

Zachriel:

Demand and supply are the opposite extremes of the beam, whence depend the scales of dearness and cheapness; the price is the point of equilibrium, where the momentum of the one ceases, and that of the other begins.

http://www.landandfreedom.org/econ/econ6act.htm

Am I right? You're a high school student or teacher? Maybe in a few years when you reach at least the post high school graduate level, you will understand better. This may be beyond the scope of your abilities.

Zachriel: We have a thousand widgets, but only orders for a hundred. Let's lower the price to increase demand, and reduce our orders going forward to lower our supply.

Major_Freedom: No, firms cannot necessarily do that, because they could incur losses by doing so.

Firms take losses all the time. They bought the wrong widget at the wrong time perhaps. Of didn't lower their price soon enough. Most of the time, such fire sales don't incur losses, but even if it does, it is sometimes necessary to move out old products that won't sell to free up capital and to make room for the new.

My point was that the seller will not necessarily sell 1000 at a loss just because there is a quantity demanded at 100, and the only way that quantity demanded can rise to 1000 is if the seller reduces the selling price to, say, $0.01.

They will more than likely sell somewhat less than 1000 and somewhat more than 100, and try to break even on unit sales, and while doing that, reducing investment, and thus reducing the pipeline, which will have the effect of reducing supply in the future, which will lead to rising prices, given the new demand. Yes, they may take a loss, but they won't sell 1000 just because people say "We will buy 1000 only if you drop your price to $0.01"

Major_Freedom: If firms have a thousand widgets, but orders for only one hundred, then they will reduce further investment in the production of widgets, and if necessary, sell the widgets they have to earn SOME profits, or cut their losses and lower their prices and sell at a loss.

Yes. Of course.

In all honesty, I really don't need you to say "yes, of course" as if you're some sort of final authority. I know what I know.

Major_Freedom said...

Zachriel:

Major_Freedom: Hahaha, no, they just have to increase prices so that they can earn $2000 in revenues.

The demand curve is not usually linear. Demand for $2 widgets may be negligible.

It is not necessary to my argument that demand curves are linear. It was a possible course of action. Demand is what is given to the seller, because he can't control it. He can't just set any price he wants. He must take into account demand.

Major_Freedom: The scenario is supply = 100.

The supply *on-hand* is 100. But, as anyone including the shopkeeper knows, there are plenty more t-shirts in the world.

The shopkeeper cannot just arbitrarily increase the supply of tshirts. He must make a further investment in them. But he won't do that unless he can earn a profit, and he can't earn a profit unless the demand in money is higher enough to at least cover his costs. Again, you're ignoring demand.

Major_Freedom: If he has 100 on hand, how can he sell 1000? He can't.

The shopkeeper picks up the phone, and orders more.

With what money? You're assuming the shopkeeper has as many resources as is necessary to accommodate any potential increase in quantity demanded. How can he increase supply to 10 million if he gets a phone call saying "I want to order 10 million shirts at $2 each?" How can he satisfy this order if he doesn't have (10 million x $5 cost) in capital?

Major_Freedom said...

Zachriel:

Maybe even get them the following day. Did you really think there were only 100 t-shirts in the world? The shopkeeper can even sell pre-orders.

The point of saying supply is 100 is to identify a given state of the world of tshirts you slow-poke. Whatever number of tshirts you think is on hand, THAT is the "100 supply". Let's say the supply of tshirts in the world is 100 million. OK, like a high school student does, why don't you "plug 100 million into the equation" and "figure out" what the price will be given the demand? Once you do that, THEN ask how can sellers accommodate 1 trillion quantity demanded at $2 if they, at this point in time, given the state of labor and technology, produce and sell only 100 million?

Should the sellers make phone calls to Santa Clause?

You're ignoring resource scarcity, and the fact that the desire for wealth always outstrips the ability to produce it!

Major_Freedom: You continue to talk like resources are infinite.

They're not. If we were talking about millions of t-shirts, then the supply chain might become important. But it's simple example of demand. There are 100 t-shirts on hand marked at $10 each, a.k.a. supply. There are 1000 buyers with $10 cash in hand, a.k.a. demand.

[Facepalm] There is nothing special about using 100 t-shirts. It's not meant to represent empirical reality. It is a number that is used as an example that represents what sellers are able to produce, given the state of labor productivity, technology, and demand for t-shirts (as well as other subsidiary factors like competitive rate of profit, and elasticity).

The 100 tshirts is not meant to be an accurate representation of how many tshirts are in the world today, such that you cannot help but believe "You mean supply is only 100 in your example? Phsaw, there are far more t-shirts in the world than 100!"

No Zachriel, the supply of 100 t-shirts represents what the sellers of t-shirts are able and willing to produce, given the demand for t-shirts, given the state of the world. Yes, it's hard to think abstractly, isn't it? But please try. I know you can do it.

As for the shopkeepers problem—a problem all shopkeepers would like to have—, the solution for maximizing profits is to increase supply as quickly as possible.

That won't increase the rate of profit, which is what investors use to decide whether it is worth investing in more t-shirts, unless the increase in quantity demanded is ACCOMPANIED BY either an increase in demand in the money sense, or a decrease in costs which is founded upon improvement in productivity and efficiency.

If the quantity demanded will rise ONLY on a foundation of lower prices, then the shopkeeper WILL NOT necessarily invest in more t-shirts and then sell more t-shirts, because that will incur him losses. If the demand is a given, then only if he can cut his costs, can he sell more t-shirts at the lower prices.

Major_Freedom said...

Zachriel:

Raising prices to $100 on t-shirts will almost certainly reduce his profits as the demand for $100 t-shirts is probably nil.

You see that again? "Will almost certainly" is another way of saying "I'm too dense to take into account demand in money, so I will try to base my argument on "may", "probably" and "almost certainly"'s.

You can't say that raising the price to $100 will reduce his profits, not unless you know the demand for t-shirts, for demand in part DETERMINES prices. The price doesn't determine demand. Demand determines prices. You have economic law backwards.

A savvy shopkeeper might announce a new price of $12, but if you preorder, you can get the $10 price.

Hahaha. Oh yeah, it's real "savvy" to do what many sellers are already doing. No, "savvy" would be to do what few or no other sellers are doing.

Major_Freedom: I am saying that demand is defined by money spent.

Then the swarm of people with money in hand are not demand.

That's correct. The people are not demand. The people are people who put forth a demand.

That's silly.

You're silly. You're silly for calling the people "demand". What, are you saying people are presenting themselves for sale? Are they presenting a want for sale? No, they are only presenting their dollars for sale.

We say the shopkeepers t-shirts are in high demand.

There you go with that "we" again as if you consider yourself some spokesperson.

No, YOU say that the shopkeepers' t-shirts are in high demand. I don't say that the t-shirts are in "high demand". I say "There is a demand for t-shirts, in money. The quantity demanded will tend to rise and fall according to price, which itself is a function of demand." Yes, this is a way of thinking that is oh so complicated because it requires you to hold at least two concepts in your mind at the same time. You seem to be cognitively unable to do so.

Your thinking is not that of an economist, but that of a buyer who has very simplistic decision criteria: "$10 for t-shirts? Want more t-shirts! Too many people want t-shirts and t-shirt price might rise to $12. Oh no, better pre-order one $10. If people want more t-shirts, that mean seller can make phone call to Santa, and he order more."

Major_Freedom: You mean a thousand people swarm in with a specific demand in money terms.

That's right. It's not "money spent," but the desire to buy the t-shirt at the marked price.

That's money spending! Buyers aren't selling their desires. They are selling their dollars!

Major_Freedom said...

Zachriel:

Zachriel: There is probably zero demand for $10,000 t-shirts.

Major_Freedom: You remain ignorant and you keep having to say "may" and "probably" because you keep failing to take into account demand.

Feel free to open up your own t-shirt shop and sell $10,000 t-shirts. Let us know what you determine.

There you go again, appealing to ignorance and treating the $10,000 as if it were somehow an empirical argument about actual t-shirts, instead of being a concept in economic reasoning.

We are not talking what you believe the price of actual real life t-shirts "should be". Everything is based on specific economic factors.

I am saying you can't say that more or less people will buy t-shirts for $10,000 just because if you compare that price to real world prices, there is a disconnect. I am thinking and arguing over principles, not specific dollar amounts. Please try to keep up.

jason h: You two are still speaking different languages. In the context of Say's Law (where this all began...) there are no more T-shirts.

We weren't discussing Say's Law, but just what is meant by demand. The context was a shopkeeper selling a t-shirt with a new design.

THE CONTEXT IS SAY'S LAW.

jason h: As Say is speaking in Macro terms, Supply is the entire sum of goods in the market. Because everyone must bring something to exchange in the market Demand cannot exceed Supply.

That's right. Say's Law concerns the entire market or economy. Demand requires that a desire be backed by the ability to pay, that is, it requires bringing something in exchange.

Do you see yet how in a money based economy, you have to take into account money in order to understand this? "The ability to pay" is in dollars, which is an indirect way that goods are exchanged for other goods.

Say's Law works somewhat in a barter economy, but in a money economy, people may hoard cash. When that occurs, then there can be oversupply. Presumably, when there is a glut, prices fall; but when prices start to fall, then people hoard money even more. Why buy when the price will be lower later? People slow production, but inventories remain high. This can create a general glut. We know this is true, because it actually happens.

Oh no WONDER you're confused! You adhere to vulgar Keynesianism. You just shat on Say's law by claiming that general overproduction is possible. No, it is not possible. No general glut is possible. No, it doesn't happen. Even in the greatest depths of a depression, there is a positive demand for goods, and there is a temporary desire for more goods than can be produced. In the greatest depths of a depression, people still want more than what can be produced, but the problem is that prices are still too high. If the prospect of falling prices does accompany people delaying their spending, but they still spend and invest, then that will only speed up the adjustment of prices, because it will make prices fall even more. At some point, people will realize, given supply and demand, that prices won't fall by much any more. At that point, they won't bid and ask lower prices. Prices will level off.

Furthermore, if people do "delay" spending money if they expect prices to be lower in the future, they won't wait indefinitely. The gradual fall in electronics, even though it is nevertheless a thriving business, shows that people do bite the bullet and pay the currently higher prices despite expecting prices to fall.

If people try to hold more money, then what they are looking for is more purchasing power, which they would get if the government didn't respond to increases in money demand by printing and spending money, because moron Keynesians advised them to.

Major_Freedom said...

Zachriel:

Essentially, money creates a flywheel effect between supply and demand, and capacitance can be built up, especially when markets are volatile. And sometimes, as history has shown, the gears of the machine can break.

No, there can not be a general overproduction! When inventory builds up in a depression caused by past credit expansion, these represent malinvestments. They should not have been produced. People want wealth, they just didn't want what is now accumulated in inventory. They wanted something else or they wanted the same thing but at a different time, given their time preference and temporal desire for goods.

You are so confused because you can't think economically. You think like a neoKeynesian.

jason h: Printing money does not bring new widgets into existence, so stimulus cannot increase Demand.

If the government borrows money to buy widgets, then the markets will tend to produce more widgets.

FALSE. FALSE FALSE FALSE. If the government borrows money, that means the market isn't investing those savings in some productive process. The government spends that money, and they can only REDIRECT existing productions away from where the market wants resources to go, to where the government wants them. You are ignoring opportunity costs and economic scarcity yet again!

Sure, you may SEE that the government's spending "stimulates" missile production and spy equipment production, and children indoctrination camp production, but that doesn't mean the market is producing more widgets. It just means the market is producing less widgets than the sovereign consumer wants, and more widgets that the government wants.

Yes, this is true EVEN IF investors purposefully lend to the government. Without inflation, if lenders kept lending to the government, then the government will have to reduce its spending elsewhere, to cover the growing interest payments to bondholders. At some point, the government cannot borrow more or else it will go bankrupt. At that point, the only other way for the government to acquire funds would be direct taxation. In both these cases, borrowing or taxing, the government is not facilitating the production of more widgets in general. They are facilitating the production of more specific widgets at the expense of the market not producing other widgets.

RESOURCES ARE SCARCE.

Major_Freedom said...

Zachriel:

The effectiveness of a stimulus then depends on the overall economic conditions.

Stimulus is not "effective". It is "ineffective". It cannot help economies. It can only enrich some people at the expense of others. You're ignoring the fact that stimulus must be paid for. And with stimulus, there are always net winners and net losers. There can be no general improvement.

If there is excess capacity, idle workers, then it will increase overall production. If there is no excess of capacity, it will just increase inflation as government purchases compete against existing demand.

False. You are ignoring the fact that printing and spending money cannot ONLY "target" idle resources and unemployment. All resources and all labor have complimentary factors and complimentary labor associated with them, and this means that there are currently used resources and currently employed labor that is affected, both in price and in terms of allocation.

You are also ignoring WHY there are idle resources and WHY there is unemployment in the first place. If the consumer's desires want idle resources and unemployed people to be put in places other than where they were just moments before they went idle and unemployed, then the government printing and spending money will result in OVERRULING the consumers, and put those resources and labor towards projects that don't match consumer preferences, but rather the government's preferences.

You cannot say that printing and spending money increases overall production. For example, if the government caused an economic crash and put millions of people out of work and leave the market with incredible amounts of idle resources, then there cannot be a "general increase in production" if the government printed and spent money, either to put all those resources and all those unemployed people to building up a weapons arsenal for world war 3, or to put those resources and labor towards something else that the sovereign consumers don't want, for example more bridges to nowhere and more banks helmed by corrupt people, or anything else. No, you cannot claim that the government creates value if they spend money on roads that people end up using, or schools they end up attending. You can't say this because you would be overruling the consumer's desires and replacing them with your own, or the majority's, or whatever. Whatever basis of that value judgment, it will necessarily require victims to be exploited.

Zachriel: You can state {demand} in quantity or in dollars, assuming a given price.

Major_Freedom: No, you can't state it in dollars GIVEN a price, because PRICE is a FUNCTION of dollars!

jason h: Ok,

At time, t=t0

Demand for T-shirts @ $10/shirt = $10,000 (1,000 T-shirts)

Okay.

FINALLY! He gets it.

Major_Freedom said...

Zachriel:


jason h: This cash ‘hoarding’ means at the current prices, consumers prefer certain commodities over others.

If you mean they prefer to keep their cash and not buy anything, then yes.

No, that's impossible. People cannot raise their cash preference to infinity. They'd die! Not buy anything? Never has that happened in history. People MUST consume if they are to even live, let alone live prosperous lives. Since people will consume at some level, that means there is a need to produce and thus invest. At low enough prices, ANY spending of money can be grounds for being able to buy up all labor and all resources.

Why do you even propose such a stupid thing as people not buying anything?

jason h: The death spiral is a myth - debunked by the consumer electronics industry...and every other industry when normalized to a non-depreciating medium of exchange.

Economies do become depressed or recessionary.

You completely missed jason h's point. He isn't denying that economies become depressed. He is saying that you, and the rest of Keynes' followers, DON'T KNOW WHY.

jason h: Again, there are no more widgets. Supply is Supply. The market can only produce so much.

Widgets do not represent everything produced by an economy, but a particular commodity.

Again you missed his point. You said that the government's borrowing can result in the economy's producers selling MORE widgets. But that is impossible. The economy can only produce what it can produce, and the government's printing and spending can only redirect the economy's ability to produce, to reduce the production of some things and increase the production of other things.

Resources are scarce. Government borrowing money means that borrowers in the market aren't borrowing that money. Even if you see a pile of money not being loaned out, that doesn't mean that the government can increase general productivity by borrowing from it. The government isn't an investor. They are a spender. They don't produce real goods and services that people want. They can only take people's money, and then give back what people would otherwise not have wanted. If the government borrows, then they must take people's money to pay the interest. This follows from the fact that taxation is coercive and not voluntary. Sure, some people might support the government doing this, but they can never claim that their values overrules the values of those who would otherwise not pay the government if they had the choice. There are always winners and losers with government activity. With market activity, both sides expect to benefit, not just one.

If the government purchases widgets, the markets will generally respond by making more widgets.

At the expense of reducing the production of other widgets.

Again, this distorts the economy, and you may end up with too many widgets, but you can't say it doesn't happen.

jason h isn't saying that government cannot bring into existence more missiles and tanks with its spending. He denies your claim that this is a general increase in production, instead of what it really is, which is a redirection of resources.

When the government orders rockets or tanks, they get rockets and tanks that would otherwise never be produced.

At the expense of other goods that could have been produced in the market, using those resources and labor for civilian goods that actually improve people's standard of living, including, of course, civilian weapons.

Major_Freedom said...

Amendment:

"Oh no WONDER you're confused! You adhere to vulgar Keynesianism. You just shat on Say's law by claiming that general overproduction is possible. No, it is not possible. No general glut is possible. No, it doesn't happen. Even in the greatest depths of a depression, there is a positive demand for goods, and there is a temporary desire for more goods than can be produced. In the greatest depths of a depression, people still want more than what can be produced, but the problem is that prices are still too high. If the prospect of falling prices does accompany people delaying their spending, but they still spend and invest, then that will only speed up the adjustment of prices, because it will make prices fall even more. At some point, people will realize, given supply and demand, that prices won't fall by much any more. At that point, they won't bid and ask lower prices. Prices will level off."

Should read

"Oh no WONDER you're confused! You adhere to vulgar Keynesianism. You just shat on Say's law by claiming that general overproduction is possible. No, it is not possible. No general glut is possible. No, it doesn't happen. Even in the greatest depths of a depression, there is a positive demand for goods, and there is a temporary desire for more goods than can be produced. In the greatest depths of a depression, people still want more than what can be produced, but the problem is that prices are still too high, and people want more of other things (that which is underproduced), and less of that which is now in a state of overproduction. Even with inventory piling up everywhere, it means partial relative overproduction of inventory, and partial relative underproduction of other things like capacity, or services, or whatever. If the prospect of falling prices does accompany people delaying their spending, but they still spend and invest, then that will only speed up the adjustment of prices, because it will make prices fall even more. At some point, people will realize, given supply and demand, that prices won't fall by much any more. At that point, they won't bid and ask lower prices. Prices will level off."

Zachriel said...

Major_Freedom: No, because we already said that supply is 100.

Yes. The scenario is a shopkeeper with 100 t-shirts with a new design marked at $10. There are 1000 people each with $10 wanting to buy one of the t-shirts.

Zachriel: Of course prices are a function of demand.

Major_Freedom: Of course you keep ignoring this fact.

No. We have repeatedly stated the relationship. Jason h even provided us a table of the relationship. If you graph it, it makes the demand curve.

Major_Freedom: I've provided citations of the definition of demand as money spent.

You used the term "money spent" sixteen times. Nowhere do we see a cited definition using that term. It would be helpful if you provided an actual definition as used by an economist, just so we can use the term consistently.

Major_Freedom: The meaning of logical necessities just means that we have a very firm foundation for knowing parts of empirical reality.

If p then q
~q
therefore ~p

The conclusion follows from the premises regardless of the values of p and q. It's a logical necessity.

Zachriel: Huh? Take a look. Price is the y-axis, and shows the relationship to quantity demanded.
http://upload.wikimedia.org/wikibooks/en/c/c1/DemandCurveMovementExample2.png


Major_Freedom: THAT IS SPECIFIC TO THE GIVEN PRICE THAT IS THE INTERSECTION. The lines that extend away from the intersection are hypothetical and not observed. There are in practise an infinite number of ways that the lines can extend out.

Anyone reading this knows that a shopkeeper can experiment with price to determine the quantity demanded at each price, then graph it as in the demand curve. It's very simple and done all the time.

Major_Freedom: No, you cannot test demand curves by changing the price. Each price has its own demand curve.

That makes no sense as one of the axis is price, which varies. Graph this data.

T-shirts @ $10/shirt = 1,000 T-shirts
T-shirts @$20/shirt = 400 T-shirts
T-shirts @$25/shirt = 100 T-shirts
T-shirts @$40/shirt = 20 T-shirts
T-shirts @$10,000/shirt = 0 T-shirts

Guess what you get? A demand curve.

"A movement along the demand curve occurs when the quantity demanded changes as a result of a change in the price of the good." — Economics, John B. Taylor, Akila Weerapana

Major_Freedom: Irrelevant.

Of course it's relevant. Word usage is determined by convention. Just because you like to call a tail a leg doesn't make it so.

Major_Freedom: More particularly, there may be $10000 in demand for t-shirts, and the quantity desired at $10 vastly outstrips his supply, and so the shopkeeper realizes that if he raises the price to $100, the quantity demanded can fall to 100, which is his supply.

Seriously, if you think you can sell $10 t-shirts for $100, go for it. Next week, save yourself some trouble, and only order one t-shirt and sell it for $10,000.

Zachriel said...

Zachriel: "Demand and supply are the opposite extremes of the beam, whence depend the scales of dearness and cheapness; the price is the point of equilibrium, where the momentum of the one ceases, and that of the other begins."

Major_Freedom: Am I right? You're a high school student or teacher?

Um, no. That was a quote from Jean-Baptist Say's Treatise on Political Economy. We quoted it along with several other sections above. You might remember this, which we cited right after you said you can't compare supply and demand.

Say: A large arrival and immediate sale of foreign articles all at once, lowers their price, by the relative excess of supply above demand.

Major_Freedom: The shopkeeper cannot just arbitrarily increase the supply of tshirts.

We are quite certain that 100 t-shirts isn't causing a strain on the t-shirt pipeline.

Major_Freedom: He must make a further investment in them. But he won't do that unless he can earn a profit, and he can't earn a profit unless the demand in money is higher enough to at least cover his costs.

We know that already, because the shopkeeper optimistically priced the 100 t-shirts at $10.

Major_Freedom: With what money?

Gee whiz. He just sold 100 t-shirts, and pre-orders for hundreds more.

Major_Freedom: The point of saying supply is 100 is to identify a given state of the world of tshirts you slow-poke.

Um, when we posed the scenario, we spoke of a shopkeeper selling a few t-shirts with a new design. We started this discussion because you said you can't compare supply and demand, as in supply exceeds demand. Then you said you were using the term in the exact same sense as Jean-Baptist Say. Then we showed you where Say directly compared supply and demand.

Major_Freedom: I don't say that the t-shirts are in "high demand". I say "There is a demand for t-shirts, in money.

Money: "Apple's iPad and iPhone are in high demand."

Of course it's in money!!

Major_Freedom: In the greatest depths of a depression, people still want more than what can be produced, but the problem is that prices are still too high.

During the Great Depression, far more could have been produced, but a quarter of the workforce was idled. Priced dropped precipitously.

Major_Freedom: At some point, people will realize, given supply and demand, that prices won't fall by much any more.

In a healthy economy, that's the normal tug-and-pull of market forces. But in the Depression, it took years. You can say the market will correct itself, but people have to eat every day, or you end up destroying the very productive capabilities of the economy—its people.

Major_Freedom: No, there can not be a general overproduction!

So, there CAN'T be general overproduction.

Major_Freedom: When inventory builds up in a depression caused by past credit expansion, these represent malinvestments. They should not have been produced.

So there CAN be general overproduction.

Major_Freedom: If the government borrows money, that means the market isn't investing those savings in some productive process.

That depends. If the markets are healthy, then government borrowing will compete against the private sector, leading to increased interest rates. But if money is idle, then government borrowing will not compete against the private sector. In either case, there will tend to be an increase in widget production.

Major_Freedom: Sure, you may SEE that the government's spending "stimulates" missile production ...

That's right. Government spending will cause the increase in production of widgets, or rockets.

Major_Freedom said...

Zachriel:

Major_Freedom: No, because we already said that supply is 100.

Yes. The scenario is a shopkeeper with 100 t-shirts with a new design marked at $10. There are 1000 people each with $10 wanting to buy one of the t-shirts.

Yes, the shopkeeper cannot just increase his supply and sale of t-shirts just because 1000 people want 1000 of them.

Zachriel: Of course prices are a function of demand.

Major_Freedom: Of course you keep ignoring this fact.

No. We have repeatedly stated the relationship.

False, you have repeatedly ignored the relationship, and only reluctantly conceded it after being prompted. But you're not using it in your own, unprompted assertions.

And again, who's this "we" that you are claiming to speak for?

Jason h even provided us a table of the relationship. If you graph it, it makes the demand curve.

Every point on that line will be hypothetical, except for the intersection of that curve with the supply curve, i.e. the price.

The table that jason h provided is one that shows price as a function of various demands.

Major_Freedom said...

Zachriel:

Major_Freedom: I've provided citations of the definition of demand as money spent.

You used the term "money spent" sixteen times.

Glad you'r counting.

Nowhere do we see a cited definition using that term.

I've already provided a citation of John E. Cairnes, which you read and agreed that he defined demand as money spent.

It would be helpful if you provided an actual definition as used by an economist, just so we can use the term consistently.

I have provided the definition of demand. You have been antagonistic towards it. How can you possibly tell me it would be helpful if I provided you with a definition of demand, as if I haven't done so already at least 16 times, which you yourself even counted?

You're not making any sense.

Major_Freedom: The meaning of logical necessities just means that we have a very firm foundation for knowing parts of empirical reality.

If p then q

~q

therefore ~p

The conclusion follows from the premises regardless of the values of p and q. It's a logical necessity.

Do you even know WHY that conclusion follows from the premises? It's because the relationships between predicates and subjects are derived ultimately from empirical reality. Our minds know logic because our minds are a part of empirical reality. It is because reality itself is logical that our ability to use logic is an ability to know empirical reality. If we can understand and know a logical necessity, and trace that reasoning back to a rationalist epistemology, then logical necessity is the same thing as knowing something true about empirical reality.

Zachriel: Huh? Take a look. Price is the y-axis, and shows the relationship to quantity demanded.

Every point on that chart is hypothetical except for the point of intersection, where we can observe price that is a function of supply and demand.

Major_Freedom: THAT IS SPECIFIC TO THE GIVEN PRICE THAT IS THE INTERSECTION. The lines that extend away from the intersection are hypothetical and not observed. There are in practise an infinite number of ways that the lines can extend out.

Anyone reading this knows that a shopkeeper can experiment with price to determine the quantity demanded at each price, then graph it as in the demand curve.

That's an argumentative fallacy. That's called ad populum.

You don't speak for "anybody."

And if a shopkeeper experiments with changing his price, and each price is associated with a particular demand and supply, then he is not creating a demand curve that applies to anything except the past. He is not creating a demand curve. He is creating a whole series of points of price, and each price has practically infinite hypothetical slopes and shapes of demand curves running through those points over time.

He is not "moving up and down "THE" demand curve." There is no "the" demand curve that applies to the past, present, and future. The only thing he will be doing is plotting a chart of past price, supply, and demand relationships. He is constructing history of points. CONNECTING those past data points is a sloppy and lazy minded arrogance that has no reality. The only reality are the intersection points. The space in between those points is not real. It would be like 100 people standing side by side, elbow to elbow, and then you "graph" them by drawing a series of points that represent their spatial locations, then you CONNECT those lines together by drawing a line, as if the line segments between each point has some reality associated with it.

Major_Freedom said...

Zachriel:

It's very simple and done all the time.

It's simple yes, but it's also simple minded. That's why it's done all the time by so many people. But they are all wrong if they argue that they are creating "the" demand curve. Any seller who believes past supply and demand data somehow proves something about the future supply and demand, according to some constancy assumption, are the same morons who got burned in the housing bubble.


Major_Freedom: No, you cannot test demand curves by changing the price. Each price has its own demand curve.

That makes no sense as one of the axis is price, which varies. Graph this data.

Just because you can draw a graph, with an axis as price, that doesn't mean you're doing economics.

T-shirts @ $10/shirt = 1,000 T-shirts

T-shirts @$20/shirt = 400 T-shirts

T-shirts @$25/shirt = 100 T-shirts

T-shirts @$40/shirt = 20 T-shirts

T-shirts @$10,000/shirt = 0 T-shirts

Have these prices actually been paid in the past? If so, then all you would be doing by graphing them is plotting a series of points on paper that represent history. That is not economics. That is historical data gathering. It's book keeping. It's not economic reasoning.

Guess what you get? A demand curve.

Who cares? I am not denying the fact that people can draw demand curves. You're not understanding the argument that is being presented to you. You see me critique your understanding of demand curves, and you believe I am somehow denying the fact that you can make them. You're so dense.

"A movement along the demand curve occurs when the quantity demanded changes as a result of a change in the price of the good." — Economics, John B. Taylor, Akila Weerapana

John B. Taylor is wrong. There is no "the" demand curve.

Major_Freedom said...

Zachriel:

Major_Freedom: Irrelevant.

Of course it's relevant. Word usage is determined by convention.

No, it's irrelevant, because it has no bearing on the problems you are experiencing.

Just because you like to call a tail a leg doesn't make it so.

If I define the appendage that grows from the tail bone of animals "legs", then you can't say I am wrong.

You are conflating definitions and meanings.

Major_Freedom: More particularly, there may be $10000 in demand for t-shirts, and the quantity desired at $10 vastly outstrips his supply, and so the shopkeeper realizes that if he raises the price to $100, the quantity demanded can fall to 100, which is his supply.

Seriously, if you think you can sell $10 t-shirts for $100, go for it.

Seriously, if you refuse to read my arguments, then there is no hope for you. AGAIN, for the second time, I AM NOT SAYING THAT $100 REPRESENTS ACTUAL PRICES IN THE REAL WORLD. The $100 is an argument of principle. You're so confused. That $100 can be $25. It doesn't matter. What matters is the principles involved here.

Stop treating my arguments of principle as if I am trying to guess what real world prices of t-shirts are. I mean, you used the concept "widgets." I would be muddleheaded like you if I said in response "Oh yeah? See if anyone will buy your "widgets." I mean, what's a "widget"? Nobody buys "widgets." If you are selling "widgets", then I wouldn't buy any of them. Good luck selling 100 "widgets" in the real world, where people actually buy t-shirts and cars!"

Then you'll probably say "Widgets is just a placeholder for goods."

Then I will say "I KNOW, and $100 is the SAME TYPE OF PLACEHOLDER for a particular price that could in the real world would have an actual price."

If you can't think abstractly, and in principle, then you will never understand economics, and you'll be limited to high school graphs that are based on past historical data, which you conflate with revealing economic principles.

Next week, save yourself some trouble, and only order one t-shirt and sell it for $10,000.

Next week, try to understand the principles behind arguments, instead of getting your mind all messed up by believing that when I say $100, I don't mean that t-shirts in the real world can actually go that high. It's an argument of principle to show you the processes involved. Big numbers are needed for small minds.

Zachriel: "Demand and supply are the opposite extremes of the beam, whence depend the scales of dearness and cheapness; the price is the point of equilibrium, where the momentum of the one ceases, and that of the other begins."

Major_Freedom said...

Zachriel:

We quoted it along with several other sections above.

You might remember this, which we cited right after you said you can't compare supply and demand.

Who is this "we" you keep referring to?

And yes, you can't say supply exceeds demand because they are of different units. One is in goods, the other is in money.

You can say that quantity supplies exceeds quantity demanded.

Say: A large arrival and immediate sale of foreign articles all at once, lowers their price, by the relative excess of supply above demand.

Cairnes:

"I define demand as money expended."

Major_Freedom: The shopkeeper cannot just arbitrarily increase the supply of tshirts.

We are quite certain that 100 t-shirts isn't causing a strain on the t-shirt pipeline.

Again, who is this "we" you keep talking about?

And again, the 100 is quantity of supply that is the example. It is not meant to represent empirical reality. Since you're clearly unable to think abstractly, just pretend that the 100 t-shirts is really 100 million t-shirts. The same principle arguments I am making will apply.

Major_Freedom: He must make a further investment in them. But he won't do that unless he can earn a profit, and he can't earn a profit unless the demand in money is higher enough to at least cover his costs.

We know that already, because the shopkeeper optimistically priced the 100 t-shirts at $10.

No, you don't know that already. Making more investments will increase production, and increased supply will, given a demand, lower the price. That could result in price falling below costs.

You can't just claim to know that profits are certain. Profits are uncertain. They are based in part on expected demand in the future.

Major_Freedom said...

Zachriel:


Major_Freedom: With what money?

Gee whiz. He just sold 100 t-shirts, and pre-orders for hundreds more.

Holy crap. Now you're ignoring the fact that someone must have already made investments in t-shirt production to make them available to be bought by the retailer.

But you can't make that assumption, because in the market, the supply offered at a given time is a function of expected sales. Who said there are t-shirts even available if people pre-order them? Just because someone says "I want to buy more t-shirts", that doesn't mean that the sellers can go ahead and sell that many more. Again, you're ignoring economic scarcity.

Major_Freedom: The point of saying supply is 100 is to identify a given state of the world of tshirts you slow-poke.

Um, when we posed the scenario, we spoke of a shopkeeper selling a few t-shirts with a new design. We started this discussion because you said you can't compare supply and demand, as in supply exceeds demand.

What is this red herring nonsense? This isn't a proper response.

I said that the supply is 100. That is the context. It is not meant to be an argument about how many t-shirts are in the actual world. It is an abstraction.

And again, who is this "we" you keep talking about? I am hearing what you are saying, and yet you keep saying "we". Are you Moorla the ancient one?

Then you said you were using the term in the exact same sense as Jean-Baptist Say. Then we showed you where Say directly compared supply and demand.

I've already provided quotes from Say that show him using demand in the money sense.

Major_Freedom: I don't say that the t-shirts are in "high demand". I say "There is a demand for t-shirts, in money.

Money: "Apple's iPad and iPhone are in high demand."

Cash: "Apple's iPad and iPhone have a specific demand, in money."

Of course it's in money!!

Now you're defining demand as money, and not quantity desired? LOL, that's too funny!

Major_Freedom: In the greatest depths of a depression, people still want more than what can be produced, but the problem is that prices are still too high.

During the Great Depression, far more could have been produced, but a quarter of the workforce was idled. Priced dropped precipitously.

You're missing the point. The point is even if there were no unemployed people, then people would still want more than what can be produced. The problem is that prices are too high, which is due to there being a scarcity of real capital, which is ultimately due to economic scarcity.

Major_Freedom: At some point, people will realize, given supply and demand, that prices won't fall by much any more.

In a healthy economy, that's the normal tug-and-pull of market forces. But in the Depression, it took years.

It took years because of government intervention. In the 1920 depression, it took just under a year for the economy to be healed after the inflation that was used to finance WW1.

You can say the market will correct itself, but people have to eat every day, or you end up destroying the very productive capabilities of the economy—its people.

That's my point. It is precisely because people need to eat, that consumption and investing take place, which means your assertion that people will not buy anything and hold onto all their cash, was just plain ignorant.

Major_Freedom said...

Zachriel:


Major_Freedom: No, there can not be a general overproduction!

So, there CAN'T be general overproduction.

So, "can't" is an abbreviation of "can not."

So, that reply you made adds nothing.

Major_Freedom: When inventory builds up in a depression caused by past credit expansion, these represent malinvestments. They should not have been produced.

So there CAN be general overproduction.

False. Inventory is not everything! Good lord!

Inventory is only a portion of the totality of wealth in the economy.

Are you actually claiming that the computers in offices, the machines in factories, the mines across the world, all these things are inventory?

Inventory overproduction is not general overproduction. It is partial relative overproduction of inventory, which means partial relative underproduction of everything else.

You see, your problem is that you don't think like an economist. You think like a simple minded shopper at Wal-Mart.

Companies can add too much to their inventory, and not enough to their capacity for future production of inventory. Too much inventory is not general overproduction.

Major_Freedom: If the government borrows money, that means the market isn't investing those savings in some productive process.

That depends. If the markets are healthy, then government borrowing will compete against the private sector, leading to increased interest rates. But if money is idle, then government borrowing will not compete against the private sector.

False. Even in a depressed, lowest most miserable economy ever, government borrowing will necessarily generate net losses to some people and net gains to other people.

In either case, there will tend to be an increase in widget production.

False. There will be an increase in production of SOME goods, namely, what the government wants, and a corresponding reduction in production of OTHER goods, namely, what the sovereign consumer wants.

This is universally true. It doesn't matter whether the economy is viewed by you as "healthy" and when it is viewed by you as "unhealthy."

Aside from those errors, there is the simply fact that you don't even have a clear understanding of when economies are healthy and when they are not. At what point EXACTLY does an economy go from "healthy" to "unhealthy"?

Anything you say will be necessarily subjective and devoid of economic logic, which means your belief that government borrowing is productive some of the time, that is, when you believe the economy is in depression, and not productive other times, that is, when you believe the economy is not in depression, these judgments make your claim backed by nothing except your subjective whims. There is no ultimate objective basis to your assertion. It is sloppy.

Major_Freedom: Sure, you may SEE that the government's spending "stimulates" missile production ...

That's right. Government spending will cause the increase in production of widgets, or rockets.


AT THE EXPENSE OF CIVILIAN GOODS.

Resources are scarce.

Resources are scarce.

Resources are scarce.

Resources are scarce.

Resources are scarce.

Repeat that 32 times in a row. You keep ignoring this fact.

"Oh but I know resources are scarce, I just ignore it and contradict it when I make my claims, and when you ask me, I'll say yes resources are scarce. That way, I can say something wrong, and still be right."

Major_Freedom said...

Zachriel:

You can say the market will correct itself, but people have to eat every day, or you end up destroying the very productive capabilities of the economy—its people.

It is precisely because the government screwed the economy up with cheap money and spending money that doesn't represent the values of real people, that so many people became unemployed.

You're speaking as if the government HELPS the poor. That's hilarious. The poor are the most harmed by government intervention.

Government isn't your mommy and daddy. They are men with guns. That's it. They can't help the poor. They can only use violence to protect the poor from violence. Everything else they do is an initiation of violence, by either harming the poor directly, or harming them indirectly by harming the people who can help the poor in the market.

Zachriel said...

Major_Freedom: Yes, the shopkeeper cannot just increase his supply and sale of t-shirts just because 1000 people want 1000 of them.

We chose a small quantity of t-shirts and a local shopkeeper simply because people know the supply chain is not constrained by his activity.

Major_Freedom: False, you have repeatedly ignored the relationship {prices are a function of demand}, and only reluctantly conceded it after being prompted. But you're not using it in your own, unprompted assertions.

Zachriel (five days ago): So as people demand more widgets (quantity), the price of widgets tends to increase.

Zachriel (three days ago): "Relative value rises in direct ratio to the demand, and inverse ratio to the supply."

Zachriel (two days ago): By taking into account the relationship between demand, supply and price.

And so on. You're just not listening.

Major_Freedom: I've provided citations of the definition of demand as money spent.

We'd like to see the citation defining the term demand as "money spent." We've asked several times now.

Major_Freedom: Every point on that line will be hypothetical, except for the intersection of that curve with the supply curve, i.e. the price.

You're still confusing the model with the thing itself. The model attempts to predict the aggregate behavior of markets, but prices are in fact set by individual buyers and sellers. A particular seller may set the price at various levels in order to test demand.

Major_Freedom: The table that jason h provided is one that shows price as a function of various demands.

Or quantity demanded as a function of price. The typical demand curve is a one-to-one function.

Zachriel said...

Major_Freedom: I've already provided a citation of John E. Cairnes, which you read and agreed that he defined demand as money spent.

From above:

Major_Freedom: Cairnes: "I define demand as money expended"

Please provide a valid citation. This is what Cairnes actually said, from Some Leading Principles of Political Economy: "I would, therefore, define the terms as follows: Demand, as the desire for commodities or services, seeking its end by an offer of general purchasing power; and Supply, as the desire for general purchasing power, seeking its end by an offer of specific commodities or services."

Demand is an offer, not an expenditure. That's why we asked for a direct citation.

Zachriel said...

Zachriel: If p then q, ~q, therefore ~p. The conclusion follows from the premises regardless of the values of p and q. It's a logical necessity.

Major_Freedom: Do you even know WHY that conclusion follows from the premises? It's because the relationships between predicates and subjects are derived ultimately from empirical reality.

Logic is independent of any empirical application, necessities following from arbitrary axioms.

Zachriel: Our minds know logic because our minds are a part of empirical reality.

If you mean our minds are adept at geometries or logics that are familiar to us, sure. But when we discover that aspects of the universe don't meet our expectations, then we have to develop new geometries (relativity) and logics (quantum reality) appropriate to the matter.

You might try a class in abstract mathematics to get a better understanding of this.

Zachriel: Anyone reading this knows that a shopkeeper can experiment with price to determine the quantity demanded at each price, then graph it as in the demand curve.

Major_Freedom: That's an argumentative fallacy. That's called ad populum.

It's not an argument, so it's not a fallacy. It's a comment directed at our readers.

Zachriel said...

Major_Freedom: It is precisely because the government screwed the economy up with cheap money and spending money that doesn't represent the values of real people, that so many people became unemployed.

That is correct. The Bush Administration overheated the economy through tax cuts, spending and deregulation during an economic expansion, and allowed the growth of a massive bubble in the shadow markets, leading to the financial meltdown and ensuing global economic recession.

Sam said...

"then we have to develop new geometries (relativity) and logics (quantum reality) appropriate to the matter."

I’ve never seen the logical reason in mathematics change. I’ve seen the axioms and/or geometries change, but not the logic used for analysis.

Zachriel said...

Sam: I’ve never seen the logical reason in mathematics change.

A common axiom to play with is the excluded middle, such as in Fuzzy Logic. Others systems have degrees of truth or reject the principle of explosion.

Major_Freedom said...

Zachriel:

Major_Freedom: Yes, the shopkeeper cannot just increase his supply and sale of t-shirts just because 1000 people want 1000 of them.

We chose a small quantity of t-shirts and a local shopkeeper simply because people know the supply chain is not constrained by his activity.

"We"? Again you're speaking for others. Who?

No, the number 100 was chosen at random, not because it somehow represented empirical reality.

Major_Freedom: False, you have repeatedly ignored the relationship {prices are a function of demand}, and only reluctantly conceded it after being prompted. But you're not using it in your own, unprompted assertions.

Zachriel (five days ago): So as people demand more widgets (quantity), the price of widgets tends to increase.

False. You are again ignoring demand. If people are demanding more widgets on the basis of falling prices, then you can't say that the price of widgets tends to increase. Only if the demand for widgets rises, or the supply of widgets falls, or a combination of the two, will the price of widgets rise.

Zachriel (three days ago): "Relative value rises in direct ratio to the demand, and inverse ratio to the supply."

False. Only if the increase in quantity demanded is accompanied by a rise in demand, can the relative value of those goods rise in direct ratio to quantity demanded. If the quantity demanded rises because supply is rising and prices are falling, and demand is unchanged, then you can't say that relative value is changing.

Zachriel (two days ago): By taking into account the relationship between demand, supply and price.

Which you continue to fail to do every time you actually make an attempt at an argument concerning supply and demand.

And so on. You're just not listening.

False. I am listening loud and clear. You are ignoring demand every time you make an argument concerning quantity demanded, price, and supply.

Major_Freedom: I've provided citations of the definition of demand as money spent.

We'd like to see the citation defining the term demand as "money spent." We've asked several times now.

"We"? Who else are you speaking on behalf of other than yourself? And I already provided the citation. The citation is John E. Cairnes, which you can scroll to above. CTRL-F "Cairnes" to find it. Your memory is absolutely terrible.

Major_Freedom said...

Zachriel:

Major_Freedom: Every point on that line will be hypothetical, except for the intersection of that curve with the supply curve, i.e. the price.

You're still confusing the model with the thing itself.

No, you're still conflating reality with a false model.

The model attempts to predict the aggregate behavior of markets, but prices are in fact set by individual buyers and sellers.

That is why the model is false. It attempts to predict the future based on constancy assumptions derived from past experience. There are no such constancies in the field of human action. History is unique. Past and settled. Constructing a histogram of past prices, past supplies, and past demands, are UNIQUE to the past, because they are a consequence of people's past knowledge and past values and past actions. You cannot make the assumption that the relationships between supply and price, and demand and price, will continue.

You are conflating the reality of economic life, with a false model that has no basis in reality.

A particular seller may set the price at various levels in order to test demand.

The outcomes of such tests will not be revealing and constancies that apply to the future. They will always be past history, and nothing more.

Major_Freedom: The table that jason h provided is one that shows price as a function of various demands.

Or quantity demanded as a function of price.

Price is in part a function of demand, so all you're saying is that quantity demanded is in part a function of demand. Demand is what you keep ignoring.

The typical demand curve is a one-to-one function.

No, it's a one to itself "function." The only "function" is the relationship between supply and demand to price. The intersection is the only "function." The rest is hypothetical. If you construct a graph from collecting data points over time, then you're just finding new intersection points, each of which have an infinite number of hypothetical demand and supply curves radiating away from the intersection point that is price. If you draw a series of quantities demanded relative to price, than all you would be doing is constructing a histogram of past data, and not deriving anything that can be called "the" demand curve for that good. You cannot presume that past data will repeat into the future according to constancy relationships. You can only know that whatever price will exist, it will be a function of supply and demand. You can't know what the future price will be based on observing past data.

Major_Freedom said...

Zachriel:

Major_Freedom: I've already provided a citation of John E. Cairnes, which you read and agreed that he defined demand as money spent.

From above:

Major_Freedom: Cairnes: "I define demand as money expended"

That was a paraphrase. If you want the full quote, CTRL-F "Cairnes". Egad your memory is for garbage. You even responded to my post the first time I cited his definition.

Please provide a valid citation. This is what Cairnes actually said, from Some Leading Principles of Political Economy: "I would, therefore, define the terms as follows: Demand, as the desire for commodities or services, seeking its end by an offer of general purchasing power; and Supply, as the desire for general purchasing power, seeking its end by an offer of specific commodities or services."

I was the one who referenced that passage you dullard. Scroll up.

Demand is an offer, not an expenditure. That's why we asked for a direct citation.

No, demand is an expenditure. An offer is just verbiage. Offers don't determine prices. Money actually expended determines (in part) prices.

Zachriel: If p then q, ~q, therefore ~p. The conclusion follows from the premises regardless of the values of p and q. It's a logical necessity.

Major_Freedom: Do you even know WHY that conclusion follows from the premises? It's because the relationships between predicates and subjects are derived ultimately from empirical reality.

Logic is independent of any empirical application, necessities following from arbitrary axioms.

Not rationalist axioms. Rationalist axioms are dependent on empirical reality.

Major_Freedom said...

Zachriel:

Zachriel: Our minds know logic because our minds are a part of empirical reality.

If you mean our minds are adept at geometries or logics that are familiar to us, sure.

No, I don't mean that. I mean our minds are able to logic, because logic is the structure of empirical reality.

But when we discover that aspects of the universe don't meet our expectations, then we have to develop new geometries (relativity) and logics (quantum reality) appropriate to the matter.

Relativity did not refute Euclid's geometry, because relativity measurements presuppose Euclid. Researchers presuppose that their bodies, and their equipment, follow Euclid. Engineers can build buildings on the basis of Euclidean geometry. They could use Euclid forever into the future, and their Euclidean based plans will succeed.

Quantum mechanics also presupposes first order logic. The notion that quantum mechanics has refuted logic, is contradictory. For the arguments that the double slit experiment will produce a diffraction pattern, and not NOT produce a diffraction pattern, and cannot produce both a diffraction pattern and something other than a diffraction pattern, every single quantum mechanics argument presupposes the same logic known for millennia, namely, the law of non-contradiction, the law of the excluded middle, and the law of identity.

The confusion you have in believing that relativity and quantum mechanics has somehow refuted rationalism, and once again made knowledge of reality hypothetical, is a consequence not of refuting rationalism, but of a failure to refute it and merely abandoning it, all the while retaining its very pronouncements in the course of allegedly refuting it.

You might try a class in abstract mathematics to get a better understanding of this.

You're in no position to say something like this. It is precisely you that needs to takes "classes in abstract mathematics."

Mathematics is, in fact, a science that should be a source of embarrassment to you, because mathematics is a priori, and yet it succeeds spectacularly well in empirical experiments.

You might try something more advanced than first year talking points you picked up in writing exams written by drones with tenure.

Major_Freedom said...

Sam:

"then we have to develop new geometries (relativity) and logics (quantum reality) appropriate to the matter."

I’ve never seen the logical reason in mathematics change. I’ve seen the axioms and/or geometries change, but not the logic used for analysis.

Bingo. Same gets it. Seems like Zachriel is the only person here who is utterly clueless.

Major_Freedom said...

Zachriel:

Sam: I’ve never seen the logical reason in mathematics change.

A common axiom to play with is the excluded middle, such as in Fuzzy Logic. Others systems have degrees of truth or reject the principle of explosion.

Can you claim that what you just said, that right there, is both true and false at the same time? Can you claim that the logic inherent in your argumentation itself, the common ground for understanding arguments, can be abandoned, and yet your arguments will still retain meaning, let alone coherence?

The answer, of course, is no. Fuzzy logic? It takes firm logic to even make the case for fuzzy logic and give it meaning that others can understand.

Zachriel said...

Major_Freedom: No, the number 100 was chosen at random, not because it somehow represented empirical reality.

Here's the scenario we presented as an example of demand: "The shopkeeper has a t-shirt with a new design. He has a hundred on hand, and thinks himself optimistic. He opens the shop with the t-shirts marked at $10. A thousand people clamor for the new t-shirt." A shopkeeper represent just a corner of the overall market. T-shirt are a modern commodity in ample supply. Stamping his design on the t-shirt is a simple process, and supply can be easily increased.

He had made an estimate of demand based on his experience. But the kids really liked the new design. Demand far exceeded supply. He could increase his price somewhat, but his best bet to maximize his profits is to increase supplies.

Zachriel (five days ago): "Relative value rises in direct ratio to the demand, and inverse ratio to the supply."

Major_Freedom: False.

That's a quote from Jean-Baptiste Say, of Say's Law fame.

Major_Freedom: The citation is John E. Cairnes, which you can scroll to above.

Please provide a valid citation. (That means providing a source.)
http://lmgtfy.com/?q=%22I+define+demand+as+money+expended%22&l=1

Major_Freedom: That is why the model is false.

Models aren't true or false. They are useful or not. Add models to the list of things you don't understand.

Zachriel: The typical demand curve is a one-to-one function.

Major_Freedom: No, it's a one to itself "function." The only "function" is the relationship between supply and demand to price. The intersection is the only "function."

Add functions to the list of things you don't understand.
http://en.wikipedia.org/wiki/Function_(mathematics)

Zachriel said...

Major_Freedom: Cairnes: "I define demand as money expended"

Major_Freedom: That was a paraphrase.

Then you are being dishonest. You don't use quotes for a paraphrase.

Major_Freedom: If you want the full quote, CTRL-F "Cairnes".

Actually, if you want the full quote, you have to read what he wrote, because when you quoted Cairnes, you left out the part that says "I would, therefore, define the terms as follows: Demand ... Supply ..."

Major_Freedom: No, demand is an expenditure.

Not according to Cairnes. It's "the desire for commodities or services, seeking its end by an offer of general purchasing power."

Zachriel (8 days ago): Demand is defined as the desire for a good or service along with the wherewithal to purchase the good or service

Major_Freedom: An offer is just verbiage.

An offer is not just verbiage. It is either a bid price or an ask price for a commodity. It is the very heart and soul of markets.
http://en.wikipedia.org/wiki/Bid_price

Major_Freedom: Not rationalist axioms. Rationalist axioms are dependent on empirical reality.

Sorry, but if p then q, ~q, therefore ~p, is independent of the empirical reality of its terms.

Major_Freedom: Relativity did not refute Euclid's geometry, because relativity measurements presuppose Euclid.

More confusion. Euclid's geometry is a mathematical system. It's application to the world is as a model of the world. Models are not true or false, but useful or not. Euclid's geometry is useful for setting out a building's foundation. But when navigating the world, we use spherical geometry, and when understanding the cosmos, we need whole new geometries.

-
Let's sum up.

You said that supply can't be compared to demand, and said you were using Say's terminology, yet Say directly compared supply to demand, "the relative excess of supply above demand." You claim to be defending Say, yet when we quote Say, you say it's false.

Much more important, you misrepresented Cairnes when you falsely quoted him as saying, "I define demand as money expended." You misrepresented him further when you quoted him while leaving off the part where he unambiguously provided his definition, "I would, therefore, define the terms as follows: Demand, as the desire for commodities or services, seeking its end by an offer of general purchasing power; and Supply, as the desire for general purchasing power, seeking its end by an offer of specific commodities or services."

Zachriel said...

OFF-TOPIC

Major_Freedom: "We"? Again you're speaking for others. Who?

A number of theories have been proposed. If Zachriel were legion:

ultimate expression of internet group think
hive intelligence
commune of pedants
group of poseurs
committee
weird cult
collective pseudonym like Bourbaki
five people
collective
tri-unity
being of more than one mind
royalty
schizophrenic
gaggle of grad students
Jovian clique
someone with a tapeworm

If it will help keep your mind from wandering, we will try to remember (but don't promise) to use the singular. Ahem,

I, Zachriel.

jason h said...

So let's clarify the model by eliminating the layman's use of the term supply.

T-shirts are a modern commodity in ample quantity. Stamping his design on the t-shirt is a simple process, and inventory can be easily increased.

Then, this is not a model of supply and demand in the context of Say's Law,as T-shirts are no longer scarce.

Major_Freedom said...

Zachriel:

Major_Freedom: No, the number 100 was chosen at random, not because it somehow represented empirical reality.

Here's the scenario we presented as an example of demand: "The shopkeeper has a t-shirt with a new design. He has a hundred on hand, and thinks himself optimistic. He opens the shop with the t-shirts marked at $10. A thousand people clamor for the new t-shirt." A shopkeeper represent just a corner of the overall market. T-shirt are a modern commodity in ample supply. Stamping his design on the t-shirt is a simple process, and supply can be easily increased.

Again, who is this "we" you keep speaking of?

This is the scenario:

"The shopkeeper offers a supply of 100. He opens the shop with the t-shirts marked at $10, which both covers his costs and earns him a profit, and is contingent on there being a demand of at least $10,000. He finds that demand is actually $100,000, since 10,000 people are offering $10 each."

A shopkeeper represent a definite positive share of the market. T-shirts are a modern commodity in the supply that currently exists, and for the shopkeeper, that supply is 100, which could in reality represent 100 million t-shirts. It doesn't actually have to be 100 t-shirts. Supply cannot be increased unless there is a further investment in t-shirt production, so we cannot assume that a t-shirt retailer can just buy more t-shirts from suppliers, EVEN IF in our example we are considering a supply of only 100.

Since the demand exceeded his expectations, he could increase his prices. He cannot earn a higher profit rate by increasing the supply, not unless the demand increases and/or his costs decrease. Merely increasing his supply with unchanged demand and unchanged costs, will necessarily earn him a lower rate of profit, since the additional t-shirts must be sold for lower prices.

He cannot be presumed to have infinite capital available to order more t-shirts, EVEN IF we are only considering 100 t-shirts. Yet you are presuming he does when you say "his supply can be increased easily."

Zachriel (five days ago): "Relative value rises in direct ratio to the demand, and inverse ratio to the supply."

Major_Freedom: False.

That's a quote from Jean-Baptiste Say, of Say's Law fame.

Irrelevant. Not all quotes from Say are correct. Say was not 100% right about everything. After all, he adhered to the labor theory of value. Merely quoting Say doesn't mean you are right. That would be fallacy of authority.

Only if the increase in quantity demanded is accompanied by a rise in demand, can the relative value of those goods rise in direct ratio to quantity demanded. If the quantity demanded rises because supply is rising and prices are falling, and demand is unchanged, then you can't say that relative value is changing.

Major_Freedom said...

Zachriel:

Major_Freedom: The citation is John E. Cairnes, which you can scroll to above.

Please provide a valid citation. (That means providing a source.)

I did. Scroll up. It's right after my 3 paragraph quotation of Cairnes, that contains the bold writing.

Major_Freedom: That is why the model is false.

Models aren't true or false. They are useful or not.

No, models are true or false. All arguments, propositions and models, are either true or false. This is the law of the excluded middle.

If a model is useful, it is because it must have some truth value, in that they are either right, or they approximate what's right to a high enough degree to enable the modeller to achieve their goals.

Add models to the list of things (supply and demand, mathematical logic, economic science, epistemology) you don't understand.

Zachriel: The typical demand curve is a one-to-one function.

Major_Freedom: No, it's a one to itself "function." The only "function" is the relationship between supply and demand to price. The intersection is the only "function."

Add functions to the list of things you don't understand.

The demand curve is not a one to one function. The relationship between demand, supply, and price, is a one to itself function. There is only one supply and one demand associated with each price. There is no mapping across supplies and demands and prices, because that would presume that humans respond in the same exact way deterministically according to demand, supply and price. They don't. Prices that exist, are a "function" of a unique demand and supply.

You are conflating the construction of past historical demand curves with constructing constant relationship between factors functions.

Add the ability to integrate mathematical functions with economic science to the list of things you don't understand.

Major_Freedom said...

Zachriel:

Major_Freedom: Cairnes: "I define demand as money expended"

Major_Freedom: That was a paraphrase.

Then you are being dishonest.

No, your question did not deserve any more effort. You asked for a quote that I already gave. Rather than me doing what you should be doing, and scrolling up to find the quote you asked for that I already provided, which you even responded to the first time, I paraphrased Say. In essence, my paraphrasing is what Say did in fact say, so it wasn't dishonest.

You don't use quotes for a paraphrase.

You don't ask for a quote that has already been provided.

Major_Freedom said...

Zachriel:

Major_Freedom: If you want the full quote, CTRL-F "Cairnes".

Actually, if you want the full quote, you have to read what he wrote, because when you quoted Cairnes, you left out the part that says "I would, therefore, define the terms as follows: Demand ... Supply ..."

You obviously did not understand what you read. The rest of the quote that you conveniently snipped, to make it seem like Cairnes defined demand as quantity desired, is actually:

"Demand, as the desire for commodities or services, seeking its end by an offer of general purchasing power.

Demand to Cairnes is an offer of purchasing power, i.e. MONEY. This is consistent with the quote I offered above, where he stated:

"Mr. Mill, indeed, fully recognizes — no one more fully — the importance of keeping in view the strict analogy of Demand and Supply ; and it is apparently, at least in part, with a view to this end that he gives the peculiar definition of "demand" which is to be found in the chapter from which I have quoted. Demand, as there defined, is to be understood as measured, not, as my definition would require, by the quantity of purchasing power offered in support of the desire for commodities, but by the quantity of commodities for which such purchasing power is offered. There is no doubt that, as thus conceived, that is to say, as quantity demanded and quantity supplied. Demand and Supply are perfectly analogous facts; but, as I think I have shown, this way of regarding them is by no means necessary in order to render them analogous, while it seems to me that the idea of "demand" as quantity demanded, though not foreign to economic discussion, is very far from being adequate to the general purposes of the science.

"I quite admit that it may be convenient occasionally to employ "demand" in other senses; and though the employment of the same economic term in different senses is not free from objection, it is an expedient to which the economist must, in the dearth of language, occasionally have recourse; nor will much harm result, if we only bear in mind that the senses are distinct, and do not confound them in argument. Moreover, I am willing to allow that the meaning given to "demand" by Mr. Mill in the passage in question expresses a sense in which it is sometimes convenient, perhaps necessary, to use the word. But, while conceding this much, I must still contend for the correctness of my own definition, as expressing the principal and proper sense of the term in economic science — meaning by this a sense more important and fundamental than any other to which the term in that science is applied — a sense indispensable to economic exposition, and which "demand" easily and naturally expresses."

"I take three capital theories of the science — wages, money, and foreign trade. In each of these Supply and Demand form the pivots of the doctrine, the two poles on which the exposition turns. But when we come to consider in what sense "demand" is used in those theories, we find that in every instance it is regarded as represented and measured by the purchasing power ordered, not by the quantity of commodities or services demanded." - J.E. Cairnes, "Some leading principles of political economy newly expounded", pgs 87-88.

In other words, Cairnes granted to Mill that Mill can define demand as quantity demanded, but Cairnes defines demand in another way, which "not by the quantity of commodities or services demanded" <- that's not a paraphrasing, that's a direct quote, but rather as "represented and measured by the purchasing power ordered" <- that is also not a paraphrasing, that's a direct quotation.

Major_Freedom said...

Zachriel:

Major_Freedom: No, demand is an expenditure.

Not according to Cairnes.

False. That is according to Cairnes. You're so muddleheaded, you even contradict yourself on this point. The first time I presented the quoting of Cairnes defining demand and money spent, and not by quantity desired, after I said "I hope I made it very, VERY clear" that Cairnes defined demand as money spent, your own response was this:

"Yes you did. Cairns is arguing against the standard definition."

At that time you accepted that Cairnes was arguing against the "standard definition", which was quantity desired.

What happened to you between that time, and now? Did your mother drop you on your head again?

It's "the desire for commodities or services, seeking its end by an offer of general purchasing power."

An "offer of general purchasing power" is money spent.

Add the English language to the list of things you don't understand.

Zachriel (8 days ago): Demand is defined as the desire for a good or service along with the wherewithal to purchase the good or service

Major_Freedom: An offer is just verbiage.

An offer is not just verbiage. It is either a bid price or an ask price for a commodity.

A bidding price or an asking price, ARE NOT THE FINAL ACTUAL PRICES. They are verbal statements of intentions.

It is the very heart and soul of markets.

http://en.wikipedia.org/wiki/Bid_price

I am not denying the usefulness or reality of acts of bidding and asking. The act of paying a price is when prices actually come into existence. Prior to that, they are verbal or written offers. Yes, for non-economic simple consumer minded people such as yourself, the price tags you see are almost always the price actually paid. But this is not always so. The price paid is when money actually changes hands, not when asks are made (price tags), and not when bids are made ("Would you give me a 5% discount if I buy more than one?")

You are hopelessly, utterly confused.

Major_Freedom: Not rationalist axioms. Rationalist axioms are dependent on empirical reality.

Sorry, but if p then q, ~q, therefore ~p, is independent of the empirical reality of its terms.

No, it's not independent of empirical reality. The logic is derived from the facts of reality.

You adhere to the erroneous, contradictory positivist epistemology that holds all logic, language, words, to be analytical concepts totally independent of reality, and where reality is only accessible through hypothetical theories and empirical testing.

Logic is not, in the rationalist epistemology, "independent" of reality. They have a real world connection.

Major_Freedom said...

Zachriel:

Major_Freedom: Relativity did not refute Euclid's geometry, because relativity measurements presuppose Euclid.

Euclid's geometry is a mathematical system.

More accurately, it's a logical system.

It's application to the world is as a model of the world.

No, Euclid is a priori and a function of the logical categories of our thinking.

Models are not true or false, but useful or not.

False. Models are in fact true or false as stated. All propositions, all arguments, all models, are either true or false. Their level of their usefulness is derived from its truth value. It could be right as stated, or wrong as stated but approximating reality to a high enough degree so as to be useful.

Euclid's geometry is useful for setting out a building's foundation. But when navigating the world, we use spherical geometry, and when understanding the cosmos, we need whole new geometries.

No, Euclid's geometry is a priori. It is the necessary framework of how our minds are structured. Even when navigating the world, our minds presuppose Euclid's geometry, and we cannot understand the world without it. Same thing with understanding cosmology. Every equipment used to "test" for general relativity, is constructed by presupposing Euclidean geometry, and the experiments could not be carried out, could not have the meaning they do, without this presupposition. It is therefore an elementary confusion to believe that general relativity "refuted" Euclid. It would be like believing the 15th floor of a building refutes the existence of the first 14 floors.

Let's sum up.

I said that supply can't be compared to demand, because demand and supply are of different incommensurable units

I said I was using demand in money which is consistent with Say's terminology, and I provided quotes that show Say referring to demand as money expended.

I claim to be defending Cairnes and Say, and yet when you quote Say using demand in some other sense, you say his quotes in the other sense are non-existent and false.

Much more important, you completely misrepresented Cairnes when you falsely quoted him as saying that he defines demand as quantity demanded.

Major_Freedom said...

Zachriel:

You misrepresented Cairnes further when you quoted him while leaving out the part where he unambiguously provided his definition that demand is purchasing power, i.e. money expended, when he said "I would, therefore, define the terms as follows: Demand, as the desire for commodities or services, seeking its end by an offer of general purchasing power

An offer of general purchasing power is an offer of money.

Then there are the other unambiguous quotes from Cairnes where he defined demand and money expended (I've bolded the relevant parts):

"Mr. Mill, indeed, fully recognizes — no one more fully — the importance of keeping in view the strict analogy of Demand and Supply ; and it is apparently, at least in part, with a view to this end that he gives the peculiar definition of "demand" which is to be found in the chapter from which I have quoted. Demand, as there defined, is to be understood as measured, not, as my definition would require, by the quantity of purchasing power offered in support of the desire for commodities, but by the quantity of commodities for which such purchasing power is offered. There is no doubt that, as thus conceived, that is to say, as quantity demanded and quantity supplied. Demand and Supply are perfectly analogous facts; but, as I think I have shown, this way of regarding them is by no means necessary in order to render them analogous, while it seems to me that the idea of "demand" as quantity demanded, though not foreign to economic discussion, is very far from being adequate to the general purposes of the science.

"I quite admit that it may be convenient occasionally to employ "demand" in other senses; and though the employment of the same economic term in different senses is not free from objection, it is an expedient to which the economist must, in the dearth of language, occasionally have recourse; nor will much harm result, if we only bear in mind that the senses are distinct, and do not confound them in argument. Moreover, I am willing to allow that the meaning given to "demand" by Mr. Mill in the passage in question expresses a sense in which it is sometimes convenient, perhaps necessary, to use the word. But, while conceding this much, I must still contend for the correctness of my own definition, as expressing the principal and proper sense of the term in economic science — meaning by this a sense more important and fundamental than any other to which the term in that science is applied — a sense indispensable to economic exposition, and which "demand" easily and naturally expresses."

"The importance and fundamental character of a scientific idea must, I apprehend, be judged by the place which it occupies in the theories of a science. Now I have no need to go beyond Mr. Mill's work to show that the sense assigned to "demand" in my definition may be justified by this criterion."

"I take three capital theories of the science — wages, money, and foreign trade. In each of these Supply and Demand form the pivots of the doctrine, the two poles on which the exposition turns. But when we come to consider in what sense "demand" is used in those theories, we find that in every instance it is regarded as represented and measured by the purchasing power ordered, not by the quantity of commodities or services demanded." - J.E. Cairnes, "Some leading principles of political economy newly expounded", pgs 87-88.

Major_Freedom said...

Zachriel:

In other words, Cairnes said that while he understood Mill defined demand as quantity demanded, and it has its own uses, Cairnes on the other hand defines demand in another way, which is "not by the quantity of commodities or services demanded" <- that's not a paraphrasing, that's a direct quote from Cairnes, but rather as "measured by the purchasing power ordered" <- that is also not a paraphrasing, that's a direct quotation.

It is clear that you are unquivocally wrong about what Say said, you are especially unequivocally wrong about what Cairnes said, you can't even read the quotes I am presenting, you don't understand logic, you don't understand economics, you're trying to shoehorn in a methodology that is not suited to economic science, you're contradicting yourself, you don't understand mathematical logic, you don't understand rationalist epistemology, you don't understand Euclid, you don't understand models, you don't understand pretty much anything that you have attempted to talk about.


Major_Freedom: "We"? Again you're speaking for others. Who?

A number of theories have been proposed. If Zachriel were legion:

ultimate expression of internet group think
hive intelligence
commune of pedants
group of poseurs
committee
weird cult
collective pseudonym like Bourbaki
five people
collective
tri-unity
being of more than one mind
royalty
schizophrenic
gaggle of grad students
Jovian clique
someone with a tapeworm

If it will help keep your mind from wandering, we will try to remember (but don't promise) to use the singular. Ahem,

I, Zachriel.

Oh I get it, you're a crazy person. Now it all makes sense.

Zachriel said...

jasonh: Then, this is not a model of supply and demand in the context of Say's Law,as T-shirts are no longer scarce.

That's correct. It's not a model of the general economy. Rather, it's a simple case provided as an example of demand.

Major_Freedom: If the quantity demanded rises because supply is rising and prices are falling, and demand is unchanged, then you can't say that relative value is changing.

That's why they are in inverse relation, just as Say indicated.

Major_Freedom: No, models are true or false. All arguments, propositions and models, are either true or false. This is the law of the excluded middle.

Then all models are false, because all models simplify a complex reality. Models are accurate or inaccurate, useful or not. Does the Earth trace an elliptical orbit about the Sun?

Major_Freedom: The demand curve is not a one to one function.

This is a demand curve, a function by definition.
http://www.bos.frb.org/peanuts/sptspage/images/demand.gif

Major_Freedom: No, your question did not deserve any more effort.

It's never appropriate to falsely quote someone. It is dishonest to do so.

Major_Freedom: Demand to Cairnes is an offer of purchasing power, i.e. MONEY.

Demand, according to Cairnes, is the desire and the purchasing power, e.g. money.

Major_Freedom: No, demand is an expenditure.

Cairne defines demand "as the desire for commodities or services, seeking its end by an offer of general purchasing power." It's a desire coupled with the wherewithal to buy, usually money.

Major_Freedom: An "offer of general purchasing power" is money spent.

An offer is not money spent. It's a proposal backed by the wherewithal to complete the transaction, such as having money.

Major_Freedom: Add the English language to the list of things you don't understand.

Merriam-Webster: to present for acceptance or rejection

Major_Freedom: More accurately, {Euclid's geometry} is a logical system.

Geometry is logically consistent, but is not a system of logic.

Major_Freedom: No, Euclid is a priori and a function of the logical categories of our thinking.

Euclid derived his geometry from postulates. Turns out the postulates can be changed. How many parallel lines are there in spherical geometry?

Major_Freedom: I said that supply can't be compared to demand, because demand and supply are of different incommensurable units

You said you were using Say's definition, and yet he directly compared supply and demand.

Major_Freedom: Much more important, you completely misrepresented Cairnes when you falsely quoted him as saying that he defines demand as quantity demanded.

Cairnes defined demand as "as the desire for commodities or services, seeking its end by an offer of general purchasing power."

Major_Freedom: An offer of general purchasing power is an offer of money.

Not necessarily, but usually.

In any case, you misrepresented Cairnes by putting quotes around words he never said. When pressed, you kept referring back to your misquote. Cairnes defines demand, not as "money expended," but as "the desire for commodities or services, seeking its end by an offer of general purchasing power." That is demand, and he provides an analogous defintion for supply so that they can be directly compared. It's the same definition most economists use today. It's desire coupled with the ability to pay.

jason h said...

Rather, it's a simple case provided as an example of demand.

It is not a case of demand period, as the supply of T-shirts infinite. It is not an appropriate model.

Zachriel said...

jason: It is not a case of demand period, as the supply of T-shirts infinite.

The supply of T-shirts isn't infinite, but ample.
http://blanktshirt.com/

Are you saying there is no demand in our shopkeepeer's shop?

By the way, we found out what made the t-shirts so popular. They had printed on them Cairnes definition of demand: "the desire for commodities or services, seeking its end by an offer of general purchasing power." Those crazy kids!

Major_Freedom said...

Zachriel:

jasonh: Then, this is not a model of supply and demand in the context of Say's Law,as T-shirts are no longer scarce.

That's correct. It's not a model of the general economy. Rather, it's a simple case provided as an example of demand.

The context is the general economy, because the context is Say's law.

Major_Freedom: If the quantity demanded rises because supply is rising and prices are falling, and demand is unchanged, then you can't say that relative value is changing.

That's why they are in inverse relation, just as Say indicated.

Wrong. Relative value is a function of relative price, and prices are a function of supply and demand. Again you're ignoring demand.

Major_Freedom: No, models are true or false. All arguments, propositions and models, are either true or false. This is the law of the excluded middle.

Then all models are false, because all models simplify a complex reality. Models are accurate or inaccurate, useful or not. Does the Earth trace an elliptical orbit about the Sun?

Non sequitur. Not all models are false. Every econometric model is false. But econometrics doesn't have a monopoly on economic science.

And you just contradicted yourself by the way, yet again. By even arguing that all models are false on the basis that they necessarily only simplify a complex reality, by holding that premise as true, you are eliciting a specific model that supposedly is true, which is that human epistemology is such that we cannot know any true model about external reality and can only ever approximate it. That premise is itself an attempt at conveying a true model of human epistemology. Thus, you cannot say that all models are false, by using a premise that is itself a model that is presumed true.

Major_Freedom: The demand curve is not a one to one function.

This is a demand curve, a function by definition.

IN ECONOMICS, ON EARTH, demand curves are NOT one to one functions. They are hypothetical guesstimates that have no direct fidelity with reality, other than the intersection point of the demand and supply curves. Merely saying "by definition" doesn't entitle you to say that demand curves are one to one functions that relate to economics. You could only ever construct a past history of past prices and past demands and past supplies. They are not showing you any "function" in the sense of collecting observations of future supplies, and being able to predict future prices on the basis of finding where on "the" demand curve such supply intersects. You cannot hold any demand curve constant in this way. Every price has ITS OWN demand curve associated with it.

Major_Freedom said...

Zachriel:

Major_Freedom: No, your question did not deserve any more effort.

It's never appropriate to falsely quote someone. It is dishonest to do so.

It's never appropriate to ask for a quote that has already been provided. And it was meant as a paraphrasing, not a direct quote. The paraphrasing is what Cairnes argued. You are now relegated to having to critique my method of conveying Cairnes' actual positions to you, because you know you can't come close to debating Cairnes' actual ideas.

Major_Freedom: Demand to Cairnes is an offer of purchasing power, i.e. MONEY.

Demand, according to Cairnes, is the desire and the purchasing power, e.g. money.

That means money spent. Money spent IMPLIES a desire for quantity of goods. Demand, to Cairnes, is the money spent.

"But when we come to consider in what sense "demand" is used in those theories, we find that in every instance it is regarded as represented and measured by the purchasing power ordered, not by the quantity of commodities or services demanded." - J.E. Cairnes, "Some leading principles of political economy newly expounded", pgs 87-88.

You cannot be more wrong.

Major_Freedom: No, demand is an expenditure.

Cairne defines demand "as the desire for commodities or services, seeking its end by an offer of general purchasing power." It's a desire coupled with the wherewithal to buy, usually money.

No, demand implies a desire for commodities. But demand itself, to Cairnes, is the money expended. Contrary to your incorrect claim that Cairnes defined demand as quantity desired, and now your hilarious retreat which is nothing but an attempt to somehow salvage "quantity desired", by saying Cairnes meant "both", is pathetic. Cairnes clearly said that he defined demand "as represented and measured by the purchasing power ordered, not by the quantity of commodities or services demanded." That is a direct quote from Cairnes, and that quote means he does not define demand to be quantity desired, but by the money expended.

Yes, money expended logically implies that there is a quantity of goods desired, but that is not the same thing as saying Cairnes defined demand as quantity desired, which was your first incorrect claim above, and it does not mean that Cairnes defined demand as quantity desired AND money expended, which was your latest pathetic attempt at salvaging your completely incorrect attribution of what Cairnes argued.

If you read that Cairnes defined demand "in every instance it is regarded as represented and measured by the purchasing power ordered, not by the quantity of commodities or services demanded", and you still cannot understand that he defined demand and money expended and not as quantity desired, then THERE IS NO HOPE FOR SOMEONE WHO CANNOT EVEN READ THE ENGLISH LANGUAGE.

Major_Freedom said...

Zachriel:

Major_Freedom: An "offer of general purchasing power" is money spent.

An offer is not money spent. It's a proposal backed by the wherewithal to complete the transaction, such as having money.

To Cairnes, an "offer of general purchasing power" is the act of exchanging money, not just the verbal proposition.

Major_Freedom: More accurately, {Euclid's geometry} is a logical system.

Geometry is logically consistent, but is not a system of logic.

Euclid's geometric system is a system of logic. It is a system of logic of space.

Major_Freedom: No, Euclid is a priori and a function of the logical categories of our thinking.

Euclid derived his geometry from postulates. Turns out the postulates can be changed.

Those postulates are unavoidable categories of thought.

How many parallel lines are there in spherical geometry?

How do you know you even have a sphere unless you have presupposed a geometry of a non-spherical three dimensional geometry in which the sphere resides? In that presupposed geometry, which is Euclidean, parallel lines do not meet. If you then consider spacetime geometry, and say that spacetime is curved, such that all parallel lines eventually intersect, then I will just use the same logic and say that this spacetime geometry presupposes a non-curved geometry in which curved spacetime resides, which is, of course, the necessary presuppositions made by anyone who claims to have measured curved spacetime when they base their measurements, their equipment, and themselves, on Euclidean geometry.

Major_Freedom: I said that supply can't be compared to demand, because demand and supply are of different incommensurable units

You said you were using Say's definition, and yet he directly compared supply and demand.

He only did so when by demand he meant quantity demanded. Again, you have to take into account the context every time he said demand.

Major_Freedom: Much more important, you completely misrepresented Cairnes when you falsely quoted him as saying that he defines demand as quantity demanded.

Cairnes defined demand as "as the desire for commodities or services, seeking its end by an offer of general purchasing power."

Cairnes defined demand "in every instance it is regarded as represented and measured by the purchasing power ordered, not by the quantity of commodities or services demanded."

Major_Freedom said...

Zachriel:

Major_Freedom: An offer of general purchasing power is an offer of money.

Not necessarily, but usually.

When Cairnes said offer of purchasing power, he means money offered, not quantity desired, as you fallaciously claimed above.

In any case, you misrepresented Cairnes by putting quotes around words he never said.

No, that is NOT a misrepresentation of Cairnes. It is an accurate paraphrasing of what Cairnes said, which you should have known because I quoted him the first time, and you even responded to it.

When pressed, you kept referring back to your misquote.

False. You did not "press me". You only demanded that I do what you should have done yourself. If I quote him, and yet you still refuse to accept it, then you can't blame me for not going back and quoting him over and over again. I'll paraphrase him.

Cairnes defines demand, not as "money expended," but as "the desire for commodities or services, seeking its end by an offer of general purchasing power."

That is money expended. He defined demand "in every instance it is regarded as represented and measured by the purchasing power ordered, not by the quantity of commodities or services demanded."

That is demand, and he provides an analogous defintion for supply so that they can be directly compared. It's the same definition most economists use today. It's desire coupled with the ability to pay.

False. Cairnes did not define demand the same as most economists today which is quantity desired. He defined demand as money expended instead. Yes, each money offer presupposes and logically implies a quantity desired, but that doesn't mean he defined demand as quantity desired, which you incorrectly claimed he did.

The original claim you made was that Cairnes defined demand as quantity desired. After being presented with quotes that directly contradict that claim, you are now switching goal posts and pretending as if you have always meant quantity desired and money spent. But Cairnes specifically said that he defines demand "in every instance it is regarded as represented and measured by the purchasing power ordered, not by the quantity of commodities or services demanded."

Can you read English? NOT BY THE QUANTITY OF COMMODITIES OR SERVICES DEMANDED. Do you know what that means?

Major_Freedom said...

Zachriel:

jason: It is not a case of demand period, as the supply of T-shirts infinite.

The supply of T-shirts isn't infinite, but ample.

Not when the context is the supply assumed in the example, which in our case was 100, which can represent any quantity in the real world economy.

In the example, supply is 100. You can't say t-shirts are "ample". They are what they are, and can only be increased in production if there is a further investment in t-shirts, which comes from capital and savings, not demand for t-shirts.

Are you saying there is no demand in our shopkeepeer's shop?

Are you able to think in terms other than either demand or zero demand?

By the way, we found out what made the t-shirts so popular. They had printed on them Cairnes definition of demand: "the desire for commodities or services, seeking its end by an offer of general purchasing power."

And on the reverse of those t-shirts, which you missed because you can only see what you see in the mirror, it says

"not by the quantity of commodities or services demanded."

Nobody here, including me, argued that demand in money wasn't accompanied by a desire for quantity of goods. After all, the whole reason why there is a demand at all is because there is a desire for quantity of goods. But my argument, which you pathetically tried, and failed, to twist into a claim that Cairnes completely ignored quantity desired, was only that Cairnes defined demand in money, not in the quantity desired, which you fallaciously claimed was the case, and have only since desperately tried to hide by continuously quoting him mentioning "the desire for commodities or services", as if that means he defined demand in the contemporary sense of quantity desired, instead of the sense I correctly laid out, which is in money terms.

Zachriel said...

Major_Freedom: No, that is NOT a misrepresentation of Cairnes. It is an accurate paraphrasing of what Cairnes said,

It is ALWAYS a misrepresentation to use quotes for words that do not belong to the source.

Zachriel said...

SILLY STUFF

Major_Freedom: Not all models are false. Every econometric model is false. But econometrics doesn't have a monopoly on economic science.

It's beyond your ken, but models are useful or unuseful, accurate or inaccurate when applied to particular natural phenomena, but they are not true or false.

Major_Freedom: By even arguing that all models are false on the basis that they necessarily only simplify a complex reality, by holding that premise as true, you are eliciting a specific model that supposedly is true, ...

Gee whiz, Major_Freedom, you really have to work at missing the point. Read it again.

Major_Freedom: No, models are true or false. All arguments, propositions and models, are either true or false. This is the law of the excluded middle.

Zachriel: Then all models are false, because all models simplify a complex reality.

Please note the word "then." Having done so, you should be able to parse the phrase to mean that *if* your claim is taken at face value, then all models are false, because all models are simplifications of the phenomena being described. Hence, your categorization of models into true and false is incoherent.

By the way, does the Earth follow an elliptical orbit?

Zachriel: IN ECONOMICS, ON EARTH, demand curves are NOT one to one functions.

Again, you confuse the model with the thing being modeled. Demand curves are models. They are one-to-one functions, *by definition*. You may disagree that they accurately represent market transactions. (Of course, you would then be disagreeing with virtually all economists.)

Major_Freedom: How do you know you even have a sphere unless you have presupposed a geometry of a non-spherical three dimensional geometry in which the sphere resides?

Um, add non-Euclidean geometry to things you are ignorant about. You do not have to know anything about Euclidean spheres to study spherical geometry.

You didn't answer the question. How many parallel lines are there in spherical geometry?

Zachriel said...

Major_Freedom: The context is the general economy, because the context is Say's law.

A look at the meaning of demand was warranted, especially as you were confused on the meaning of demand, going to far as to misrepresent Cairnes.

Major_Freedom: Demand, to Cairnes, is the money spent.

Sorry, but that is simply not true. We know this because Cairnes unambiguously defined demand, something you had, for whatever reason, left out of your original quotations.

Cairnes: "the desire for commodities or services, seeking its end by an offer of general purchasing power."

Desire is not money spent: It's what you want, not what you have. Seeking is not having found: It's to go in search of. An offer is not a transaction: It's a proposed transaction.

Cairnes is drawing a distinction, measuring demand in dollars, while other economists often referred to demand in quantity, but both measures are analytically equivalent and often used, even by Cairnes (more on this later). In practice, demand is most often measured in quantity when we are dealing with single commodities and local markets, but in currency when dealing with aggregates.

Major_Freedom: When Cairnes said offer of purchasing power, he means money offered, not quantity desired, as you fallaciously claimed above.

It's a desire for the commodity, coupled with the ability to pay.

Major_Freedom: You can't say t-shirts are "ample".

Of course we can. How many do you want?
http://blanktshirt.com/

Zachriel: Are you saying there is no demand in our shopkeepeer's shop?

Major_Freedom: Are you able to think in terms other than either demand or zero demand?

Notably, you didn't answer the question.

Zachriel said...
This comment has been removed by the author.
Zachriel said...

Major_Freedom: Demand cannot even be equal to supply.

Major_Freedom: Supply and demand are two different units you idiot.

Major_Freedom: What utter garbage.

Cairns: "I have spoken of supply corresponding with, or being greater or less than, demand in the case of a given commodity."

Cairns: "I shall therefore understand equality or correspondence of Demand and Supply at a given price, when particular commodities are in question, as meaning equality or correspondence of quantity demanded with quantity supplied at that price. "

Say: "Say: ... excess of supply above demand.

Zachriel: When someone says supply exceeds demand, they mean there is more inventory than there are orders. It's not that complicated. You can state it in quantity or in dollars, assuming a given price.

Major_Freedom said...

Zachriel:

Major_Freedom: No, that is NOT a misrepresentation of Cairnes. It is an accurate paraphrasing of what Cairnes said,

It is ALWAYS a misrepresentation to use quotes for words that do not belong to the source.

It is ALWAYS a fair representation to use quotes around paraphrases of people's arguments when the reader is purposefully too lazy to read the full quote himself.

Major_Freedom: Not all models are false. Every econometric model is false. But econometrics doesn't have a monopoly on economic science.

It's beyond your ken, but models are useful or unuseful, accurate or inaccurate when applied to particular natural phenomena, but they are not true or false.

Absolutely wrong. All models are either true or false, they are all either useful or not useful in the opinion of the model user, they are all either accurate or inaccurate when applied to particular natural phenomena.

Major_Freedom: By even arguing that all models are false on the basis that they necessarily only simplify a complex reality, by holding that premise as true, you are eliciting a specific model that supposedly is true, ...

Gee whiz, Major_Freedom, you really have to work at missing the point. Read it again.

Oh golly gee Zachriel, you really have to be purposefully dense to misunderstand the point I am making. Read it again.

Major_Freedom said...

Zachriel:

Major_Freedom: No, models are true or false. All arguments, propositions and models, are either true or false. This is the law of the excluded middle.

Zachriel: Then all models are false, because all models simplify a complex reality.

False. Not all models are false. Not all models simplify complex reality.

And you again contradicted yourself in the same way as you did before, even after being advised that you did so the first time, which can only mean you are either intellectually incapable of understanding the response to your assertion, or you do understand it, but you're not being intellectually honest in either addressing it or accepting it. So again, by you claiming that all models are false, on the basis that all models allegedly necessarily only simplify reality, meaning all models ignore aspects of reality and make false assumptions, you are by arguing that making a case for a true model of human epistemology, namely, the true model that human knowledge and capability is such that nothing can be known about reality through having awareness and comprehension of true models.

Please note the word "then." Having done so, you should be able to parse the phrase to mean that *if* your claim is taken at face value, then all models are false, because all models are simplifications of the phenomena being described. Hence, your categorization of models into true and false is incoherent.

Wrong. The claim that if my argument is taken at face value, that all models are therefore false, is a non sequitur. You are making the false assumption that all models are necessarily false from the outset. You can't do that without contradicting yourself, because by claiming that, you are introducing a true model of human epistemology.

Major_Freedom said...

Zachriel:

By the way, does the Earth follow an elliptical orbit?

Depends on how you define elliptical. If you mean the Earth's orbit is such that it can be considered a member of a specific class of shape, for example triangular, rectangular, circular, etc, then yes, the shape of the Earth's orbit can be considered a member of a specific class of shape that distinguishes it from other shapes.

I do not need to answer the question of whether the Earth follows a "perfect" ellipse in order to know that not all models are false in the sense that they don't represent reality as it is. It is irrelevant.

By even making the claim that the Earth's orbit is not a perfect ellipse, but another shape that deviates from a perfect ellipse, you would be making an attempt at a true model of the Earth's orbital pattern that distinguishes it from a "perfect" ellipse model.

Zachriel: IN ECONOMICS, ON EARTH, demand curves are NOT one to one functions.

Again, you confuse the model with the thing being modeled.

AGAIN, you are still conflating reality with a false model.

Demand curves are models.

And the demand curve as it is explained by you, in relation to reality, is false.

They are one-to-one functions, *by definition*.

No, false. They are not one to one functions. They can only be one to itself functions, because the only reality of demand curves are the intersections with the supply curve, and the price implied.

You may disagree that they accurately represent market transactions. (Of course, you would then be disagreeing with virtually all economists.)

It depends on what you mean by "accurately." And it is not my concern that I disagree with the majority of those who are wrong.

Major_Freedom: How do you know you even have a sphere unless you have presupposed a geometry of a non-spherical three dimensional geometry in which the sphere resides?

You do not have to know anything about Euclidean spheres to study spherical geometry.

False. Add non-Euclidean geometry to the list of things you do not understand.

You cannot even claim to be considering a spherical surface unless you are presupposing a 3 dimensional space in which the spherical surface resides.

You didn't answer the question. How many parallel lines are there in spherical geometry?

I did answer the question. I said that if you are considering a spherical surface, then that presupposes a geometry of 3 dimensions for it to even have meaning. In that presupposed geometry, which is Euclidean, parallel lines do not meet.

Major_Freedom: The context is the general economy, because the context is Say's law.

A look at the meaning of demand was warranted, especially as you were confused on the meaning of demand, going to far as to misrepresent Cairnes.

The shoe is on the other foot. It is precisely me who insisted that you look at the meaning of demand, since you were confused about its meaning, and you were the one who misrepresented Cairnes, not me. YOU said that Cairnes defined demand the same way as contemporary economists do, meaning demand is quantity desired. However I proved that assertion wrong by quoting Cairnes defining demand "not by the quantity of commodities or services demanded."

Major_Freedom said...

Zachriel:

Major_Freedom: Demand, to Cairnes, is the money spent.

Sorry, but that is simply not true.

False, it is simply true. You are wrong. The quote is right there. Cairnes unambiguously said that he defined demand

"in every instance it is regarded as represented and measured by the purchasing power ordered, not by the quantity of commodities or services demanded."

That means money expended by buyers, not quantity desired by buyers.

We know this because Cairnes unambiguously defined demand, something you had, for whatever reason, left out of your original quotations.

False. You are the one who left out the part where he said that he defines demand "not by the quantity of commodities or services demanded."

You are clearly either intellectually dishonest, or you are so utterly confused that you are unable to read the English language.

Cairnes: "the desire for commodities or services, seeking its end by an offer of general purchasing power."

Money is what "general purchasing power" refers to.

Cairnes: "in every instance it is regarded as represented and measured by the purchasing power ordered, not by the quantity of commodities or services demanded."

That means money, not quantity desired as you fallaciously claimed.

Desire is not money spent: It's what you want, not what you have.

You are ignoring "general purchasing power" and you are ignoring "not by the quantity of commodities or services demanded."

Seeking is not having found: It's to go in search of. An offer is not a transaction: It's a proposed transaction.

To Cairnes, the "offer" IS the money spent on goods.

Cairnes is drawing a distinction, measuring demand in dollars

You just contradicted yourself.

Major_Freedom said...

Zachriel:

while other economists often referred to demand in quantity, but both measures are analytically equivalent and often used, even by Cairnes (more on this later).

False. They are not analytically equivalent. They are conceptually mutually exclusive. Demand in money can rise and fall independently of quantity desired. They can move in opposite directions, and they can move in the same direction.

Demand can fall while quantity desired can either rise, stay the same, or fall, demand can rise while quantity desired can either rise, stay the same, or fall, and demand can remain unchanged while quantity desired can either rise, stay the same, or fall.

Demand in money and quantity desired are absolutely not analytically equivalent. This is yet another one of your many confusions which is preventing you from understanding Cairnes statements.

In practice, demand is most often measured in quantity when we are dealing with single commodities and local markets, but in currency when dealing with aggregates.

Definitions are not objective. We are not obligated to define demand as quantity desired. I can define demand in money spent, in both specific and aggregate frames of reference.

Since the context is Say's law, which is an aggregate frame of reference law, it is necessary to include demand in money in order to understand Say's law in division of labor, monetary economies.

Major_Freedom: When Cairnes said offer of purchasing power, he means money offered, not quantity desired, as you fallaciously claimed above.

It's a desire for the commodity, coupled with the ability to pay.

The expenditure of money IMPLIES a desire for that which is being bought. This is why Cairnes said he defines demand in terms of money, and "not by the quantity of commodities or services demanded."

Major_Freedom: You can't say t-shirts are "ample".

Of course we can. How many do you want?

No, you cannot, because supply is at its maximum already when we say in the example that supply is 100 at this time.

Major_Freedom: Are you able to think in terms other than either demand or zero demand?

Notably, you didn't answer the question.

As expected, you didn't see the answer in my rhetorical question, and as expected, you didn't answer the rhetorical question.

Major_Freedom said...

Zachriel:

Cairns: "I have spoken of supply corresponding with, or being greater or less than, demand in the case of a given commodity."

As with Say, you have to always be mindful of the context in which Cairnes says "demand."

You conveniently ignored the rest of the passage in which that quote resides. The rest of that passage states:

"There is no expression in more frequent use in commercial and economic discussion; and it is probable that most people will think that it stands in need of no elucidation. But the slightest reflection will show that its meaning is by no means so clear as it might at first sight be considered. What is meant by the supply of a given commodity being equal to the demand for it? The demand varies with the price; and so does the supply. It is evident, therefore, that, to give meaning to our assertion, it must be understood as made with reference to some assumed price; but what price? This is a point which is not at once apparent.

"Again, supposing this difficulty got over, and that we have settled at what price Demand and Supply are to be taken, demand at a given price may be measured either by the quantity of purchasing power offered, or by the quantity of the commodity demanded. Which standard are we to adopt? I have already stated my view as to the proper sense of "demand"; [Major_Freedom: and we have seen that Cairnes prefers the money definition of demand, not the quantity desired definition of demand.] nor do I see any necessity for departing in this context from the meaning I have contended for. According to that view, as Supply would be measured by the quantity of the commodity offered, so Demand would be measured by the quantity of purchasing power offered; and the "correspondence" (which I think would be a better word than "equality") of Supply with Demand at a given price would mean such a state of Demand and Supply as would result, on the one hand, in the absorption of the purchasing power forth-coming at this price by the supply at the same price; and, on the other hand, in the absorption of the supply by the purchasing power; while the noncorrespondence of Supply and Demand would mean the existence of an unsatisfied residuum on either side. This, I confess, is the sense of the phrase which I should myself, on scientific grounds, prefer. I have admitted, however, that there are occasions in which "demand" may conveniently be employed in other senses; and this perhaps is one of them. At all events it is certain that, understanding Demand in this context as measured by the quantity demanded, the result will not be affected by the change of standard.[Major_Freedom: in other words, Cairnes argued that defining demand in terms of money, and not quantity demanded, the result of one's analysis of determinants of price will not change, which is why he accepts other economists defining demand as quantity desired, and why he himself "occasionally" uses it, as long as the context is made clear.] When Supply corresponds with Demand in the one sense, it will correspond with it in the other; and as the latter, that is to say Demand, as measured by quantity demanded, is perhaps the more familiar conception where the problem has to do with particular commodities, it will on the whole, perhaps, be more convenient to adopt this sense for the purposes of this particular discussion. I shall therefore understand equality or correspondence of Demand and Supply at a given price, when particular commodities are in question, as meaning equality or correspondence of quantity demanded with quantity supplied at that price."

Major_Freedom said...

Zachriel:

and then

"For the moment I assume that the price current in the particular market is the price with reference to which statements of the kind we are considering are made; and common language certainly presupposes the possibility of a divergence of Demand and Supply at this price. But how with regard to assertions of the other kind indicated, where we declare that, as a continuing state of things, the demand for a commodity is in excess of the supply of it — shall we say, following the analogy of the explanation just given, that the price here assumed is the price current during the period to which the remark applies; and that the meaning is that the demand at that price has been and is likely to be in excess of the supply? If we attempt to deal with any actual case we shall find that this explanation will not serve us."

In other words, Cairnes argued that if we only define demand as quantity desired, then it will not help us in understanding what Cairnes wants to understand. And what he wants to understand is the economy as a whole, which is the context of Say's law. Cairnes then writes:

"Where such statements [Major_Freedom: i.e. Supply and Demand] have reference to the country at large and to a continuing state of things, then the price assumed as that at which Demand is measured is the normal price of the commodity"


Cairns: "I shall therefore understand equality or correspondence of Demand and Supply at a given price, when particular commodities are in question, as meaning equality or correspondence of quantity demanded with quantity supplied at that price."

Yes, when Cairnes reads of other economists talking about equality of supply and demand, then, like me, he understands demand to be quantity desired, and not the money spent.

Zachriel: When someone says supply exceeds demand, they mean there is more inventory than there are orders. It's not that complicated. You can state it in quantity or in dollars, assuming a given price.

Nobody denied that when the context is a given price, that quantity demanded can exceed or fall short of quantity supplied.

When someone says demand, the context must be taken into account. For example, when Keynesians talk of "aggregate demand", they define demand as money spent, not as quantity of goods and services demanded. It would be irresponsible to insist that because they say "demand", they must mean quantity demanded.

Zachriel said...

Major_Freedom: It is ALWAYS a fair representation to use quotes around paraphrases of people's arguments when the reader is purposefully too lazy to read the full quote himself.

Purdue: "Quotations must be identical to the original, using a narrow segment of the source. They must match the source document word for word and must be attributed to the original author."

Major_Freedom said...

Zachriel:

"Major_Freedom: It is ALWAYS a fair representation to use quotes around paraphrases of people's arguments when the reader is purposefully too lazy to read the full quote himself."

"Purdue: "Quotations must be identical to the original, using a narrow segment of the source. They must match the source document word for word and must be attributed to the original author."

Major_Freedom: "Requests for quotes will not be responded to with actual quotes, if the requester is so lazy and so forgetful that they don't consider that the quotes have already been provided in their original form, matching the source exactly, so I will respond to such laziness by paraphrasing the quote, surrounded by quotes, to make you squirm."

Zachriel said...

Major_Freedom: so I will respond to such laziness by paraphrasing the quote, surrounded by quotes, to make you squirm.

We have repeatedly given you the benefit of the doubt, but there is never any reason to misrepresent someone so egregiously as to put words they never said in quotemarks.

Major_Freedom said...

Zachriel:

Major_Freedom: so I will respond to such laziness by paraphrasing the quote, surrounded by quotes, to make you squirm.

We have repeatedly given you the benefit of the doubt, but there is never any reason to misrepresent someone so egregiously as to put words they never said in quotemarks.

"We"? Who else are you speaking for Mr. Crazy Person?

And yes, there is a VERY good reason to ACCURATELY represent someone so perfectly as to put quotes around the paraphrased statement: It is because you're so lazy and forgetful that you fail to read the actual quotes with quotes surrounding actual statements that identically match the original. That is a perfectly justified reason in accurately paraphrasing Cairnes' statement with quotes, instead of doing what you should have done, which is read the above quotation that exactly matches the original, and by mirror construction, accurately represents the paraphrased quotation.

Cairnes: Demand is defined "in every instance it is regarded as represented and measured by the purchasing power ordered, not by the quantity of commodities or services demanded."

This is accurately paraphrased as "I define demand as money spent."

Purchasing power ordered is the act of actually spending money.

You must be mad.

jason h said...

The supply of T-shirts isn't infinite, but ample.

Ah, see you misrepresented the Supply of T-shirts...it's not 100 its ample.

Did you remember to account for all the Demand? Are there other T-shirt shops with potential customers?

Let's assume there are...

Ok, so Demand for T-shirts at $10/shirt is $Galore and Supply of T-shirts is Ample.

So, the price $X of a T-shirt will find equilibrium such that...

Demand(X_eq) [$] = X_eq [$/shirt] * Ample [shirts]

jason h said...

Are you saying there is no demand in our shopkeeper's shop?

There's is "demand" in the trivial sense, but not Demand in the economic sense.

Trivial because when you attempt to sell a commodity below the market equilibrium price, you will certainly have alot of buyers.

I could offer to sell gold coins at $1000/oz. and there would be a line around the block.

You have constructed the model too narrowly for it to be applicable to Supply and Demand.

Zachriel said...

jason h: Did you remember to account for all the Demand? Are there other T-shirt shops with potential customers?

Don't forget to account for the flooding in South Asia and its effect on cotton futures.

In any case, we are looking at a small corner of the economy, a shopkeeper buying a hundred t-shirts for a couple bucks each, marking them up to $10, and having a thousand people wanting to buy them. The question is whether it is coherent when the shopkeeper says, "demand exceeds supply." Of course it is.

jason h: There's is "demand" in the trivial sense, but not Demand in the economic sense.

It's not trivial to the shopkeeper. Indeed, a market economy is nothing more than individual sellers and buyers making individual transactions.

jason h: You have constructed the model too narrowly for it to be applicable to Supply and Demand.

It's too narrow to represent the entire economy—nor does it attempt to do so, but it certainly represents demand.

jason h said...

The question is whether it is coherent when the shopkeeper says, "demand exceeds supply." Of course it is.

Coherent in layman's terms perhaps...

However, when he says "demand exceeds supply" he really means, "at the price I am asking my orders exceed my inventory"

Say's Law still stands Demand cannot exceed Supply.

jason h said...

but it certainly represents demand

No it doesn't, nearly 200 comments later and you are still not using "demand" correctly (in the Economic sense).

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