dlo@drutx.UUCP (OlsonDL) (09/22/86)
[] >> Since government produces no wealth of its own, what wealth it has comes >> from the private sector via taxes. >> >> David Olson >Again, David, I think you should read Keynes or some books which explain >Keynesian theory. While I am not a student of his, I have read Keynes. >The problem is with the savings and investment rate. I presume that you are talking about the notion of too many people saving too much. Let's see if I've got this right ... ummm ... oh yeah. Ahem. Supposedly, if too many people save too much, too many goods will pile up unpurchased. Also, there is no guarantee that this saved money will be borrowed or invested. Result -- a stagnant economy. Something like that? The problem with that is that for this to happen, it would require all these people to be willing to trade (sell) the wares that they produce for little green pieces of paper (the dollar) that they *never intend to use*. Most people spend most of thier money as soon as they get it, and they generally do not place their life's savings in a mattress any more. What they save is usually placed into a bank where, although not spent right away, at least it is borrowed or invested. >During Depressions savings is stuck in a trap. There is no point in >the private sector making investments because there is already overproduction >which cannot be bought because 33% of the people are unemployed and >have no money to buy the goods which might be produced with more >investment. Have you ever heard of Say's Law? It was named after a 19th century French economist by the name of Jean-Baptiste Say. It basically states that there is always just enough purchasing power within an economy to purchase all the goods and services that are produced in that economy. This law tends to refute the idea of surplus goods. It means that government spending generates no new purchasing power, but rather just shifts the aleady existing purchasing power around. It also gives support to the idea that supply creates its own demand. It is, thus, the backbone to supply side economics. Say's Law tends to drive those of the Keynesian school of thought crazy. But not only did Keynes not refute it, he actually gave evidence to support it. In his book _The _General_Theory_of_Employment,_Interest,_and_Money_, Keynes writes in Ch. 7, "Thus the old-fashioned view that savings always involves investment, though incomplete and misleading, is formally sounder than the new-fangled view that there can be saving without investment or investment without 'genuine' saving." "...the amount of money which people choose to hold is not independent of their incomes or of the prices of the things (primarily securities), the purchase of which is the natural alternative to holding money." "Both these propositions follow merely from the fact that there cannot be a buyer without a seller or a seller without a buyer." In Ch 8, "Consumption -- to repeat the obvious -- is the sole end and object of all economic activity. Opportunities for employment are necessarily limited by the extent of aggregate demand. Aggregate demand can be derived only from present consumption or from present provision for future consumption. The consumption for which we can profitably provide in advance cannot be pushed indefinately into the future. We cannot, as a community, provide for future consumption by financial expedients but only by current physical output." "Consumption is satisfied partly by objects produced currently and partly by objects produced previously." >The government by providing employment in some ways is *forcing* >investments in such things as dams, roads, schools, conservation projects >and so on. But in so doing that 33% of the people previously >doing *nothing* are now actually working *productively* creating >power plants, roads and so forth. I assume you are referring to the WPA. It was instituted in 1935, but the Depression did not end until 1939, when there was a need for men and machines for the war effort, and the WPA was terminated in 1943. There was the belief that when WWII ended, that the Depression would return because there would be no more need for things for the war effort and all the men returning would mean more people than jobs available. Not only did it not happen, but there was an economic boom. Further, the WPA employed about 8.5 million people. A lot, but hardly 1/3 of the population. These lead me to believe that the Depression ended, not because of, but rather in spite of the WPA. > tim sevener whuxn!orb David Olson ..!ihnp4!drutx!dlo Oh, by the way, I ran across the following quote in The Denver Post a couple of weeks ago: "Taxation may be so high as to defeat its object, and that, given sufficient time to gather the fruits, a reduction of taxation will run a better chance, than an increasing, of balancing the budget." -- John Maynard Keynes