Wednesday, February 5, 2014

Things change, you know?

I'm working on something, looking things up. Came upon the Wikipedia article Keynesian economics. This, from the Overview:

Prior to the publication of Keynes's General Theory, mainstream economic thought held that a state of general equilibrium existed in the economy: because the needs of consumers are always greater than the capacity of the producers to satisfy those needs everything that is produced will eventually be consumed after the appropriate price is found for it. This perception is reflected in Say's Law and in the writing of David Ricardo...

David Ricardo, 1772-1823.
Jean-Baptiste Say, 1767–1832.

These two men were born only shortly before the publication of Adam Smith's Wealth of Nations. What year? Same year Edward Gibbon's Decline and Fall of the Roman Empire was published.

Need another hint? Same year our Declaration of Independence was writ.

Before Keynes, Wikipedia says, it was believed that "the needs of consumers are always greater than the capacity of the producers to satisfy those needs". Sounds kind of odd, perhaps?

Yeah, I don't think it applies in our time. But I do think it applied in the time of Adam Smith and David Ricardo and Jean-Baptiste Say -- a time when the word "business" was not far removed from the word busyness. There wasn't all that much business in those days, to begin with. So a busyness-man was not likely to run out of customers. There just wasn't that much stuff to sell:

Graph #1: The time of Smith, Say and Ricardo? Between the second and third dots.
Data from Measuringworth but seems to be no longer available.

Think of it in that context when you read this statement attributed to Jean-Baptiste Say by Wikipedia:

a glut can take place only when there are too many means of production applied to one kind of product and not enough to another.

I guess what I'm saying is this: If you're talking to someone who uses Say's law to explain the world, don't call him an asshole. Tell him yes, things used to work that way, but things have changed.

Oh -- here's another look at that Measuringworth data:

Graph #2

Based on numbers from MeasuringWorth, there really was not much "busyness" at all, before Smith and them. And in their time, well, there could not be a glut of business because there just wasn't enough business. In those days, the needs of consumers were always greater than the capacity of the producers to satisfy those needs.

It's not like that any more.

1 comment:

Jazzbumpa said...

In Adam Smith's time, a large factory might have had as many as a dozen employees. Since conservative economists haven't yet caught up with the fundamental changes wrought by the industrial revolution, how can we expect them to realize that capitalism has been supplanted by trans-national mega-corporatism?

Sympathy might be in order, but OTOH, I'm loath to give up calling them ass holes.