I point out that as I have rejected the initiation of force and thus they have nothing to fear from, and as they will not make the same rejection, I have much to fear from them. This is usually most effective after they have told me that if I don’t do this or that (pay taxes, don’t support welfare, or whatever) then I deserve to go to jail and if the discussion gets really heated, they will invariably threaten to put me up aganist and have me shot! Having said all this and having threated me, the chances are still that they will not accede to free market cap;italism. Sad but true.

You’re only looking at consumer goods as “stuff”. Capital goods are also stuff. Let’s say somebody simly sticks his money in a bank account (not a good investment, but a simple example). That money is not just sitting there, not buying “stuff”. It’s being loaned to somebody else, so he can buy something with it; possibly “stuff”, possibly capital goods. The production of capital goods provides jobs just as much as the production of consumer goods does.

Also, it’s not the slump in “stuff” sales that has killed our economy. It’s that, because of easy money, people were buying consumer goods stuff that they wouldn’t have if the money weren’t so easy. Businesses invested their capital goods stuff so as to produce the consumer goods stuff that the people wanted. When money started getting tight, people stopped spending on the stuff that they were when money was easy. Then it became apparent that the businesses were geared to make the wrong consumer goods stuff, and have thus spent money on the wrong capital goods stuff.

“I think the evidence is hard to ignore that in such times accumulating investment capital has a way of disappearing in a puff of smoke.”

Is it disappearing, or is it just waiting to try to find where the good investments are? If it is invested in a poor investment, all that will happen is that that wealth will be wasted, and will not be around to be invested in a good investment when one eventually comes around.

“There is never a lack of demand. Whatever is produced will be used to purchase something else (excluding the fleeting act of “hoarding”). If we do not spend our previous production on consumers goods, we will save it in our bank account or investment account, where it will be used by others to purchase “i.e., “demand” capital goods. This demand for capital goods, though it is thrown out of GDP calculations, is still there. The fact that people are reluctant at some periods to spend on “anything” (to hoard), comes from their being in a shaky economy that could come about only from prior “demand stimulation.” You don’t need to force people to spend–they will, and they have to.”

Agreed. To the degree that there’s always money looking for a new home, there’s always demand. But the nature of that demand is always changing.

In a period of relative income equality, like the halcyon days of the 1950′s and 60s, people demanded more washers, Buicks, sewing machines and cool clothes. But as those more fortunate have pulled away from the pack (we now have the greatest inequality of income we’ve seen since 1929) people are increasingly looking for a safe investment, something that will expand their wealth without significant downside risk. And buying less stuff. It’s that sag in ‘stuff’ sales that has led to our employment slump. We can’t all make our livings as investment advisers and arbitrageurs.

I think the evidence is hard to ignore that in such times accumulating investment capital has a way of disappearing in a puff of smoke.

“Production” is a word with a deceptive meaning. If we describe the GNP as being the sum total of all national consumption, all investment, governmental purchases and our balance of trade, we come up with a number that doesn’t really enlighten as much as one would hope. I think we do have to give some cognizance to the ‘real’ economy… unless we pull free from gravity and float away in a cloud.

J Murray: With your definition of wealth, I’m surprised you don’t buy everything when it’s on sale, and then buy more with all the money you saved.

Household wealth is usually defined as the current value of all one’s possessions, plus their available cash, plus the redemption value of their investments. You might not trade your dog for a million bucks… but on the market he’s not worth that.

Nope, doesn’t work. There’s no voting in capitalism except in a figurative sense, when consumers “vote” with their money, and my vote doesn’t make yours invalid.

Right on the money, htran. There will always be some demand. Or rather, the day there is zero demand everyone will be dead. But what is the optimum amount of demand? It’s a critical question.

At present, the US workforce has been reduced in the amount of approx. twenty million jobs. I see that as a failure of the economy to nourish us properly. And as I’ve pointed out, the economy is our handmaiden, to be used for our benefit. We don’t serve it. It serves us. And it’s not doing a proper job if it leaves twenty million families in some degree of financial duress.

So I would stimulate it in any way possible. I’d try any sort of intervention, to see which strategies were successful. I’d learn from both the mistakes AND the successes of the past.

Now let’s look at the flip side. What about when the economy’s running too hot? Everybody has a good job, in fact we’re putting out resumes and job hopping, encouraging employers to bid for our services. It’s a job-seeker’s market.

Good, right? Wrong. Now the problem is that everyone has so much cash in their pockets they’re buying everything in sight. This encourages vendors to increase the prices of their wares. Price inflation rears its ugly head. And this is likewise a condition we detest.

I’d use whatever interventions I could imagine to bring inflation back down. In fact Ronald Reagan used strong interventions to cool the overheated economy of the late seventies (the product of an excess of success from 1946-1973) and kill inflation. True, he did run up the debt during that period. But which was worse? The inflation or the debt?

How much demand do we consider to be “correct”? That’s like asking how much heat is necessary in your home. We know when it’s too hot. Likewise, we know when it’s too cool. And we take a different approach to thermostat depending on the nature of our discomfort.

Bill, this just runs counter to all logic. Those workers laid off from bomb projects had been denying themselves purchases for years, because there was little in the stores to be bought. Consequently they had all built up large savings accounts from their income. What one would expect would be an avalanche of consumer spending once the postwar wares were put on the shelf.

And that’s exactly what we saw. Deferred spending.

Add to that another deferred event: getting married and having babies. Johnny came home. There’s nothing that stimulates spending like setting up a whole new household.

Allow me to suggest the 10% drop in GNP has an entirely plausible explanation. Consumer spending was going through the roof in that year. But still, its size was smaller than the retirement of huge government defense contracts. It’s a theory, but I believe one supported by accounts from that era.

The other uses such as antiseptics, feedstock, solvents, poison control, and consumer beverages, are dwarfed by what we burn in our cars. The ethanol fuel market would outright collapse if the mandate was eliminated becuase the ethanol fuel market exists purely becuase of government mandate. Without that mandate, no one would put ethanol in their gasoline and corn producers would actually start selling corn for food, not fuel.

It’s by the recognition of human fallacy that Austrians reject centralized control, regulatory control, or any authoritative control. The one in control is fallible and by the nature of being in control, everyone will fail when he does. The true basis behind the uncontrolled, free market proposal is that the inevitable failures are not created as a system-wide problem that happens under the regulated market model. Failures in the free market system are staggered, which allows those who are still in operation to learn from it and continue forward. Learning from failure is not an option in the regulated market becuase to learn from the failure, the system itself has to change. Free markets can organically adjust around new situations, regulated markets have to battle bureaucratic inefficiencies, gather committees, commission studies, and send out votes to get anything changed. It’s the regulated market that allows the human fallacy to fester in the system long after it would normally be purged out of a free market system.

What makes the proposed free market system a good idea is it is designed specifically to leverage human greed and fallacy to positive ends. The true fallacy of the regulated and controlled market is that we can collectively identify and present an infallable person into a position of control to guide us around the failures.

The regulated and government controlled market is a true paradox. To coordinate a group of fallable, greedy humans, we must control them by selecting a person or group who does not fail to show them the error of the path they take. However, since no human is infallable and selfless, finding that person or group to engage in the control is impossible and always leads to full failure of all the members of society at the same time when the fault of the individual or group is now projected to everyone else.