Who said anything about consuming something that hasn't been produced yet?

What about it makes no intuitive sense?

How does producing more worthless things help you save?

^ Mainstream economics ^

v Austrian economics v

Economic growth requires increasing productivity, which requires capital accumulation, which requires savings, which comes at the expense of present consumption, but expands future consumption. Increasing present consumption comes at the expense of savings, which comes at the expense of capital accumulation, which comes at the expense of future productivity, i.e. present consumption comes at the expense of growth.

I will leave it as an exercise for the reader to discern which makes more sense.

At bottom, my intuition is that the long run increase in standard of living over the centuries of human existance has come from increase in technology. Its interesting to me how Buffet says we live better than J.D. Rockafeller based on being warm in the winter, and cold in the summer. Naturally the wealthiest in the past never had flat panel monitors. Human knowledge leading to greater efficiencies are passed down through the generations. An investment might produce things that are "worthless" and fail as most investment do but those that succeed leave us better off.

Simple thought experiment:
If you have 100,000$ and buy a ferrari, which is a working example of technology we already have, I don't see how human technological knowledge will benefit in the long run. If you use that same $100,000 and let me invest in a new business that does something differently, like a new method of growing crops, there is some probability that there will be a permanent increase in the amount of technology humans have access to if the innovation is successful.

DMACM, you're making a good point, but it's simpler than that.

Someone had to save up to purchase all of the equipment, hire the workers, lease the factory space, etc. to produce the Ferrari itself. Without all that savings, the Ferrari is not produced, no matter how much GMontag "demands" it be.

Methinks this has something to do with that.

Right off the bat you've got something wrong. Doesn't bode well. Economic growth requires increasing production, not increasing productivity. Certainly it helps, but it is not required. If everyone working 8 hours a day started working 10 hours a day but at the same productivity level, that'd be economic growth.

And another thing wrong. Capital accumulation doesn't require savings. Capital accumulation is just as easily done from revenue.

This leap I gotta see. Please illuminate the logic that lets you get from "there's a bunch more stuff on the market now" to "Joe sixpack decides that he's going to buy a bunch more stuff that he didn't want before".

No it doesn't. Increasing consumption increases production, which leaves savings the same.

Only because you can't figure it out for yourself.

Directly, increases in standard of living are caused by increases in consumption. To illustrate this, consider two people. One makes $60,000/yr and spends it all. The other makes $600,000/yr, but only spends $20,000. Who has the better standard of living?

I agree that the increases in consumption over the years have been made possible by advances in technology, but those advances in turn were made possible by increases in consumption.

An increase in production without a corresponding increase in consumption will *always* produce worthless things. There's no "might" about it. Things nobody wants to consume are worthless by definition.

This is like the anti broken windows. That $100,000 you spend on the Ferrari doesn't disappear.

Nonsense. None of those things require savings. They can just as easily be paid for out of revenue.

How so?

Where did the revenue come from?

Either you've misunderstood Boro's point or you've got yourself a strawman argument.

I think you're confusing demand with consumption. You can't increase your consumption of a good without more of that good being produced first. Increases in demand might lead to increasing production to meet that demand, but that's not what you said.

....

Again, where did that revenue come from? Someone had to save in order for you to generate that revenue.

Assuming that both the desire to consume and the resources to create the things that are consumed are neccessary is not the more likely bottleneck a lack of resources to create.

I'd like a hovercraft and will spend 1 million. Are you going to create one out of thin air or hire a team of engineers at high salaries?

I understand your point that a desire to consume is neccesary but it seems we'll never suffer from a lack of that. You might as well explain famine as stemming from an incipient ambivalence to food and lack of hunger. Even among the very rich that don't spend their money I bet Bill Gates would spend a billion dollars to cure his child of cancer. But he can't will it into existence its going to cost billions of dollars in scientist's work to accomplish that.

Word games. Joy.

Wrong. By savings we mean foregone consumption. If all productive capacity goes to consumption, then there is none left over to expand the capital stock. To expand the capital stock, or even maintain it against wear, some fraction of productive capacity must be diverted from consumption to savings. Saying "it comes from revenue" doesn't get you out of this; somebody has to not consume so that productive capacity can be devoted to producing capital.

I have no idea what you're trying to say here. I doubt you do either.

Robinson Crusoe lives on an island. If he works every waking moment, he can pick 1000 berries a day. He realizes that if he had a net, he could catch fish (i.e. become more productive). But it will take a week for him to weave the net. Hence, he saves some fraction of his productive capacity by sun drying 200 berries a day for some period of time to sustain (i.e. pay) him while he is weaving the net. Without this savings, he cannot invest his time and labor in producing capital goods. The same is true of the modern economy. Savings must exist in order to aquire capital goods and pay workers through the duration of production. Saying that this will come out of revenues is silly. He doesn't get the revenues until after production is complete and the goods are sold. Saying that he can take out a loan does not help; the loan represents what? Savings.

Production possibilities frontier for the win. This really is pretty simple stuff.

Keep posting. Your posts make at least as good an argument for my posts as mine do.

This is a foolish example. What does the man making $600,000/year do with the other $580,000/year? He must, by defiition, save it, meaning that in the future his standard of living coud be considerably higher, should he choose to increase his consumption.

Here is a more realistic example. Let's say that there are two men. One make $60,000/year and spends it all. Another makes $80,000/year and only spends half, saving and investing the other half at 7% per annum. Who has the higher standard of living? The non-saver, in the short run. If the saver always saves the same proportion, then his consumption spending will exceed the non-savers after about 13 years.

In the real world, you cannot consume something before it has been produced. And youcan't produce something if you have consumed the resources you needed to create the capital goods required to produce it.

This is another Keynesian fallacy. "Production" is not monolithic. The structure of production extends in time as well as being distributed in space. Businesses invest in capital goods that will not produce consumer goods until the distant future at the end of a roundabout production process, when consumers will be able to afford the new goods precisely because they have saved the funds required to purchase them, rather than spending them in consumption long before.

It isn't the money. It's the real resources. Someone has to devote productive capacity to building machines, storing up food, etc. in preparation for the long and roundabout production process that ends in a Ferarri. That real resources devoted to that productive capacity necessarily comes at the expense of consumption.

You keep using that word. I do not think it means what you think it means. Saying "you can pay for it out of revenue" does not explain where the capital goods came from. They had to be created in a process that equired unconsumed, i.e. saved, real resources.

If the global economy collapses, gold won't be anymore valuable than paper currency. People will barter for things they can use or eat. Gold therefore, like paper money, only has the value we assign to it. It does not have some absolute value.

Gold standard proponents ignore the fact that gold is now used extensively in modern tech products, the cost of which would likely increase if tech manufacturer's had to compete with the treasury for gold.

If by "we", you mean the market as embodied by the subjective valuation of individuals, then yes, of course.

And there is a good point here. If the economy collapses, in the short term gold will almost certainly NOT make a good medium of exchange, precisely because it does not have a very high "use" value and its value as a store of value (wrap your head around that one) will be much, much higher than its exchange value. So the point of buying and holding gold if you believe that the fiat system must eventually collapse due to instability is not the believe that the day after the dollar crashes we'll all be buying groceries with dubloons. Rather, the point of holding gold is precisely as a store of value, to preserve purchasing power through to the "other side" of the collapse. During the collapse, silver is a much, much more likely medium of exchange, although it certainly may not be a general medium of exchange. As society reorganizes in the collapse, various competing moneys will spontaneously arise (this has happened over and over; for example after the Argentian monetary debacle of the 90s, people were buying new Fords with grain contracts) from commodities that have high use values. These will then be eventually outcompeted as the system stabilizes by monetary metals, probably silver at first, and ultimately, gold (for the same reasons gold one out before).

That is if we are not stupid enough to let them do the same thing again.

They don't ignore this at all. It's irrelevent. There are innumerable alternative uses for all resources. Gold is actually currently rarely used in industrial processes precisely because it is so valuable for other uses. A rise in the value of gold for monetary use would simply mean that industrial processes would substitute other, less costly alternatives.

What do you mean? People are making more stuff, that is pretty much the definition of economic growth.

From the usual place, people buying the stuff you made.

Increases in consumption imply increases in demand. They go hand in hand.

No they didn't. People get money and immediately spend it all the time.

I wouldn't say so. Why do advertisers feel the need to spend billions of dollars every year on trying to get consumers to want to buy more stuff?

That seems like an absurd assumption to me.

Its not word games. The difference between productivity and production is important because it invalidates the rest of your argument. Increasing production doesn't require capital accumulation like increasing productivity.

What? Expanding the capital stock is a form of consumption.

I read your sentence as saying that increasing productivity expands future consumption. If that was a misreading I apologize.

This analysis is only correct because of the fact that there aren't enough people on Robinson Crusoe's island for a division of labor. As soon as Friday shows up, there is no longer any need for savings. Robinson just picks enough berries to feed both him and Friday each day, while Friday makes the net. This analysis is not relevant to the modern economy where there is a division of labor.

Production is an ongoing process. The employers are paid for the current production from the current revenue. The current production turns into the future revenue, which pays the future production. There's no saving involved here.

Thank you for illustrating my point for me. The man making $600,000/year only increases his standard of living when (or if) he begins consuming more. It is an increase in consumption that causes a rise in the standard of living.

Who said you could?

How can it come at the expense of consumption? It is consumption.

Nonsense. They can be created in a process that uses resources as they are created. If there's no interval of time between when the resources are created and when they are used, how is it saving?

I may be completely misguided here, but I'd think: the berries Robinson does not himself eat, he loans to Friday, i.e., savings on Robinson's part?

Yes. GMontag does not understand this. Nor does he understand that production takes time, and that modern production processes take literally years, if not decades from land to final consumer goods. In his world, there is always someone else that he can magic into any scenario who has already done the saving in question off stage, so that he can claim no savings are necessary.

For example, in the scenario you responded to, he neglects the fact that Robinson and Friday could pick, say, twice as many berries as Robinson alone could by himself. So for Friday to stop berry picking to build the net, during that time their sustenance is halved, perhaps to the point where they could not survive, and would not be able to produce the net in the first place. UNLESS, of course, they had SAVED UP SOME FRIGGING BERRIES TO EAT WHILE MAKING THE NET.

How is that saving? The berries are getting consumed immediately. Robinson isn't loaning Friday anything, he's paying Friday for his labor.

So what if it takes time? Production is still done incrementally, and it is paid for incrementally. Do you think that Alaska Airlines just plops down $200 million and says "see you in 3 years when our 747 is done"? Of course not. They pay for it continuously over the entire production time.

No one is doing it off stage. The production is happening continuously. Manufacturing is done on an as needed basis.

Yet another example that is only true because of the small number of people on the island.

This is ******ed. If they could not survive on halve the sustenance then Friday doesn't spend all his time building a net. He picks berries until those and the expected amount Robinson will pick equal enough for them to survive. He builds the net during the time he doesn't need to pick berries. No saving of berries is needed just a calculation of how many berries they will need and the best way to divide their time.

The point is that the resources dictated to making capital goods is saving, because those resources could be diverted to making consumer good.

Suppose between them Friday and Robinson can pick y berries an hour, and Robinson on his own x. Obviously y>x, and during the time that Friday spends making a net the economy sees it's production of consumer goods fall by y-x, which is saving. Whether or not x berries is enough for them to survive or they have to have some left over from previous days is pretty much irrelevant, in order to increase their capital stock by building the net they have reduce their consumption by (y-x)h berries, where h is the number of hours it takes to build the net.

The analysis is true whatever the size of the economy. An economy has finite resources, and these resources can either used to produce capital or consumer goods. Producing capital goods (investment) therefore requires one to give up potential consumer goods (saving).

There are three major problems with this.

First, this is a ridiculous misuse or redefining of the word "saving". This misuse will lead to problems with equivocation later.

Second, they are not reducing their consumption at all. They consume the same number of berries per day whether they are building the net or not. You are assuming that if they weren't building the net, they'd be picking more berries than they need, which is an unwarranted assumption.

Finally, the distinction between consumer and capital goods is pretty arbitrary. Both the berries and the net could be considered either consumer or capital goods.

I was using saving to mean: the part of their endowment of time that is not used to satisfy present wants, i.e foregone consumption. Similarly my saving is that part of my income that is not used to satisfy present wants.

It is true that they may well eat the same number of berries each day, but that does not change the fact that in order to build the net they have to give up potential berries that could be eaten - forego consumption.

To be precise we should include leisure and say that their present utility U(b,L) is increasing in berries and leisure, while the net does not provide any present utility. It is true that they may choose to pick the same number of berries and use time that would otherwise be used solely for leisure building the net, and this would see the "island GDP" increase, but either way they must sacrifice some present utility to increase future utility. For all intents and purposes leisure is a consumer good, it provides utility in the present.


I think people were using berries and nets as the archetypal consumer and capital goods, so this is a little nitty. I don't think the distinction is arbitrary at all, but it is true that some goods can be used for both capital and consumer ends, but this doesn't change the analysis at all. The two goods could be fruit to eat and fruit to plant and the same analysis would apply - in order to have fruit to plant for future food they must forego eating them in the present.

Then Robinson is not saving. The berries are going to satisfy present wants, namely wanting Friday to continue laboring on the net.

But they aren't forgoing anything. In order to forgo, there has to be something that they are giving up. Something that they would have done if it had not been for them deciding to build the net. There is no such thing in this case.

Leisure isn't a good. You don't have to do anything to create it. It doesn't provide utility either. It is neutral. It is the state of doing nothing. Also, how do you know the net doesn't provide any present utility?

Every good can be used for both capital and consumer ends, and whether an end is capital or consumer is in the eye of the beholder. In your fruit example, you could just as easily argue that you need to eat fruit in order to have enough energy to gather more fruit (as opposed to, say, throwing it at Friday), so fruit is a capital good, and therefore eating fruit is "saving".

But the value of the net is the fish it will catch in the future. You could just as easily say that the money I save each month is going to satisfy my present want of wanting money in the bank - but the only reason I do it is so I can spend it in the future.


If Friday wasn't building the net he'd be picking berries or lounging about, either way he's giving something up. I don't see how this is in any way disputable.

Semantics, it could seen as avoiding the disutilty of labouring, it makes no difference. Utility is a relative concept - what's important is that leisure is valued higher than labour.

Because in this hypothetical it's the archetypal capital good. If they decided that the net should be worshipped as a god, and they enjoyed doing it, it would be a consumer good.


Hmmm, I'll have to think about this some more, but I think you have a reasonable point as far as subsistence level food is concerned - without it we'd die and reduce the factors of production - perhaps it is a way of preventing labour depreciation. I don't think it applies to all consumer goods though.

Oh and:

[x] racist, ban.