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How the Economy Responds to Governmental Attempts to Overcome Slumps and Depressions

By       Message David Chester       (Page 1 of 14 pages)     Permalink

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HOW THE ECONOMY RESPONDS TO GOVERNMENTAL ATTEMPTS TO OVERCOME SLUMPS

1. INTRODUCTION

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National economies are continuously undergoing change and are never completely stable. A good indication of the degree of this activity is the paper-value of the total share-holdings that continuously expand or contract in size and is called a bulls or a bears market. But in certain circumstances this fluctuation does not remain small and one particular part of the macroeconomics system has prices that steadily increase. This unstable behaviour cannot last for ever and eventually these prices stop rising and then suddenly collapse. From this catastrophe the shock spreads across the whole system as a depression develops. At the stage being considered here, this failure has recently occurred and an economic slump is in progress. The total value of share-holdings has decreased dramatically and the stock-market trade has significantly shrunk. Reductions in the demand for produce have led to much unemployment and the increased withdrawals of savings have resulted in some bank failures.

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In the great slump of 1929, it was first believed that the best governmental policy is to do nothing, because the robust nature of the market economy causes it to quickly right itself. But even after some changes were introduced this recovery took almost 10 years. Today most economists believe that the adverse effects of slumps should be eased by taking suitable measures. However, the choice of which changes to introduce, for creating a beneficial effect on the national economy as a whole, is not so obvious as when in 1936 John Maynard Keynes [1] first began to prescribe them. Experience and deeper analysis of these and other proposals has found that all but two are ineffective, and one of these at best, is remedial for a limited time. The situation is more complex and a change that favours a specific part of the social structure does not necessarily improve all of it. The following analysis shows why Keynes's proposals are mostly unsatisfactory and determines which action produces better results.

2. DESCRIPTION OF THE SLUMP AND ITS INFLUENCE

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The origin of these slumps is due to speculation within the building industry and the dynamics of the supply and prices of building-land. With every other kind of traded item, the ability to use similar but different products avoids the dictatorial influence of a perfect monopoly. (This freedom is expressed in the natural self-regulation of prices, by supply always equalling demand according to Say's Law. Neither over-production nor under-production results; competition always ensures that the goods are traded close to their optimum price.) However, as Mark Twain proclaimed "Buy land, they're not making it anymore", and the number of building-sites is severely limited. Consequently the land-owning cartel is absolute-there is no alternate suitable path that demand for this resource can take.

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I am a retired engineer whose has been studying macroeconomics for many years. I have developed an original and logical (scientific) theory to explain what it is and how it works. And I wish to share this information about how the social (more...)
 

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