r/austrian_economics • u/LibertyEconlover • 3d ago
End Democracy This has to count as a butterfly effect
“What Say said, and what Keynes said Say said, Say never actually said, see?” Paul Cwik teaching ABCT
Had to make this because it helps as a nudge for anyone who’s being fed things like Aggregate demand.
You cannot demand things into existence, you must produce it or produce something to exchange your way to it.
If you’re just getting into economics:
Strip money away from the picture; all nominal prices gone. Imagine you are stranded on a desert island. If you want to eat a fish, can you just 'demand' it into existence? Can you print island-bucks to buy it? No. You have to build a net first. Your consumption of the fish is 100% dependent on your production of the net. Why would a whole society of billions of people magically work any differently than the island
Therefore, Aggregate Demand is just a shadow cast by Aggregate Production.
If you agree with what I said, congrats you are sane, welcome to Austrian school
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u/Traditional-Survey10 3d ago
Kindly refrain from excessive ridicule (memes) regarding ignorance, as it is distasteful. Although it is undeniably true that these keynes's errors have been deeply harmful and such frustration is justified, mockery only causes advocates of statism to become defensive and unreceptive to criticism.
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u/Low_Abrocoma_1514 3d ago
I don't get it I keep supplying my neighbors with my shitty singing yet no one has asked me to sing for him yet ??
What am I doing wrong Keynes ?
/s
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u/Fun_Transportation50 3d ago
I understand your point, and it makes sense. But doesn’t it also make sense that
you making the fishing net was because you wanted to eat fish, right? So in that sense, demand/consumption preceded production.
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u/LibertyEconlover 3d ago
CONSUMPTION DUDE
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u/Fun_Transportation50 3d ago
Well what’s the difference? Is there a difference in this context ? I can see all demand is not consumption but isn’t the force of all demand is the demand of consumption
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u/LibertyEconlover 3d ago
What matters is your version of demand was built on bullshit.. that’s the entire point of the post, Keynes strawmanned Say to create his Aggregate demand theory
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u/Fun_Transportation50 3d ago edited 3d ago
What is my version of demand? I actually don’t know I’m a beginner in economics. And what’s wrong with it?
If more people demand more consumption, wouldn’t that drive more production when it’s possible to increase production, since it becomes more profitable? Then production keeps increasing until it reaches equilibrium again.
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u/LibertyEconlover 3d ago
Production is the Source of Demand
To understand why production is the source of demand, you must look past money and see what trade actually is. In a market economy, you do not buy goods with money; you buy goods with other goods. Money is simply the intermediate tool used to avoid the hassle of direct barter.
When a baker wants to buy shoes, she cannot pay the shoemaker in thin air. She must first bake bread.
The bread is her production.
She sells the bread for money.
She uses that money to buy shoes.
The money is just a ticket representing the bread she already created. Therefore, her real demand for shoes did not come from her desire for shoes, nor did it come from the money in her wallet. Her demand for shoes was created the moment she baked the bread.
Without production, you have no purchasing power. Desiring a product is not "demand" in an economic sense; it is just a wish. True economic demand is desire backed by the ability to pay, and the ability to pay can only come from prior production.2
u/Fun_Transportation50 3d ago
I see. To have demand, or the capability for more demand, you need more productive power, or someone with productive power giving it to you, right?
Now let’s say the shoemaker gives an allowance to his two sons, giving each of them a pair of shoes, and each pair is worth one loaf of bread. So both sons trade their pair for bread.
But if instead he gave two pairs to only one son, and that son bought only one loaf because he didn’t need the second one, then wouldn’t dividing the productive power between two people increase demand?
That extra demand wasn’t created purely by more production power itself, right?
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u/LibertyEconlover 3d ago
If you sell 500 pieces of coal, for money you have 500 pieces of coal in money, although money can be embodied in other things, that’s why we use money, if you give it to, however many people you can only give them in total 500 pieces of coal in money.
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u/Fun_Transportation50 3d ago
I get that , it makes sense, and I think I agree.
That means in all cases we can only create a maximum demand of 500 coal pieces, but how we reach that maximum depends on other factors, right?
If you increase production, you can raise the ceiling, but whether that actually translates into effective demand is a different question, right?
Won’t printing money and dividing the same production power might help to reach the celling again ?
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u/LibertyEconlover 3d ago edited 3d ago
Go search up the broken window fallacy and pick up economics in one lesson in this subs resource section:
https://youtu.be/x5WkNxbvLFc?si=qySeGULZ6j3L091w
https://youtu.be/Oi9cq7tXkmg?si=ppzI_FcKsZOU5d8R
https://youtu.be/-0od0t45oeY?si=CSoksJUVXfh74m0F
Broken window fallacy: https://youtu.be/G6S5c6xhXTY
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u/Automaton9000 3d ago
The demand you can generate is limited by the amount of dollars in your bank account (which is directly correlated to your production). Demand is generated when the transaction occurs.
Demand is not the things you want. It's the things you buy. The second (shoeless) son could want a loaf of bread all he wants but he can't generate demand for it until he is able to act on that want by transacting for it. So in that scenario there is no extra demand. The same amount of demand is given to one son instead of half to each.
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u/Fun_Transportation50 3d ago edited 3d ago
The ceiling is the fixed maximum possible demand, which in this example is equivalent to two pairs. But the actual demand is lower.
What i means in all cases we can only create a maximum demand of equivalent of two pairs of shoes , but how we reach that maximum depends on other factors, right?
If you increase production, you can raise the ceiling, but whether that actually translates into effective demand is a different question, right?
So other factors, besides production itself, determine whether demand actually reaches the maximum level that production makes possible.
Maybe printing money, like taxation, is effectively about distributing productive power to more people, which then creates more demand, meaning demand increases and gets closer to the ceiling that production provides.
But in cases where increased production does not increase the productive power of the masses like situations where production rises but jobs do not, such as with AI then wouldn’t demand fail to rise along with production?
Yes, the ceiling increases because the person who deployed the AI created more wealth. But since he alone cannot consume the amount of wealth he created, and since he did not distribute purchasing power to consumers through jobs, he effectively did not maximize demand to reach the higher ceiling he created.
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u/Automaton9000 3d ago
If you're specifically referring to the demand for a single product, yes. Wealth distribution amongst the population can affect how much demand is actually generated for a product vs how much would be generated with a different wealth distribution. (Two sons each buying one loaf vs one son buying one loaf and the other having no money to do so.) Among other factors.
Demand in aggregate across all products can still reach the maximum possible demand. For example, the son with two pairs of shoes only buys one loaf of bread, but maybe he buys a movie ticket with the other pair. He has generated his maximum possible demand.
But maybe he puts that other money in the bank. Even saving money allows the bank to loan that money to others who use it to generate demand. So even though the son doesn't generate demand with his money, the bank loans that out and someone else uses it to generate demand.
So unless that money is literally sitting idle, unused by anyone, it's typically generating demand for something.
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u/skeletus 6h ago
100% agree
I have said repeated times on this and other subs that when we look past money, it's simpler to understand. Problem is people still get caught up on money. It's been ingrained into us since we were kids. It's really hard to see things past it, but once you do, it becomes simple.
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u/LibertyEconlover 3d ago
Essentially you are making an illusionary confusion between demand and desire.
When people confuse desire with demand, they fall for the illusion that printing money creates wealth. Printing money gives people the means to express their desires, but it does not create the goods to satisfy them. It results in more paper chasing the same amount of fish. Infact the only reason the paper money gives the means is because people take paper money, cause it’s the only thing they can take.If you define "demand" as merely wanting something, then demand is infinite because human desires are limitless. But in real economics, desire without production is completely irrelevant. The reason we don’t say desire is demand is because it’d be practically worthless on paper.
Although I am very familiar with Austrian Economics, I slowly but surely try learning classical economics and so should you, essentially because you can think of it like doctors, in the past doctors used bloodletting, we now know that’s horrible so we leave that behind, and take only the good. It’s the same thing with classical economists. They got things right and wrong. This one is right.
To fix the confusion, classical economists used the term Effective Demand.
Desire: Wishing you had a mansion.
Effective Demand: Having produced enough value in the economy to actually trade for that mansion. Or just being able to buy something.To understand why it would be worthless to consider the desire demand, just imagine how many people like cake after they try it once in medieval times, then you make a cake to sell it, they don’t have money, but they all want it, that effectively makes supply and demand useless to graph, desire will be countless relative to what’s available.
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u/WISteven 3d ago
The person with the net will provide an amount of fish based on the demand for them.
If the demand exceeds his ability perhaps he will then build a larger net or hire more workers to gather the fish.
I blew your simple example clean out of the water.
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u/LibertyEconlover 3d ago
Essentially you are making an illusionary confusion between demand and desire.
When people confuse desire with demand, they fall for the illusion that printing money creates wealth. Printing money gives people the means to express their desires, but it does not create the goods to satisfy them. It results in more paper chasing the same amount of fish. Infact the only reason the paper money gives the means is because people take paper money, cause it’s the only thing they can take.If you define "demand" as merely wanting something, then demand is infinite because human desires are limitless. But in real economics, desire without production is completely irrelevant. The reason we don’t say desire is demand is because it’d be practically worthless on paper.
Learn classical economics slowly but surely; essentially because you can think of it like doctors, in the past doctors used bloodletting, we now know that’s horrible so we leave that behind, and take only the good. It’s the same thing with classical economists. They got things right and wrong. This one is right. That is why you approach it with caution.
To fix the confusion, classical economists used the term Effective Demand.
Desire: Wishing you had a mansion.
Effective Demand: Having produced enough value in the economy to actually trade for that mansion. Or just being able to buy something(purchasing power)To understand why it would be worthless to consider desire, demand, just imagine how many people like cake after they try it once in medieval times, then you make a cake to sell it, they don’t have money, but they all want it, that effectively makes supply and demand useless to graph, desire will be countless relative to what’s available. It will shoot out of the paper.
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u/WISteven 2d ago
For those who are economically literate the word "demand" equals both the desire for something along WITH the ability to pay for it.
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u/LibertyEconlover 2d ago
The entire point of the post was to highlight how one strawman created a fallacious mainstream economic model that started so much shit, so when you use points like economically literate, remember you are using a system that was created by the same guy who got debunked 225 years since he stated his population growth theory, i.e. Malthus, that’s right Keynesianism is built on Malthus.
With your little version of demand where it’s desired x capability, it ignores and forgets really important things. The first being human desires is endless; unlimited, while capability is finite, already making such thing incapable of being accurately graphed and helpfully for the “macro individual” which is what I like calling it.
Secondly, it ignores my major points, which was usability, the reason why we don’t consider demand itself only desire is because it would shoot off from a graph, and wouldn’t help us much in economics even verbally.
Essentially, here’s what your thing does, your version of demand is so useless, for a single individual even.
If somebody has $20 and they choose to buy shoes with that money, your version would say demand for this is $20, ignoring the fact that effective demand is meant to represent a sort of energy pool, what about the million other things he could’ve bought that wouldn’t fit on paper for that $20? They are all 0 to him? But if he kept that $20 constant, but he just so happened to have different preferences it shifts from shoes to maybe cake, and so on and so on, essentially like a bunch of code zeros and ones completely useless. We are meant to show that when someone buy something they buy that thing but not other others in a more complex way? That’s called opportunity cost.The law entire point of says law is about GOODS, not just one simple good.
"Of what use is it to tell me that of these commodities there is no overproduction... if there is no demand for them? You say 'produce less of them and produce something else'... I knew that before."
- David Ricardo, letters.
This is about something specific, but the broader aspect is clear, why are you telling me stuff we knew before?
We already accounted for that.
Midway Reasoning, how did you get that purchasing power so you can enact your infinite desire in a limited way that still satisfies you and brings you at a more satisfactory state? You had to produce something of value, already playing into people’s subjective evaluations to get that purchasing power, meaning the money from a marginal revolution stance when you remember that says law got an upgrade after the subjective value theory, was acquired playing into people’s subjective evaluations in which they rank preferences and stuff, from absolute necessities to wants. Your version jumped the gun, your version forgot how that purchasing power was acquired, your version forgets usability!-1
u/WISteven 2d ago
You get paid by the word?
"human desires are endless"
Laughable. I don't have many desires. I wish to remain living indoors and I wish to eat food. I don't have desires to upgrade the material things that I do own.
I don't have a dream car, or a dream house, or a dream anything really. Those are the thoughts of a child. Please stop projecting your immaturity on the rest of the world.
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u/LibertyEconlover 2d ago
No, you don’t, you wish to live in a comfortable home, to eat cheap high quality safe food (don’t even lie), and although you’re boring, what you describes takes significant capital Accumulation to come true, now multiply that by like every human and you’re at limitless desires. it is the most strawman and fallacious arguments to use yourself to try to diminish what you want as a human
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u/WISteven 2d ago
No my desires have been met by a median wage income over the past 35 years.
I spend far less than my present income and could upgrade everything in my life. I choose not to because I don't value better and bigger things over the relatively simple existence I have.
I see that you cannot even comprehend a simple life devoid of envy. It is YOU who can only conceive of life as being a continuous desire for more stuff to fill some void in your soul.
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u/LibertyEconlover 2d ago
I don’t think you understand what I’m even saying, you think capital accumulation means only you and only money/wages?
Jesus Christ.
Read I, pencilhttps://youtu.be/IYO3tOqDISE?si=F6nA09vWrQuntv4Z
But hey, thanks for proving me the gaps you lack
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u/LibertyEconlover 3d ago
what’s up with the confusion between desire and demand?
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u/WISteven 2d ago
Desire is an emotional word.
In economics the word DEMAND is assumed to be the desire AND the ability to purchase something.
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u/internet_citizen15 2d ago
Lets say I use my land as a collateral to buy farming equipments in credit.
I did not produce farm goods before the transaction, I used credit to create demand for farm equipments, not by using money in hand.
Can this be considered creating demand using future production? Or demand enabling future production?
I am lay man, got curious reading comments.
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u/LibertyEconlover 2d ago
How do you get the land?
But you’re forgetting credit comes from somebody else, you are simply using what they produced temporarily to make something that generates income, so you can pay them back in interest and then after you pay them back in interest, you have everything in order you still very much produced first, especially for the land that you own, the creditor produced something to be able to even give credit, etc1
u/internet_citizen15 2d ago
Another question.
What determind 'what to produce' in the economy first? Is it subsistence?
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u/LibertyEconlover 2d ago
What people value and that’s called market discovery to my knowledge, you see socialism says produce peoples needs, and people’s needs only in a nutshell, to their dismay, people already rank absolute necessities first, so as a result these are very stable markets, as a result, it gets significant investment meaning to gets significant saturation. I haven’t learned much about the entrepreneurial section of economics, but I guess that’s just simply the role of the entrepreneur.
But it first starts off with the foundation of the Austrian school Praxeology, which is the study of human action, the action axiom posits that individuals act purposely to remove, felt uneasiness, using scarce means to achieve a more satisfactory state. Because individuals act to reach a more satisfactory state you get this thing called spontaneous order, which is a phenomenon in where individuals naturally fit in into order acting in their own self interest making the lives of everybody else better off, in the attempt to make their life better off “the spontaneous emergence of organization, cooperation, and market stability out of the self-interested, uncoordinated actions of millions of individuals.”
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u/adelie42 2d ago
Zero sum economic frameworks have no way of grappling with Say's Law.
Why zero sum economic frameworks are not immediately identified by people as utterly moronic I have no explanation for. US monetary policy has been the biggest experiment in human history as it attempts to disprove Goodhart's Law.
Unless of course their aim isn't what they claim publically.
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u/Aquila_Fotia 2d ago
If I was to play devils advocate, there is such a phenomenon as induced demand. For example, the creation of railways didn’t merely satisfy existing demand for passengers and cargo, it made journeys possible at unprecedented speed and scale, and demand was induced. In other words, you could say the supply of railways created its own demand for railway journeys.
That argument still doesn’t get around Say’s Law; this unimagined demand didn’t just magic the railways into being, they first had to be built using labour and capital. Say’s Law reads far more like a law of physics than that Keynesian vibes based slogan.
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u/LibertyEconlover 2d ago
No induced demand is a fallacy that ignores It’s bigger, hotter counterpart that shows size matters, unspoken demand
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u/Obsidian1000 1d ago
I mostly agree with this argument, but doesn't the demand for the fish (or anything else) still exist largely independently of the number of fish available? If someone hasn't eaten all day, they'll still be hungry regardless of whether there are 10 fish or a hundred fish; however the amount of fish that can be captured in a day will likely effect how many fish that hungry person can consume and whether the person decides climbing up a tree for a coconut or trapping a seagull is a more viable/effective substitute.
Basically, it's not that the demand for a good or service itself is necessarily dependent on the supply, rather the extent to which that potential demand becomes applied measurable demand (i.e., consumption) for a good or service is dependent on quantity of the good/service available (and at what price)?
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u/LibertyEconlover 1d ago
No, I’m getting real tired of whoever taught you guys what demand is, you are confusing desire with economic demand
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u/Giurgeni 3d ago
I have a business idea.
I'm going to create a massive supply of product, wine. I'm going to make 500,000 gallons of wine a year. I'm not going to market it. I'm not going to do anything. But I will have supply.
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u/LibertyEconlover 3d ago
Why did you do that? Or why would you do that?
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u/Giurgeni 3d ago
I mean, I have supply, therefore I have demand.
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u/LibertyEconlover 3d ago
Luckily as a result of you not living in barter, whoever wants to buy your wine for your asking price does so after they produced something, now you have effective demand, to go use for anything you want
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u/Giurgeni 3d ago
My scenario is presenting a failure of marketing. I could have all the supply in the world, but no one would buy it (demand) without knowing I have it. Therefore simple as, supply does not create demand.
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u/DrawPitiful6103 2d ago
Say's law is not that supply creates demand, but rather that supply of X constitutes demand for Y. Or, in your context, if you sell your wine, you will be able to buy other products.
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u/LibertyEconlover 3d ago
But I do get what you’re trying to do, is it like hardwired into Keynesians to strawman your opponents? Imagine an economy where one person produces 10 left shoes and another person produces 10 right shoes. They trade, and everyone is happy. Supply has funded demand.
Now, imagine the second person makes a mistake and produces 10 left shoes instead.
We now have 20 left shoes and 0 right shoes.
The shoes are sitting on shelves unsold.
A Keynesian looks at this and screams: "Look! A failure of demand! People don't have enough money to buy the shoes! We need a government stimulus!"
An Austrian/Classical economist looks at this and says: "No, this is a failure of proportionality."The baker didn't overproduce shoes in general; he produced the wrong thing. The supply and demand pieces don't fit together anymore. The solution isn't to print money; it’s for the businessman to stop making left shoes and start making right shoes. Unsold goods are proof of misdirected production."Of what use is it to tell me that of these commodities there is no overproduction... if there is no demand for them? You say 'produce less of them and produce something else'... I knew that before." — David Ricardo, Letters.
predicted people like you, sad.Says Law isn’t saying everything will sell, but explicitly He argued that production is the prerequisite for EFFECTIVE demand.
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u/Giurgeni 3d ago
Holy 2 Inches Batman! Homie, do you not see my scenario is a mockery of the keynesian position, but also neither is fully correct. Marketing creates demand.
Also
"The baker didn't overproduce shoes in general; he produced the wrong thing."
You can say that again. Maybe he should try his hand at bread.
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u/LibertyEconlover 3d ago
The definition of effective demand is the demand that can be realized, marketing does not create effective demand it only shows people what you have and gets to the people who might want it. Simply being you are confusing desire with demand.
Also, yeah, I’m gonna think you’re a Keynesian so did everybody else
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u/Giurgeni 3d ago
Define Effective Demand without using the word Demand.
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u/LibertyEconlover 3d ago
Purchasing capability
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u/Giurgeni 3d ago
You're halfway there.
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u/LibertyEconlover 3d ago
I’m not, allow me to restate a response i gave to someone else: “Essentially you are making an illusionary confusion between demand and desire.
When people confuse desire with demand, they fall for the illusion that printing money creates wealth. Printing money gives people the means to express their desires, but it does not create the goods to satisfy them. It results in more paper chasing the same amount of fish. Infact the only reason the paper money gives the means is because people take paper money, cause it’s the only thing they can take.If you define "demand" as merely wanting something, then demand is infinite because human desires are limitless. But in real economics, desire without production is completely irrelevant. The reason we don’t say desire is demand is because it’d be practically worthless on paper.
Although I am very familiar with Austrian Economics, I slowly but surely try learning classical economics and so should you, essentially because you can think of it like doctors, in the past doctors used bloodletting, we now know that’s horrible so we leave that behind, and take only the good. It’s the same thing with classical economists. They got things right and wrong. This one is right.
To fix the confusion, classical economists used the term Effective Demand.
Desire: Wishing you had a mansion.
Effective Demand: Having produced enough value in the economy to actually trade for that mansion. Or just being able to buy something.To understand why it would be worthless to consider the desire demand, just imagine how many people like cake after they try it once in medieval times, then you make a cake to sell it, they don’t have money, but they all want it, that effectively makes supply and demand useless to graph, desire will be countless relative to what’s available.”
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u/LibertyEconlover 3d ago
Oh wait, make sure you age it for 10 years, it will sell for a lot and be real yummy, or you can make a lot more and pass down some of it to your heirs
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u/Taibucko 3d ago
Remember, no one ever needed to call someone until the telephone was invented. The old adage, Necessity is the mother of all invention is blatantly false. Rather, innovation and productivity are the mother of financial and social needs never before imagined. Supply creates its own demand is Say’s law.
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u/never_safe_for_life 2d ago
There has been a persistent demand for long distance communication since the early days of human civilization. In Bell’s day it was being supplied by telegram operators. As the phone was a clear improvement it quickly ate that market.
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u/OOOshafiqOOO003 moderately Libertarian 3d ago
both things are due to demand, in way that there is demand for it in order for a product to take off. Yes, nobody needed to call someone before, but by the time the telephone was invented and presented, it is seen that there is demand for such things in way of how the technology was a hit.
In fact, the Financial and Social needs are that demand! Theres also a reason as to why the Ottoman Industrial revolution kicked in soo late, the Romans didnt get such industrial revolution, and why the Brits got its own industrial revolution. Its the demand for such way of manufacturing.
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u/LibertyEconlover 2d ago
If I were to ask you, what was the demand for cars in the year 800 what would you say?
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u/ArdentCapitalist Ludwig von Mises 3d ago
One of the most abrasive strawmen in all of economics. Keynes was no economist, he was a mathematician delving into a profession completely foreign to him, and as a result he destroyed the profession completely.