Please explain this quote from Hoppe

Economics Economics Questions
1

In the introduction of " democracy: god that failed". he uses this statement as an a priori, “Similarly, theoretical insights can rule out reports such as that increased consumption has led to increased production (economic growth). He then goes on to state, " only more saving and capital formation and/or advances in productivity can lead to increased production”

I understand the savings and capital necessity - but is not it also true that you must have consumption for continued/increased production. without out consumption production would stop. please explain

2

is not it also true that you must have consumption for continued/increased production. without out consumption production would stop.

What exactly are we talking about?

  1. That if people don’t eat any food they will die of starvation and all production will cease? Yes that is true. So that a certain minimal consumption is needed for production to continue, and it has also led to increased production. But that is not what Hoppe is talking about.

  2. That if a country produces things and nobody buys any of them, then the producers will stop producing them? Yes, that is true. But it is also a good thing, because if nobody is buying them, it means there was no demand for them in the first place. Resources have been wasted making things people don’t want or cannot afford.

Production of the unwanted things will cease, yes. But then production will begin of things people want. After all, we can assume that people always want [and can afford] something.

Can I assume you haven’t looked into Say’s Law and other basics of AE?

3

https://wiki.freecapitalists.org/wiki/Say%27s_law

I wonder what the demand is for an elixir that adds 100 years to your life? I know my demand for such an elixir is very high and if most people are like me, I’m sure theirs is high as well. But my demand for the elixir doesn’t matter, it’s irrelevant because the production of such elixir is currently zero (for the reason that nobody knows how to make it, if it’s even possible to make such a thing).

Clayton -

4

smiling dave,

usually i am able to follow your well thought out post, not so much this time.

I am relatively new to AE and have not studied say’s law - exept to know that the paraphrase of bad money destroying good is not what he meant. aside from that- let me explain my question as basically as I can. I feel that he(Hoppe) is saying somehting different, but that is not how it was written

he stated that only savings, capital formation and or advances in productivity can increase production.

If all of products x,y and z were purchased wouldn’t that creat the necessity for any firm that wanted sales and/or profits to engage in production to fill the desire for products x,y and z?? if this is so, did not the consumption lead to more production??? please explain as if i was in third grade - my meds are making me feel as if i was.

he u

5

Consumption is always consumption of something that already exists. The idea that “demand must increase in order for production to increase” is silly. It suggests that people can consume things that are not yet existing. The fact is that production always logically and temporally precedes production. Hoppe is saying that this principle is true no matter what… if you see some people consuming more and then you see other people producing more and then conclude “well, these people started consuming more so that’s what caused these other people to produce more”, you are certainly arriving to a mistaken conclusion. In other words, theoretical insights can overrule apparent observations to the contrary, so it is not possible to construct an empirical theory, for example, that disproves Say’s Law. In particular, I think Hoppe is referencing accounts of the Great Depression that blamed the depression on a “collapse in aggregate demand”, which is an implicit denial of Say’s Law.

Clayton -

6

If all of products x,y and z were purchased wouldn’t that creat the necessity for any firm that wanted sales and/or profits to engage in production to fill the desire for products x,y and z?? if this is so, did not the consumption lead to more production??? please explain as if i was in third grade - my meds are making me feel as if i was.

Strictly speaking, it wasn’t the consumption that led to more production. After all, if the producer’s warehouse burnt to the ground with everything in it, his products would be consumed. Obviously such consumption will not help him at all. Same thing if people took his stuff and used it without paying for it.

So it’s not consumption that lets him keep on going, but trading his product for money. Which ultimately means trading his production for others’ production.

You might argue that people will not trade with him unless they want to consume his product. But again, if they buy his product and never use it, he can still produce more. In other words, it is not the consumption that enables further production, it is the demand for his product that leads to purchase of his product, which in turn enables him to produce more.

Lets go back even further. Where does demand come from? Demand is the desire to have something which one can afford to pay for. So that demand requires ability to pay, meaning money. How does one get the money? By working, meaning being productive. So that demand itself is only made possible by production.

There are those who argue that printing money is as good a way of getting money as working. But an analysis of printing money [which I won’t do here] uncovers that it is really just a way of using someone elses hard work to pay for what the printer of the money is buying.

EDIT: Summing up, consumption is the reward for hard work. People only bother to work because it lets them consume. So in that sense consumption spurs production. But when we discuss what gives them the ability to produce, it neither their own nor other peoples consumption that does it. It is past production that makes further production possible.

7

Economic growth is done by the following. Savins investments and then production of real goods ad services. If we look at capital formatio then it’s more laborers and saved up money. More laborers then leads to more production. Advances in productivity ca come in many forms, such as when the assembly line was invented. Or say the advances in Robotics. Both of which speed up the rate of production and quality greatly.Of course when there is a surplus in products made those can be sold for a profit. Either consumption comes from those whom want your product or you consume them yourself. IMHO i think this is what he meant to say in that quote, althought i am not so sure.

8

you are referring to Gresham’s law here. People wrongly simplify Gresham’s law to “good money drives out bad” but the most important part of Gresham’s law is that good money drives out bad WHEN the government forces them to trade at a fixed ratio. People will tend to pay out in the bad money and hoard whenever they get their hands on the good money. The source of the problem is price controls declared and enforced by the gov’t.