Recently I’ve heard many people touting the “absolute truth” that spending and keeping money locally will some how stimulate ones local economy by changing hands “x” amount of times.
My first response is, that if it seems logical to the masses then there is probably no validity to it.
Can someone validate or refute this concept with any sound Austrian economic theory?
i dont know that any so-called austrain theory would validate or refute.
if ordering clothes online instead of purchasing from a local apparel retailer was cheaper one would have more money for necesseties or other items at a local level. i suppoe if this was extrapolated over thousands of people doing this some local business would thrive while others would perish.
maybe more miniature golf but fewer apparel sellers.
if it is more likely that ones family and friends are local and speding money abroad would affect them negativly faster then local purchases (a pillow maker going out of businees etc) then local purchases may make sense for some.
Can someone validate or refute this concept with any sound Austrian economic theory?
I’m not sure what the question is, but what your talking about is comparative advantage. If two products are identical, the firm with a cheaper price is producing the product more efficiently. You shouldn’t buy “local” if a foreign firm has an advantage in the producing that product. You will be unnecessarily wasting resources. Buy from the firm that provides you with the quality you desire at the lowest price.
Please re-read the first post to understand the concept in question. If you don’t know what the question is or you’re not familiar with the concept, why respond?
Apparently you don’t understand marketing either. Just becuause a product has a lower price does not mean it’s being produced more efficiently. There is no direct relationship between the cost of production and selling price.
“There is no direct relationship between the cost of production and selling price”
serious?
Also, this is a question about compartive advantage. The concept of your question was addressed in the post above, not sure why you reacted like that.
Serious.
Where in your post do you address the concept that money, if spent locally, changes hands “x” number of times and stimulates a local economy (based apparently upon some kind of multiplier effect)?
I live in Detroit, Michigan. Let’s say you live in Ding Dong, Texas (yes, that’s a real city in Texas). I buy $1,000 worth of products from Ding Dong. That means that there is $1,000 less in the Detroit economy and $1,000 more in the Ding Dong economy. This extra $1,000 in the Ding Dong economy pushes prices up in Ding Dong, while the $1,000 less in the Detroit economy allows prices to fall. The result is that Detroit products become relatively cheaper, which means that more people will now buy from Detroit, bringing money back into the Detroit economy. Thus, the local economy is not hurt by buying products from other cities.
P.S. Saying “the Ding Dong economy:” priceless.
The size of an economy is defined by the people that trade in it. If you can buy something from Taiwan, then Taiwan is de facto part of the ‘local economy’.
“Buy local” is just racism against foreigners. And racism is economically stupid.
There is no objective basis for separating your “local” economy form any other.
KrazyKaju,
You can not be certain that the extra $1000 in Ding Dong will push prices up in Ding Dong or vice versa in Detroit. We can presume that the extra/less purchasing power will lead to the bidding up/down of prices but I do not believe that Austrian theory says it must. That $1000 worth of products in Texas may not be available anywhere else and you may choose to sit on your money instead possibly doing nothing.
I’m not sure what you’re talking about - BUT - It has nothing to do with the posted concept in question.
I apologize. I’m on my BlackBerry and the browser is crappy. I thought the second post was the question. That is why I didn’t understand it.
But as for the multiplier, you’ll have to ask a keynesian about that one not an Austrian.
And yes, in a competitive environment prices do reflect the efficiency of production. That is the reason free prices are so important.
if buying “local” would actually make the local economy more prosperous, then couldn’t we conclude that just producing everything ourselves would be the ultimate way to prosperity? When you think it through you can see the fallacy.
Recently I’ve heard many people touting the “absolute truth” that spending and keeping money locally will some how stimulate ones local economy by changing hands “x” amount of times.
This is referring to the velocity of money. Frank Shostak discusses the concept of the velocity of money on Mises Daily.
TY Jonathan for the link.
Jonathan,
Thank you! That is exactly what I was looking for.
Comparative advantage was first described by Robert Torrens in 1815 in an essay on the Corn Laws. He concluded it was to England’s advantage to trade with Portugal in return for grain, even though it might be possible to produce that grain more cheaply in England than Portugal.
is the above austrian or some other school??
is the above austrian or some other school??
There was no Austrian school in 1815.