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Below is the other side of the coin
Keynes basically says if consumers quit buying we will be headed for recession/depression. Most experts don't agree with that theory.
******Garrison versus Keynes********
http://www.mises.org/story/679
Suppose that, in an economy, spending on consumer goods falls. Must depression inevitably ensue? Not at all, say the Austrians. Resources can shift into the production of capital goods. As Hayek in particular stressed, following Böhm-Bawerk, production can be divided into several stages, depending on the distance of the product from consumption goods. Mining iron ore takes place at a much higher stage than inserting a steel plate in a gunshot victim’s head.

So long as resources can freely shift from lower to higher stages of production, "capital-based macroeconomics" contends that a fall in consumer spending need not occasion disaster. As Garrison writes, "Capital-based macroeconomics is designed to show that quite independent of any movements in the general price level, the adjustment of relative prices within the capital structure can bring the intertemporal allocation of resources in line with intertemporal consumption preferences without idling labor or other resources" (p. 53).

2007-03-13 02:07:51 · answer #1 · answered by LucySD 7 · 0 0

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