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Lecture 13

Lecture 13 econ 460.docx

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Department
Economics (Arts)
Course
ECON 460
Professor
William Watson
Semester
Fall

Description
Lecture 13 Tuesday, October 23 , 2012 Sowell, The General Glut Controversy Reconsidered Malthus doing growth theory, Ricardo distribution “Normal”: historical normal or analytical normal?  Malthus: normal means equilibrium; there may be times that equilibrium doesn’t happen; what determines is equilibrium supply of labor Value and/vs cost
 Sowell, The General Glut Controversy Reconsidered  Ricardo is cost-supply side person; interested in distribution of income and its division along landlords, capitalists and workers; interested in different trade policies; what happens to land rights; very concerned with long run; in MalthusLR subsistence requirements will determine wage Fear of indolence?al normal or analytical normal? Valueand/ vscost and necessities.
 Fear of indolence ? to unproductive classes increase effort of productive classes? Roleof luxuriesand necessities.ive off donations; poor people as well; Malthus argues its not bad thing because encourages work for those that have to pay taxes and give donations TaxeanPossibility of clots that lead to unemployment of productiveclasses? Where does unemployment come from in Malthus? (Check Figure 1) “Deficient demand in Malthusreferstodemand which isdeficient for thepurpose of maintainingthecontinuity of economicdevelopment, not deficient for the purposeof clearingthemarket.” “Mr. Mill” = JamesMill, not John Stuart  SR: labor supply is relatively fixed; periodic spurts in growth that give rises to increases in wages; may be endogenous because they don’t anticipate increase in wage but Malthus say that wages take time to adjust; stickiness; can observe unemployment; contrary to other classical economics arguing supply creates its own demand “Deficient demand in Malthus refers to demand which is deficient for the purpose of maintaining the continuity of economic development, not deficient for the purpose of clearing the market.” “Mr. Mill” = James Mill, not John Stuart “Say’s Law was for Malthus an assertion that ‘mankind always produces and consumes as much as they have the power to produce and consume.’” “...most effective demand for future produce...” “The question to which Malthus addressed himself was not the clearing of the market at a given moment, but the maintenance of the on-going process of economic growth.” Malthus: “‘We know from repeated experience that the money price of labour never falls till many workmen have been for some time out of work.’” Lagging investment reaction to declining profitability.  “Malthus was concerned lest the short-run elasticity of supply of capital combined with the short-run inelasticity of supply of labour should lead, in a growing economy, to rising wage rates and declining returns on investment which would bring economic growth to an abrupt halt when a lagged disinvestment took place.” “Ricardo, however, understood Malthus to refer to too large a saving in a comparative statics sense--i.e., that equilibrium savings in time period II would exceed equilibrium savings in time period I by a large amount.” “While the general glut controversy was not a forerunner of modern economic debates in terms of its substantive issues, it was in terms of its general pattern of mutual failure to come to grips with opposing arguments.” Hayek, The Use of Knowledge in Society (AER 1945) What’s the context? Who were Lange, Lerner and
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