In this chapter Keynes argues that if you idle your equipment, it still costs something to keep it up, though the equipment will, because of not being used, be more valuable than similar equipment being used over the same time period. He even has a nice little equation for it. This observation seems obvious enough, but Keynes argues that it wasn't (72). Sometimes it's the most obvious things that need to be pointed out.
The only thing that seems a bit odd in this chapter is his argument that his formula proves that idling equipment will drive up prices. It seems easier to point out that if you idle your equipment, you reduce the supply relative to demand, and that drives up price. I suppose his equations can prove a more complex relationship, but in the end it just boils down to the simple fact that if you reduce supply while demand remains the same, prices are going to go up.
4 comments:
Troy,
I noticed at "Coordination Problem" you were wondering why any economists took GT seriously. Rather than respond there, I figured I'd respond here.
My hypothesis is that Keynes' "Economic Consequences of the Peace" was a very good treatise. That was very well done, and very well received. That established his reputation as a quality economist and paved the way for the GT.
In essence: if Keynes doesn't write "Economic Consequences" the GT would have gone into the fire place.
Well, that certainly excuses those of Keynes's time. And an unfortunate momentum could explain the rest.
Personally, I think undergrads should be kept away from Keynes. They still believe in folk economics, so GT makes sense.
Oh, and also Hayek never wrote a response to Keynes' book directly. He had spent a long time (I think about two years) writing a response to Treatise on Money which pretty much ripped it up. Then Hayek presented it to Keynes who replied that he didn't believe that stuff anymore. So it is reasonable to think that Hayek didn't think it worth his time to write a critique of the GT. Thus, there was nothing to stop the tide.
Yeah, I heard Keynes had a habit of doing that. A brilliant rhetorical approach to cut off any and all criticism. Of course, if he really didn't believe any of that, he would have written a book clearing that up. That's what an intellectually honest person does.
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