Intertemporal coordination and general gluts

A number of people were scathing about my post on general gluts, saying something to the effect of, "Well, Callahan made it easy for himself, picking a one-good economy!"

But the exact opposite is true: I picked a one-good economy with no money because that was the hardest case I could think of. The reason is that a general glut is an instance of an intertemporal coordination failure. The simplest case for intertemporal coordination is where I produce one good for myself. (I really should have left out the other two actors in my example to make it even more effective.) If a general glut is conceivable in that case, well, a fortiori it is conceivable in cases with more actors, more goods, and especially, with money.

The other thing people became very worked up about is the relationship of this possibility to "Say's Law." Well, the first thing to note is there just is no single "Say's Law." In classical economics, there were at least seven or eight distinct propositions held by Say and his allies (both Mills and Ricardo, among others) in the general glut debate. No concise statement of a "law" was given at the time. That didn't really happen until the 20th-century, and even then, different versions were given different formulations by different authors under different names: "Say's Identity," Walras's Identity," "Say's Law."

So, part of what you think my example means will depend upon how you want to formulate Say's Law. One way to do so and have it still hold in my example would be to say, "Sure, there was a surplus of fish, but there was simultaneously a shortage of leisure." Similarly, you could look at all booms as shortages of leisure, and the unemployment during the bust as the remedy for that deficiency.

And I can't say that is wrong: a definition can't be wrong. But that way of looking at things certainly would not have appealed to anyone in the original debate over the existence of general gluts: Say, Mill Sr. and Ricardo would have rejected this formulation as firmly as Malthus and Sismondi. The above formulation essential concedes Malthus was right, but then changes the target so that he loses after all.

17 comments:

  1. Well, I think there is understandable concern about you using a 1-good economy. Remember that a key point in one of the strands of "what Say's Law means" is that sure, there can be overproduction in one line, but it will necessarily be counterbalanced by underproduction in other line(s); thus no general glut is possible. I can see why people would be suspicious if you showed a "general glut" by an economy with just one good.

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    1. I understood their concern: here I am just noting it is entirely misplaced. If general overproduction is not possible in a multi-good economy, than a fortiori it is not possible in a single-good economy.

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  2. I am not sure what to think of that example. As you laid the example out, yes there is the possibility of a general glut. However in your example in which you produce one good only, and then too much of it means, that you can now lean back (= be unemployed) and do nothing (=something that involves some sort of disutility of labor) without suffering!

    I guess it was never the case so far in any recession/depression in the past that we overproduced in that sense. So that we could enjoy leisure without suffering any loss of enjoyment of any consumption good we could think of that was valued higher than the disutility of labor to produce it.

    Which means in the sense a general glut is possible it is no problem, it is even desirable. I mean that is what I'd dream of. Having found out that I unintentionally produced way too much in the past, and since bygones are bygones enjoy my new found wealth by doing nothing that I don’t like doing for its own sake.

    Another point is that intertemporal discoordination in a more complex economy like ours looks different than in your example. We already produce today not only consumption goods that are ready in the present but also future consumption goods which are ‘only’ capital goods in the present.

    So having a mismatch between current consumption goods and future consumption goods implies one of them necessarily was under-/over-produced. And to coordinate this interest rates are key. I just cannot see how a board of people can manipulate this but it is foreign to them that they could ever mess it up.

    To sum up: As far as it is only about the theoretical possibility of having a general glut, you have a point, though as far as it is applicable to the real world I think it is problem that we would be very glad to have but unfortunately never will.

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    1. You have ignored much of my post: the island residents very definitely did not "enjoy" getting this leisure: in their own eyes, they worked too hard, and later regretted it. You have re-cast the example to fit your preconceived view!

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    2. Gene, wait a moment and clarify something for me, I think you misunderstand me.

      Is it not the goal of most people to consume as much as possible with the least amount of disutility of labor, also in your example?

      And if this is true than all people strife to maximize leisure and consumption at all times. Say we have leisure time from 0 to 100% and consumption from 0 to 100% then consumption at the level of 50% and leisure at 50% is by all people preferred to consumption at 50% and leisure at 25%. In the case I think I need to produce the amount X to satisfy a certain level (say 50%) of needs, yet in the future I find out that in reality I only would have needed half the amount of X to reach that level of satisfaction, I definitely will regret the time wasted on labor instead of using it for LEISURE.

      Yet at least (since the past cannot be changed) I can use the surplus of consumption goods to lean back and enjoy leisure now. And I will in future work LESS to get the targeted level of consumption. In any case I have found out that in the past I estimated my future wealth to be too little when in fact after having done general overproduction I was much wealthier than I original thought I was going to be. It is a superior position of everyone to find out at this moment that the acquired wealth you have is greater than originally thought. It is like finding a treasure. Well surely if you had known about this treasure already in the past you had acted differently to maximize you consumption/leisure trade off. However better finding the treasure late than never!

      This certainly never happend in any recession/depression, did it? People always tried to find new work to increase labor time because they had too little to consume not too much compared to leisure time they have. And they surely never regretted to have worked too much in the past.

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  3. I am not sure what to think of that example. As you laid the example out, yes there is the possibility of a general glut. However in your example in which you produce one good only, and then too much of it means, that you can now lean back (= be unemployed) and do nothing (=something that involves some sort of disutility of labor) without suffering!

    I guess it was never the case so far in any recession/depression in the past that we overproduced in that sense. So that we could enjoy leisure without suffering any loss of enjoyment of any consumption good we could think of that was valued higher than the disutility of labor to produce it.

    Which means in the sense a general glut is possible it is no problem, it is even desirable. I mean that is what I'd dream of. Having found out that I unintentionally produced way too much in the past, and since bygones are bygones enjoy my new found wealth by doing nothing that I don’t like doing for its own sake.

    Another point is that intertemporal discoordination in a more complex economy like ours looks different than in your example. We already produce today not only consumption goods that are ready in the present but also future consumption goods which are ‘only’ capital goods in the present.

    So having a mismatch between current consumption goods and future consumption goods implies one of them necessarily was under-/over-produced. And to coordinate this interest rates are key. I just cannot see how a board of people can manipulate this but it is foreign to them that they could ever mess it up.

    To sum up: As far as it is only about the theoretical possibility of having a general glut, you have a point, though as far as it is applicable to the real world I think it is a problem that we would be very glad to have but unfortunately never will.

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  4. So I did not miss that that people on your island will regret to have worked too much in the past. Yet they cannot regret it if they do not value leisure at all times. So it escapes my how you can say now that they will not enjoy the present opportunity to enjoy at least more leisure now. Either they enjoy leisure in the past and in the present, or for them leisure is not valuable at all..

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  5. "Yet they cannot regret it if they do not value leisure at all times."

    Sklien, are you actually listening to what you're saying? So if, say, i Don't enjoy unlimited amounts of vanilla ice cream all the time, then it's impossible for me to ever enjoy any vanilla ice cream ever? And also, even if I enjoy the amount of vanilla ice cream I do have, can't you see that it's possible that I regret the amount of work it took me to get that ice cream? It is possible for the island residents both to regret the amount of work that they did on Monday, and still to enjoy the leisure that they have on Tuesday. They can say to themselves, boy I wish we hadn't work that hard, but since we did we might as well relax a little today.

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  6. Yes I am. I am just saying that leisure is at all times preferred to disutility of labor. We engage in work only because in anticipation of creating consumptions goods valued higher than the amount of leisure given up. Work implies disutility else it wouldn't be work.

    I have an easy question to settle this. Imagine you get a job offer for USD 50K a year. You have to work 8hours a day. You say fine, I accept.

    Situation 1: That's it you get 50k at the end of the year, exactly as your expectations originally have been.

    Situation 2: For whatever reason the employer pays you 50k extra at the end of the year, which makes 100k. If you had known this you would have tried to negotiate for a lower wage say 70K but at only 6hours a day to have more leisure time. Well at least you can do that for the next year and as a bonus for the "over"supply of money that you have received for the heavy work load of last year you can plan also additional consumption or even more leisure for the future.

    However which situation do you prefer 1 or 2?


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    1. Your example shows that you're not grasping what is going on here. The Islanders did not get an unexpected bonus: no, they suffered a LOSS. The fact that they make lemonade out of lemons doesn't change that: their situation is not basically different from an unemployed worker during a recession who figures he might as well go enjoy the beach.

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    2. Is there any consumption good on your island that they are lacking? Is there any need not satisfied that could be satisfied if a certain good or service was provided through work?

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  7. But with one good, everything is general. Too much fish: general glut. Too little fish: general shortage. Perfect amount: general equalibrium. And, when you are fishing to sell to others, the fish gets its value from those consumers. When you fish for yourself, you are ther one valuing them for consumption, you are setting their price yourself.

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  8. And... You claimed to have picked the "*hardest*" situation to show a general glut, when really you picked the *only* example in which a general glut/shortage/equalibrium can occur.

    My second point (about value scales) is just that with a Caruso situation, you aren't trying to guess your customers values, because you are the one consuming the fish. And you know your own value scale. You must have preferred that fish to leisure, or why would you be fishing? Think about it with money: you already traded your days pay for all that fish, obviously you wanted it at the point of purchase. You already "demanded" it, there is no lack of demand.

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    1. "My second point (about value scales) is just that with a Caruso situation, you aren't trying to guess your customers values, because you are the one consuming the fish."

      Right. That is why it is the hardest situation for there to be a general glut.

      "You must have preferred that fish to leisure, or why would you be fishing?"

      No, Steve, that is just wrong: go read Mises.

      You must BELIEVE that you will prefer fish to leisure. In our story, you find out you are mistaken: it would have been better to rest. This is called "MAKING A MISTAKE."

      Here is Mises from HA: "The capitalists, the landowners, and the laborers are by necessity speculators. So is the consumer in providing for anticipated future needs. There's many a slip 'twixt cup and lip."

      The person fishing is SPECULATING. Their judgment can be wrong. This is really, really basic Austrian economics, Steve.

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  9. Thank you for the response, Mr. Callahan (or is it Dr. Callahan? sorry). It was very insightful.

    One thing I wanted to point out, before I respond more fully to your comment, is that I think I've found a flaw in the way you set up your original scenario.

    You say that you looked back on your actions and decided that you would have been better off by fishing less and having more leisure, so you experienced a psychic loss. But, your ends have not been totally completed.
    You put the rest of the fish into the ground as fertilizer after eating your fill (just like how Caruso uses the logs left over from his highest ranked end, fire, for his second highest ranked end, shelter), but you aren't done yet.
    Fertilization was means to another end. What if, in only a few days, over the fertilized sand/dirt, you find a nice soft patch of grass to lay on. Now you don't have to sit on the abrasive sand. You then look back at that original day and decide that your actions were profitable, and you that were happy you gave up that leisure time. Now you don't have a general glut?
    Were you prematurely stating whether your actions brought you psychic gain or loss? Like a movie critic who gives a bad review to a movie he has yet to finish watching?

    Again, thanks for your patience, and I will have a more thorough response for you soon. I think I've figured the root of our disagreement. I won't be bothering you for too much longer, I hope.

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  10. You're being an idiot Steve. Bye.

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