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Societies for the History of Economics <[log in to unmask]>
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Sat, 17 Apr 2010 19:30:57 -0400
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Societies for the History of Economics <[log in to unmask]>
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Pat Gunning <[log in to unmask]>
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Robin, I must admit that I cannot follow your reasoning. Perhaps you 
could clarify. Here is what you say about the causes of an increase in 
productivity:

"When prices rise because demand has risen, it is reasonable for agents 
to respond by producing more, thereby increasing the productivity of the 
system. Further, it is reasonable for individuals to hasten their 
purchases in anticipation of further price increases. This, too, 
increases the productivity of the system."

I take it that you are proposing two causes of increases in the 
productivity of the system: (1) an increase in demand for consumer goods 
and (2) the expectation that the prices at which they buy capital goods 
(including consumer durables and land) will rise.

Neither of these is sufficiently specified for me to evaluate your 
claim. Let me start with the first: the idea that a demand increase 
could cause economic growth. Are you writing about aggregate demand? You 
cannot mean the demand for a specific consumer good. This cannot occur 
without an offsetting decrease in demand for another product, an 
increase in resource supply, a technological advance, or a reduction in 
demand for a capital good (a decrease in saving). To support your claim, 
you would have to specify much more than you do. Or if you are writing 
about aggregate demand, what else are you assuming? Again, you would 
have to specify much more before one could evaluate your claim.

The second cause is the expectation of a higher price which presumably 
would occur if one buys a durable consumer good or a durable capital 
good, including land. But why would someone expect the price of such a 
good to rise without an offsetting expectation that the price of some 
other good to fall? Again there must be other changes that are occurring 
that you have not specified.

It is difficult for me to make sense of your distinction between bubbles 
and increases in productivity if you do  not specify more fully.

-- 
Pat Gunning
Independent economist
Groton, Connecticut
http://www.nomadpress.com/gunning/welcome.htm

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