An interesting quote from Sir William Petty.  Unfortunately, Michael 
offers it in the spirit of "quote slinging" -- not very helpful.  I 
can't believe that Michael has never heard of Frederic Bastiat's "Broken 
Window Fallacy" (1850). There's even a YouTube illustration of it on the 
Internet! Surely, the fact even Petty wrote a fallacious argument 
doesn't turn such fallacy into a logically consistent statement.  One 
can also find a statement from the past defending "the Utility of 
Poverty," arguing that the laboring class be paid lower wages as a means 
of forcing them to work harder.  Would that make good sense of an 
otherwise nonsensical argument?  I don't think so.

All we need do is remind ourselves of one of the fundamental principles 
we teach our introductory economics students: the principle of 
opportunity cost.  What would have been produced had the resources not 
been employed on some "useless" projects?  Even where the projects had 
some use, what had to be given up to produce them?  And more 
importantly, from where does government get the means to fund its 
projects?  When one keeps such questions in mind, one is less inclined 
to claim the virtues of the so-called "stimulus" expenditures of 
government.  A fundamental failure of the Keynesian multiplier argument 
is that it does not take seriously into account the opportunity cost of 
government spending nor its method of funding.

There is, indeed, a legitimate "multiplying principle" that derives from 
the effect of increased production.  Keynes's multiplier argument, 
funded on consumption spending (because savings are a withdrawal from 
the expenditure stream), has no such validity or legitimacy.

It is also irrelevant, when one thinks carefully about it, to invoke the 
assumption of full employment or otherwise.  The opportunity cost of any 
chosen action does not disappear in a less than full employment 
situation.  Besides, we now define "full employment" to entail 
"frictional" and "structural" unemployment, that is, the level of 
unemployment consistent with a "sustainable" rate of production.  But we 
also know of "booms" during which production is in excess of "full 
employment" and unemployment gets below the "natural" rate.  No one can 
also say with any reasonable certainty what the "frictional" rate of 
unemployment should be. Given improvements in information technology, 
its rate can be reduced.  Similarly, the rate of "structural 
unemployment" is not fixed.

So let's look for quotes from our historical past.  But to be of any 
use, besides entertainment, let's be sure they are helpful to advance 
argument or debate.  I look forward to such contributions from Michael.

I'd also like to mention that Say's Law of Markets has its guise in 
modern "General Equilibrium" theory or analysis: the interconnectedness 
of markets.   We just have to recognize the market for credit (interest 
rate determination) differently from the market for money (cash; price 
level determination from the Quantity Theory of Money) to render the 
analysis consistent with classical economics.

James Ahiakpor

michael perelman wrote:
>
> Since this has degenerated into quote slinging, I will jump in.
>
>
> William Petty:
>
> "Now as to the work of these supernumeraries ... 'tis no matter if it 
> be employed to build a useless Pyramid upon Salisbury Plain, bring the 
> Stones at Stonehenge to Tower-Hill, or the like; for at worst this 
> would keep their mindes to discipline and obedience, and their bodies 
> to a patience of more profitable labours when need shall require it. 
> [Petty 1662, p. 41]
>
> Petty suggested Keynes's concept of a multiplier, observing that 
> seemingly such wasteful government spending "is a refunding the said 
> moneys to the Tradesmen who work upon those things; which Trades 
> though they seem vain and only of ornament, yet they refund presently 
> to the most useful; namely, to brewers, bakers, tailors, shoemakers, 
> &c. (Petty 1662, p. 33).
>
>
> -- 
> Michael Perelman
> Economics Department
> California State University
> Chico, CA
> 95929
>
> 530 898 5321
> fax 530 898 5901
> http://michaelperelman.wordpress.com
>
-- 
James C.W. Ahiakpor, Ph.D.
Professor
Department of Economics
California State University, East Bay
Hayward, CA 94542

(510) 885-3137 Work
(510) 885-7175 Fax (Not Private)