From Cambridge to Eternity: “It’s the Demand Side”

 

By providence, we human beings cannot stay on Earth for long or short without consuming utilities of various kinds and that periodically. By nature, on the other hand, our desires for “conveniences” and “luxuries” are unlimited and consequentially keep us hard-wired with self-interest. We are always hungry for utilities as defined in our dictionary; the word saturation to “stagnation” is not in our  dictionary.

             One of the boundary conditions of life is that the time ante Eternity is limited to 125 years at the longest. All in all, we shall try to save time in fulfilling our demand for utilities of unlimited kinds. Making, producing or constructing a thing of no use, real or nominal, must be a genuine “waste of time,” one of the Original Sins: “Homo Sapience, thou shalt not be prodigal on thy time in Here.”

The Smithean Maxim. Quoting Adam Smith, the Harvard economist Gregory Mankiw says, “Consumption is the sole end and purpose of all production” (Macroeconomics).

             In that regard, we may refer to Adam Smith (The Wealth of Nations, Bk. II, Chapter I) for “a perfectly crazy man” who wastes the “stock” of useful things under control. A big question: Why would anyone out of paralysis preferably choose anything “of no use to us” (from Irving Fisher, 1930)?  

“Macroeconomics: Theory and Practice.” The most basic accounting identity of all is probably Y≡ C+ I, where Y for the gross domestic products, C for the aggregate consumption and I for the gross domestic investment (GDI), each in “real quantities.” Needless to say, the left-hand side of “the equation” represents the credit side (sources) in the accounting books and the right-hand the debit (uses).

             One takeaway, by the way: The aggregate supply (AS) must in all cases be identical to the aggregate demand (AD). The culprit for “ineffective aggregate demand,” if ever, shall be the GDI “thrown into the sea” (to Thomas Malthus, 1820, about the ghost-like Saving S≡ Y- C).

“Barking up the Wrong Tree.” For the sake of convenience, we copy from somewhere else:

(Quote) The above process of counting reps is exactly the way how the nominal GDP (Y_N in M∙U) is estimated. Strangely, however, macroeconomists insist on sticking to the real GDP. Consequently, the notation of GDP Y= Y_N/ P goes naked (M, with m being a numeraire) and returns value-free (U∙U^-1= U⁰).

      Then and therefore, value and utility would go out of question in our economic life. All that matters were the supposedly-real quantities. In effect, we were to get the same marginal utility from however many of whatever kind of product. For instance, the first unit of orange renders the same utility as the second unit as the third, and so on so forth; on the other hand, a natural orange might give the same utility as an actual apple. If so, the aggregate demand (AD) could be entirely for real oranges.

      On the aggregate supply (AS) side, the best proposition would be unbounded Fordism: the aggregate production function would preferably print out Model T’s endlessly. The only concern therein would be productivity to be defined solely in the real output per real input.

      The unfinished, unfortunately: Where would the real match be, if I supplied Model T’s while you demanded oranges? Outside of macroeconomics textbooks, there would not be equilibrium in any sense, whether the actual economy were in the steady state, recession or a boom.

     A possible consequence if in real quantities: The economy in reality be in constant turmoil. (Unquote)