Ben Kaufman
Jul 21, 2019 · 2 min read

Hi Matej, thanks for the response.

Regarding the lumberjack example, you are mostly repeating my point about capital accumulation. It is true that the lumberjack’s productivity increases with more advanced tools, that is the reason to produce the tools in the first place. However, when considering the entire production process, the production of advanced machinery clearly lengthens the process as a whole. If the improvement is to be effective in the long term, the production of the tools cannot be just a one time process but a continuous process of their production, and as such, we cannot remove it from our general consideration of the complete production process.

Regarding your second point, when government increases spending to substitute for a drop in demand, it necessarily increases current demand for certain things. This change in present demand is precisely part of my point in this article that a fall/ rise in present demand does not necessarily affect the expected future demand in the same way.
When you’re saying that government substitutes the current fall in demand, you’re exposing the issue it creates. That is, it increases present demand above its natural “real” levels, thus encouraging the allocation of resources to satisfy current government demand at the expense of further production of high order goods. Again, I want to emphasize that government intervention with current demand, does not in any way hints a rise in the expected future demand, as it merely affects current demand. In terms of this article, it has the same influence as regular consumer spending, which is an increase in the present, not future demand.

I intentionally didn’t discuss the business cycle theory in this article (where the discussion of interest rates manipulation is more appropriate) and was reluctant to discuss government intervention in general, as it would be out of the scope of this article.
These are very important concerns, which I hope to discuss in future articles (and were already addressed by many before), but in this article, I’m aiming at exploring the more general foundations of spending and savings as economic phenomenons. I don’t see how government intervention changes the underlying phenomena I discuss here, which is independent of those other considerations. Government intervention can significantly affect the economy, but what I discuss here is more general than that.

As for unemployment consideration in the case of an economic crisis, I find this also as a different subject than what this article discusses. In general, as I claim in this article, spending and savings as independent phenomenons shouldn’t change employment rates (for more than very temporarily adjustments), only the distribution of employment among the different economic sectors. Government intervention in the economy can and generally does influence employment rates (it is a different argument whatever those effects are positive or negative), but this is a particular case which is out of the scope of this specific article.

Ben Kaufman

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Coding and Austrian Economics

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