Philosophy Now Forum

Mike Fuller on the circular cause of the credit crunch.

http://philosophynow.org/issues/73/Fore ... ng_Bubbles

Philosophy Now wrote:Mike Fuller on the circular cause of the credit crunch.

http://philosophynow.org/issues/73/Fore ... ng_Bubbles

The entire review seemed to promote the idea of simply begging the question and using irrational prejudices against capitalism. The fact is the argument for a credit crunch was rather lame, if existent at all. The article just stated that an overproduction requiring a credit crunch just magically happens when capitalists try to maximize profits; yet, the profits would be spent elsewhere in the economy, creating jobs, then income, then further production. How this mysteriously does not occur is not explained by the author.

The only argument for overproduction that I am aware of is the idea of using time in considering Say's law. The common view taught throughout universities, that the production of goods and services creates its own demand, really is false. The professor will usually write on the board something like a widget gets produced and sold. Upon its sale, the price paid for the widget gets divided up into profits for the capitalist, wages for the workers, rent for the landlord, and taxes for the government. Since the income going to these entities, the capitalist, landlord, employees and government, equals the price paid for the widget, there will always be sufficient income to pay for the goods produced. However, if a student were to raise her hand at that moment and ask the question, "What about timing?" the professor would have to leave the class, because he would not be able to answer the question. The widget is produced, but the income from the widget is not realized until the widget is actually sold. That means that there must already exist in the world sufficient wealth to purchase what is produced. Yet, in a growing economy, where more is produced this quarter than last quarter, one would not expect this to be the case. The existing income or wealth would be based on the sale of last quarter's production, which is less than this quarter's production, so an overproduction gap does occur. So, at some point, people will need to borrow to make purchases.

However, while this is a problem, there is no reason to believe that any form of socialism, fascism, or statism, provides any solution. In fact, just the opposite can be said. For, to the extent there is a built-in problem, in free markets the correction will take place quicker and more painlessly, than if we have a government hold off the correction. In the end, the crisis hits, just harder and longer than otherwise need be.

So, while there is a "credit crunch", no where in the article does the author truly explain its source, and at no time does the author offer any meaningful solution.