Lp-1-40 - LIBERTARIANPAPERS VOL.1,ART.NO.40(2009 WLADIMIRKRAUS AN IMPORTANT ARGUMENT IN THE ARSENAL ofKeynesian economics in /depressionitwillput

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L IBERTARIAN  P APERS V OL . 1, A RT . N O . 40 (2009) A T HOUGHT  E XPERIMENT  C OMPARING  A USTRIAN   AND   K EYNESIAN  S TIMULUS  P ACKAGES W LADIMIR  K RAUS * A N   IMPORTANT   ARGUMENT   IN   THE   ARSENAL   of Keynesian economics in  favor of fiscal stimulus is that during a recession/depression it will put  unemployed resources back to work and produce, in the process, a  net - gain in wealth.  Keynesians begin with a fairly accurate description of a few crucial  facts. Immediately before and during a crisis, fully equipped factories,  tools, materials, implements, workers able and willing to work, materials,  the know-how etc. are all in place and ready to be used. Yet, during a  crisis the only thing that seems to be lacking is enough spending to  facilitate the exchange of goods and services. Throughout the economic  system virtually every industry, consumers’ and capital goods’ alike, is  lacking in money demand for its products. Capital goods and workers are  idle in bakeries, in shoe factories, in steel companies, in the construction  business, in mining concerns, transportation industries etc. etc.  Closely related,  typical  depression conditions,  particularly  at  the  outset of a contraction, are characterized by abnormally large inventories  of previously produced physical goods. While idle, stocks of consumers’  * Wladimir Kraus ( wladimir_kraus@gmx.de )  is  a PhD candidate in Institutions,  Economics, and Law at IEL-International Programme in Institutions, Economics, and  Law, Collegio Carlo Alberto, Italy. C ITE   THIS   ARTICLE   AS :   Wladimir   Kraus,   “A   Thought   Experiment   Comparing  Austrian and Keynesian Stimulus Packages,”  Libertarian Papers  1, 40 (2009). O NLINE   AT libertarianpapers.org . T HIS   ARTICLE   IS  subject to a Creative Commons Attribution 3.0  License ( creativecommons.org/licenses ). 1
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2 L IBERTARIAN  P APERS  1, 40 (2009) as well as capital goods of standard quality and usefulness are losing  rapidly in quality and value. It is a well-established empirical fact that the  so-called physical  subsistence fund  is not at all low or severely depleted  but, on the contrary, reaches its maximum level precisely at the zenith of a  boom. The inventories of perishable goods, such as food, are in most  urgent need to be put to use as quickly as possible to prevent consumption  of that capital. To avoid capital losses, sellers are eager to sell such  money-losing, excessive inventories and regain the condition of normal  operation and production, but there are not enough buyers. On this point, some Keynesians insist emphatically, and I believe 
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This note was uploaded on 01/22/2010 for the course ECO 1101 taught by Professor Sparr during the Fall '05 term at St.Francis College.

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Lp-1-40 - LIBERTARIANPAPERS VOL.1,ART.NO.40(2009 WLADIMIRKRAUS AN IMPORTANT ARGUMENT IN THE ARSENAL ofKeynesian economics in /depressionitwillput

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