There are basically 2 ways of looking at the monetary cycle theory; vertical, where the economy will go in recession or a boom through time. or horizontal, where it will happen via consumers. Hayek concentrated on the horizontal method. he's basically saying that you can control whether the economy will be in recession or not by controlling either consumer goods supply or capital demand. if you supply the same amount of consumer goods, eventually, of course, the demand will rise. so if you just ignore the fact that you need more capital i.e machines, etc. to balance the supply with demand and continue with what you're doing, the economy will not be affected and neither will your firm be. and if you should decrease the amount of consumer goods, the same will occur except that you will require less labor force. Hence, higher unemployment rate. I agree with Hayek that you could control the economy, but not the entire economy. If you think about it, either way you try to balance the chaos that is recession, there is still something there that's helping recession grow as well. like for example, the less consumer goods, more unemployed people, more investment in the economy and therefore, recession. maybe if the labor force was kept the same then it would be flawless. However, I believe the second method is perfect in every way. if the demand increases, you could just ignore it and continue, this may not be good for the company as it may lose consumers and eventually go to firms that increase capital demand or consumer goods supply. banks could intervene in this matter by not giving the firm a loan or increasing the interest rate on them in order to maintain the balance.
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