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Archive for the 'Economics' Category

Monday, February 27th, 2017

In memoriam: Kenneth J. Arrow

Kenneth J. Arrow

Like many others, we were incredibly saddened to learn of the recent passing of Kenneth J. Arrow. Arrow’s work has so deeply shaped the course of economics for the past sixty years that, in a sense, every modern economist is his student. His ideas, style of research, and breadth of vision have been a model for generations of the boldest and most creative economists. Columbia University Press has been honored to publish the Kenneth J. Arrow Lecture Series, which highlights economists whose work builds on Arrow’s scholarship as well as his innovative spirit.

Read Arrow’s commentary on Joseph Stiglitz and Bruce Greenwald’s work on learning and knowledge from the first volume of the Arrow Lecture Series, Creating a Learning Society, below:

Thursday, February 16th, 2017

Boom and bust returns as oil market loses its swing

Crude Volatility

“While it is possible the unmanaged interplay of supply and demand will yield more stable prices in coming years and decades, it is more likely future trends will resemble the past, featuring surprising shifts, sustained imbalances, and upheaval.” — Robert McNally

This week, our featured book is Crude Volatility: The History and the Future of Boom-Bust Oil Prices, by Robert McNally. Today, we are happy to repost an article by Robert McNally that “>originally appeared in the Financial Times:

Boom and bust returns as oil market loses its swing: For the first time in years, the global oil market is lacking a swing producer
By Robert McNally

Even in these hyper-partisan times, loathing for Opec still unites most Americans. Yet paradoxically, over four decades from the early 1930s to early 1970s, the United States was Opec, and much better at oil supply manipulation and price fixing than today’s Opec ever was.

Up until 1972, independent US oilmen and oil states like Texas acquiesced to heavyhanded government regulations over oil, imposing monthly quotas on producers. This was all done to vanquish chronic booms and busts that vexed the oil industry, consumers, investors, and officials.

This paradox bears directly on the epic, structural shift currently under way in the global oil market, with far-reaching repercussions not only for oil and energy, but also economic growth, security, and the environment. Wildly gyrating oil prices over the past decade mark the demise of Opec as an effective supply manager and the return of free crude oil markets. The resulting unwelcome and likely protracted return of boom-bust oil prices constitutes a major and under-appreciated financial, economic, and geopolitical risk to consumers, businesses, the incoming administration and governments worldwide. (more…)

Wednesday, February 15th, 2017

Old Numbers, New Data

Crude Volatility

“I decided to write this book to explore more deeply how oil’s history can clarify recent trends and shed light on tomorrow’s path, and to present my findings to the general reader as well as the energy expert.” — Robert McNally

This week, our featured book is Crude Volatility: The History and the Future of Boom-Bust Oil Prices, by Robert McNally. In today’s post, we feature an excerpt from the preface to Crude Volatility, with some illuminating graphs. (Click on the images to see them full-size!)

Tackling this topic presented formidable challenges, not the least of which was getting good historical data and information. For “barrel counters,” the search for better data is a never-ending and arduous quest. Historical data on prices and spare production capacity—central to this book—are especially scarce and patchy. I am therefore delighted and proud that my able research assistant Fernando Ferreira and I were able to unearth historical data and present two novel data sets, neither of which (to my knowledge) existed until now.

The first data set is a continuous, market-based price series for U.S. crude prices extending back to 1859 and continuing to the present on a monthly basis. Constructing this series entailed digging up prices based on field quotations, exchange-traded pipeline certificates (a proxy for crude oil prices), prices paid by Standard Oil’s purchasing agency, and data from the American Petroleum Institute and the Energy Information Administration.

The key issue here is frequency of the data. BP helpfully publishes historical crude oil prices back to 1859 on an annual basis. But annual averages fall short of illustrating boom-bust price trends as more frequent and dramatic price swings—daily, weekly, monthly—get lost in the annual average. Unless otherwise noted, all prices cited in this book, including this new monthly historical price series, are in nominal instead of real or inflation-adjusted terms. Using real prices would not change the story from a volatility perspective, but I decided to use nominal prices to better connect the prevailing historical narrative with price changes…

The second unique data set developed for this book is for U.S. spare production capacity extending back to 1940 and continuous data on U.S. and global spare capacity since 1955 (that is, including the Seven Sisters until the early 1970s and OPEC afterward). This entailed exhuming information from various government and industry reports and publications. Currently, EIA’s published OPEC spare production capacity extends back to 2003.

My goal is to contribute to our understanding of the economic and political forces that shaped oil prices in history so as to better understand them today and tomorrow. Whether I have succeeded I leave to you, dear reader, to judge…

(Click on the images to see them full-size!)

Oil Disruptions, Spare Capacity, and Crude Prices

Nominal Crude Oil Prices

Monthly Crude Oil Price Ranges

Tuesday, February 14th, 2017

The Texas Paradox

Crude Volatility

“By beginning the story of oil prices with the birth of the industry, we can better appreciate why oil prices are naturally volatile and why that volatility has posed an enormous problem not only for the oil industry but broader economy, causing oilmen and officials to go to great lengths to stabilize oil prices.” — Robert McNally

This week, our featured book is Crude Volatility: The History and the Future of Boom-Bust Oil Prices, by Robert McNally. To start the week’s feature, we are happy to present an excerpt from the book’s introduction, in which McNally examines the uncomfortable relationship tension between our desire to avoid a situation where monopolies dictate oil prices and a situation where oil prices fluctuate wildly.

Monday, February 13th, 2017

Book Giveaway! Crude Volatility: The History and the Future of Boom-Bust Oil Prices

Crude Volatility

“Robert McNally has written an excellent biography of a world-famous character, known for volatility and violent mood swings, sometimes reviled but always a player in the world economy and politics—the oil price. Insightful and timely, Crude Volatility explores the clash over many decades between “boom and bust” prices and the efforts to harness them. In the current market, McNally explains why volatility is likely to win out over stability—highly significant for what will remain the world’s most important commodity for many years to come.” — Daniel Yergin, Pulitzer Prize-winning author of The Prize and The Quest and Vice Chairman of IHS Markit

This week, our featured book is Crude Volatility: The History and the Future of Boom-Bust Oil Prices, by Robert McNally. Throughout the week, we will be featuring content about the book and its author on our blog as well as on our Twitter feed and our Facebook page.

Friday, February 10th, 2017

Fact or Fiction: how much do you know about the future of the US economy?

Building the New American Economy

This week, our featured book is Building the New American Economy: Smart, Fair, and Sustainable, by Jeffrey D. Sachs, with a foreword by Bernie Sanders. For the final day of the week’s feature, we are happy to present a quiz, based on Building the New American Economy, that tests your knowledge of the present and future of the American economy.

Thursday, February 9th, 2017

Press roundup – Jeffrey Sachs

Building the New American Economy

“The key to resolving America’s ills depends on greater fairness, decency, and honesty lie within our own borders, notably on how we share the benefits of advanced technologies such as robotics and artificial intelligence, and the booming profits they are producing. The real counterpart of falling American working-class incomes is not the rise of Mexican incomes but the soaring profits and incomes now going to the 1 percent. The key solutions for American workers are right at home, not in overseas military adventures, new arms races or self-defeating trade wars.” — Jeffrey Sachs

This week, our featured book is Building the New American Economy: Smart, Fair, and Sustainable, by Jeffrey D. Sachs, with a foreword by Bernie Sanders. For today’s post, we feature a roundup of some of Sachs’ recent writing for major national newspapers.

This past month, Professor Sachs has contributed multiple op-eds to The Boston Globe just a few of which we will describe here. On February 5th, he wrote on “Donald Trump’s dangerous China illusions,” exploring China’s recent history as an emerging global superpower and warning that the United States can no longer assume that it maintains primacy in world affairs as President Trump has argued. On January 29th, Prof. Sachs argued in “The balance sheet on ‘America First’” that only one of President Trump’s economic assertions has a grain of sense in it: that there should be a cutback in federal military spending. Otherwise, Sachs asserts, Trump’s directions in trade and investment policies are misguided. Third, in January 22nd’s “The shifting global landscape,” Prof. Sachs looks back at the publication in 1776 of Adam Smith’s foundational economic text The Wealth of Nations and finds parallels to today’s global climate that indicate a changing of the guard in how we think about and experience economic issues.

Sachs has also written frequently for Project Syndicate, where this month he published pieces on “Why Millenials Will Reject Trump” – the keys are their diversity, the particular nature of the economic challenges they face, and their awareness of the effects of climate change – and on “Learning to Love a Multipolar World,” exploring the roots of the vastly changed position the United States finds itself in in international politics.

Wednesday, February 8th, 2017

Bernie Sanders on creating an economy that works for all

Building the New American Economy

“What I heard and what I continue to hear is that Americans have had enough of establishment politicians and establishment economists who have claimed for far too long that we must choose between economic growth, economic fairness, and environmental sustainability. They have sold us a bill of goods that says we can’t have all three. Well, they are wrong. To my mind, widely shared prosperity, economic fairness, and environmental sustainability must go hand in hand.” — Bernie Sanders

This week, our featured book is Building the New American Economy: Smart, Fair, and Sustainable, by Jeffrey D. Sachs, with a foreword by Bernie Sanders. Today, we are thrilled to present an excerpt from Bernie Sanders’s foreword.

Tuesday, February 7th, 2017

Why We Need to Build a New American Economy

Building the New American Economy

“My core contention is that with the right choices, America’s economic future is bright. Indeed, we are the lucky beneficiaries of a revolution in technologies that can raise prosperity, slash poverty, increase leisure time, extend healthy lives, and protect the environment.” — Jeffrey Sachs

This week, our featured book is Building the New American Economy: Smart, Fair, and Sustainable, by Jeffrey D. Sachs, with a foreword by Bernie Sanders. To start the week’s feature off, we are happy to present an excerpt from the first chapter, in which Sachs explains his purpose in writing the book, and starts to delve into what it would take to build a new American economy for all.

Monday, February 6th, 2017

Book Giveaway! Building the New American Economy, by Jeffrey D. Sachs

Building the New American Economy

“Jeffrey Sachs remains one of the most thought-provoking economists in the world today because he dares to challenge presidents of both parties and the orthodoxies that bind them to disastrous policies. His critiques are fierce and his solutions fearless in the face of political and academic groupthink. That makes Professor Sachs a rarity in public life and this book an absolute necessity.” — Joe Scarborough

This week, our featured book is Building the New American Economy: Smart, Fair, and Sustainable, by Jeffrey D. Sachs, with a foreword by Bernie Sanders. Throughout the week, we will be featuring content about the book and its author on our blog as well as on our Twitter feed and our Facebook page.

Wednesday, January 11th, 2017

Conserving the Environment is Crucial but Simple

Endangered Economies

“External costs pose the biggest threat to the environment by preventing nature and the economy from working together. External costs occur when a third party must pick up the tab for the negative consequences of a transaction. A transaction that occurs every day is a good example: let’s say I buy gasoline, burn it in my car, and harm people who inhale the exhaust fumes or whose climate is altered by greenhouse gases generated. The people who are injured did not purchase and burn the gas—I did. Yet I do not pay for the harm done.” — Geoffrey Heal

This week, our featured book is Endangered Economies: How the Neglect of Nature Threatens Our Prosperity, by Geoffrey Heal. Today, we are happy to present a guest post from Heal, in which he argues that environmental conservation is crucial to our prosperity, and indeed to the future of our civilization, and is easier than most people think. He also provides four relatively simple reforms that will transform how our economies interact with the environment and make a pristine environment compatible with growth and prosperity.

Don’t forget to enter our book giveaway for a chance to win a free copy of Endangered Economies!

Conserving the Environment is Crucial but Simple
By Geoffrey Heal

Our dependence on nature runs deep. There is no denying that a pristine environment improves our health, lengthens our lives and makes us more productive. Yet in our lifetimes, catastrophic environmental change will occur because of four basic, correctable errors in the design of our economic systems. We can fix the most egregious flaws in the system to correct our neglect of nature and allow the economy and the environment to coexist and nurture one other.

External costs pose the biggest threat to the environment by preventing nature and the economy from working together. External costs occur when a third party must pick up the tab for the negative consequences of a transaction. A transaction that occurs every day is a good example: let’s say I buy gasoline, burn it in my car, and harm people who inhale the exhaust fumes or whose climate is altered by greenhouse gases generated. The people who are injured did not purchase and burn the gas—I did. Yet I do not pay for the harm done. There are many ways of solving problems like this – problems that involve a social cost. We can levy a charge to reflect the costs to third parties, we can give damaged parties the right to sue, we can regulate activities that affect third parties, and more. What we can’t afford is to continue to ignore this harmful error in our economic policies. (more…)

Tuesday, January 10th, 2017

Environment and Economy—No Conflict

Endangered Economies

“External costs pose the biggest threat to the environment by preventing nature and the economy from working together. External costs occur when a third party must pick up the tab for the negative consequences of a transaction. A transaction that occurs every day is a good example: let’s say I buy gasoline, burn it in my car, and harm people who inhale the exhaust fumes or whose climate is altered by greenhouse gases generated. The people who are injured did not purchase and burn the gas—I did. Yet I do not pay for the harm done.” — Geoffrey Heal

This week, our featured book is Endangered Economies: How the Neglect of Nature Threatens Our Prosperity, by Geoffrey Heal. To start off the week’s feature, we are happy to present an excerpt from the book’s first chapter, in which Heal explains why there’s no real conflict in trying to save the environment and improve the economy.

Don’t forget to enter our book giveaway for a chance to win a free copy of Endangered Economies!

Monday, January 9th, 2017

Book Giveaway! Endangered Economies: How the Neglect of Nature Threatens Our Prosperity, by Geoffrey Heal

Endangered Economies

“In this passionate and readable book, Heal sets out the measures needed to reconcile economic progress with preservation of the planet. They are surprisingly simple and attainable. Heal demonstrates that there is not a trade-off between growth and environmental protection, but that they can and must go hand-and-hand, that growth is not attainable over the long run without protecting the environment.” — Joseph E. Stiglitz, Nobel Laureate in Economics

This week, our featured book is Endangered Economies: How the Neglect of Nature Threatens Our Prosperity, by Geoffrey Heal. Throughout the week, we will be featuring content about the book and its author on our blog as well as on our Twitter feed and our Facebook page.

Friday, July 1st, 2016

A Media Roundup for “The Evolution of Money”

The Evolution of Money

“The reason I think we need a new theory of money is because traditional theories either emphasise one side of money only (such as bullionism vs chartalism) or more or less ignore its properties altogether (like mainstream economics). And they take the relationship with number for granted, which I think is a mistake. It is the most obvious feature of money, and in many ways the most important.” — David Orrell

This week, our featured book is The Evolution of Money, by David Orrell and Roman Chlupatý. For our final post of the week, we’ve collected a number of the best articles and interviews by and about David Orrell, Roman Chlupatý, and The Evolution of Money.

First, you can read an adapted excerpt from The Evolution of Money at Evonomics:

Environmental conflict is therefore hardwired into the design of our monetary system—built for funding wars with kings and empires and now, as Klein documents, with the planet (one that, if it continues, the planet will win—it’s bigger). Dazzling us with number, it distracts us from the costs. This, rather than ideology, is why the GDP produced in a city like Beijing is booming, but people are leaving because they can’t breathe the air (and why, a little late, the National Congress of the Communist Party wrote the goal of an “ecological civilization” into its constitution in 2012). Like a toxic algal bloom on a lake, the economy is doing fine, but it is asphyxiating everything around it.

99Bitcoins has a great interview with David Orrell on cryptocurrency:

“The reason I think we need a new theory of money is because traditional theories either emphasise one side of money only (such as bullionism vs chartalism) or more or less ignore its properties altogether (like mainstream economics). And they take the relationship with number for granted, which I think is a mistake. It is the most obvious feature of money, and in many ways the most important.” — David Orrell

Adbusters featured “The True Value of Money,” an article by David Orrell:

A peculiar feature of orthodox economics is that money is treated as an inert medium of exchange, with no special properties of its own. As a result, money is largely excluded from macroeconomic models, which is one reason the financial crisis of 2007/8 was not predicted (it involved money). In many respects, when viewed through the lens of quantum physics, money behaves a lot like matter – and acknowledging that behavior promises to do to economics what quanta did for physics.

(more…)

Thursday, June 30th, 2016

Why Money Is Undermining Our Financial System

The Evolution of Money

“And this is exactly where the current problem lies: central banks – and their peers, commercial banks – still operate in a one-dimensional universe where readiness to spend has been muted. On the one hand, we now have those who have, who are thus trustworthy and who can therefore reach into the honeypot of cheap credit. But these largely own what they want and who instead of spending on things invest – thus the asset bubble and also the increasing gap between rich and poor. On the other, we have those who want to spend but don’t have the means or access to credit.” — Roman Chlupatý

This week, our featured book is The Evolution of Money, by David Orrell and Roman Chlupatý. Today, we are happy to present an interview with Roman Chlupatý from Euronews, in which Chlupatý explains why we live in “a world where one of a few certainties is that while we don’t know when the next [economic] crisis will come, we know for sure that it will.” Watch the video or read the text in full below.

We live in a time of great monetary abnormality. Not only are the European Central Bank and the Bank of Japan prescribing negative interest rates to prop up their failing economies but the Swedish central monetary authority is doing the same – despite the fact that its national economy is growing at a solid rate. And as if this were not enough, the Fed’s Janet Yellen, who was expected to increase rates three to five times this year on her quest for normalcy, has mentioned earlier this year that negative rates in the US – meaning banks charging interest from those depositing money with them – are still a possibility.

What does this mean? Seven and a half years after the so-called crisis broke out with the collapse of investment bank Lehmann Brothers, old recipes and ways of thinking are out of breath. They certainly did help to avert the worst – just imagine what would for instance have happened in the UK if ATMs had stopped giving out cash, a situation that was mere hours away – but they did so at the cost of a 57 trillion dollar-increase in debt, as consultancy McKinsey points out, and at the cost of inflating speculative bubbles all around. (more…)

Wednesday, June 29th, 2016

The Changing Faces of Money

The Evolution of Money

“Indeed, one of the things holding back the adoption of cybercurrencies including bitcoin is that they do not conform with traditional ideas about money. But is the problem with bitcoin, or have our ideas about money failed to keep up with its evolution?” — David Orrell

This week, our featured book is The Evolution of Money, by David Orrell and Roman Chlupatý. In “The Changing Faces of Money,” David Orrell looks at the rise of cybercurrencies and what they can tell us about what money actually is.

The Changing Faces of Money
By David Orrell

The question, “what is money?” is one that never seems to go away. Were medieval bills of exchange money? How about fiat currencies? Its latest manifestation tends to focus on cybercurrencies such as bitcoin – are they as good as regular coins?

To some techno-enthusiasts the answer is a resounding yes, but to many people it is less clear. This skepticism was captured by former Federal Reserve chairman Alan Greenspan, who once told Bloomberg, “I do not understand where the backing of bitcoin is coming from. There is no fundamental issue of capabilities of repaying it in anything which is universally acceptable, which is either intrinsic value of the currency or the credit or trust of the individual who is issuing the money, whether it’s a government or an individual.”

Indeed, one of the things holding back the adoption of cybercurrencies including bitcoin is that they do not conform with traditional ideas about money. But is the problem with bitcoin, or have our ideas about money failed to keep up with its evolution? (more…)

Tuesday, June 28th, 2016

The Evolution of Money: Origins

The Evolution of Money

“Money has been one of mankind’s most successful inventions (it is no coincidence that to “coin” means to “invent”). Indeed, it is one of the things that best expresses our humanity.” — David Orrell and Roman Chlupatý

This week, our featured book is The Evolution of Money, by David Orrell and Roman Chlupatý. To start the week’s feature, we are happy to present an excerpt from “Origins,” the first chapter of The Evolution of Money.

Monday, June 27th, 2016

Book Giveaway! The Evolution of Money, by David Orrell and Roman Chlupatý

The Evolution of Money

“Even though money is something we all use every day, talking about it, defining it, and explaining are extremely arcane things to do. The tone is important, and The Evolution of Money goes about its task in a readable, breezy style that does not become glib.” — Paul Vigna, coauthor of The Age of Cryptocurrency: How Bitcoin and Digital Money Are Challenging the Global Economic Order

This week, our featured book is The Evolution of Money, by David Orrell and Roman Chlupatý. Throughout the week, we will be featuring content about the book and its authors on our blog as well as on our Twitter feed and our Facebook page.

We are also offering a FREE copy of The Evolution of Money. To enter our book giveaway, simply fill out the form below with your name and preferred mailing address. We will randomly select our winners on Friday, July 1st at 1:00 pm. Good luck, and spread the word!

Friday, May 20th, 2016

“National Income” in the Encyclopaedia Of the Social Sciences

Economic Thought and The Power of a Single Number

“According to Kuznets, the purpose of the economic system was to provide the citizens of a country with goods and services. What was decisive in the recording of national income was the moment at which individuals in the economic cycle achieved their income. Kuznets had a clear and realistic concept: national income had to be thought of in terms of the incomes individuals get, and not as the total value of production.” — Philipp Lepenies

This week, we are featuring two exciting new economics titles: Economic Thought: A Brief History, by Heinz Kurz, and The Power of a Single Number: A Political History of GDP, by Philipp Lepenies. For the final post of the feature, we are happy to present a short excerpt from The Power of a Single Number, in which Lepenies tells the story of how Simon Kuznets got his conception of national income into the 1933 edition of the Encyclopaedia Of The Social Sciences.

“National Income” in the Encyclopaedia Of the Social Sciences (1933)
Philipp Lepenies

It was thanks to his brother that Kuznets—not well known among researchers for his work on national income—was entrusted with the entry for the Encyclopaedia of the Social Sciences. Salomon Kuznets was one of the editor’s closest members of staff, and awarded the contract to Simon, who seized the opportunity to present his view of the topic. His entry presented what was, until then, the most comprehensive methodological and theoretical statement on national income. As opposed to most of the other publications on national income, his was not aimed at an expert audience. It was written in a generally comprehensible way, and made do with few technical details. With this, Kuznets was able to get his views across to a wide audience.

For Kuznets, it was not only income (which could be calculated as consumption, its distribution, and the value of production) that made up the figure national income. He added a fourth category, “income enjoyed,” or the sum total of all subjective feelings, which each individual has in his dual function as producer and consumer. In so doing, Kuznets extended the range of interpretation of national income with a subjective component: the satisfaction resulting from one’s own economic activity. Such feelings, however, were not measurable, so in order to quantify national income, one had to concentrate on the cruder benchmarks of income received and consumed. (more…)

Thursday, May 19th, 2016

The Principle of Effective Demand

Economic Thought and The Power of a Single Number

“Consumption and savings depend first and foremost on the level of national income, but what decides the latter? This is the crucial question. Keynes answered: it is the level of investment demand. Investors, not consumers (alias savers), are the active element in the economic system.” — Heinz Kurz

This week, we are featuring two exciting new economics titles: Economic Thought: A Brief History, by Heinz Kurz, and The Power of a Single Number: A Political History of GDP, by Philipp Lepenies. Today, we are happy to present a short excerpt from Economic Thought, in which Heinz Kurz breaks down John Maynard Keynes’s “principle of effective demand.”

The Principle of Effective Demand
Heinz Kurz

Let us now have a closer look at Keynes’s view that the economic system is typically not fully utilizing its productive resources—it is not “supply-constrained,” as neoclassical economists contend, but “demand-constrained” (except during booms). More specifically, Keynes’s “principle of effective demand” means that there is no reason to assume that aggregate investment demand will always be large enough to employ all of an economy’s productive resources. To see this we must turn to how he determined the two components of private domestic aggregate effective demand—consumption and investment expenditures.

Before doing so, it should be noted that Keynes conceived savings (correctly) as the nondemand of goods and services. The saver keeps a part of his or her money income and does not spend it, that is, does not buy goods. Savings in themselves involve “leakages” in the stream of expenditures and pose the problem of sufficient effective demand. The praise Adam Smith had showered upon the “frugal man” was justified only to the extent to which the saver was at the same time an investor, who spent the saved sums not on consumption goods (food, beverages, clothing, etc.) but instead on investment goods (plant and equipment, raw materials, etc.). In this perspective investments involve “injections” into the stream of expenditures and may compensate for the leakages stemming from savings. (more…)