Benjamin Vander Jagt - benjaminvanderjagt@adelphia.net - From "The Computer Monitor" July 1 edition.
    Two prevalant economic theories, Supply-Side Economics, based on the writings of Jean Baptise Say (1767 - 1832), and Demand-Side Economics, based partly on the writings of John Maynard Keynes (1883 - 1946), are so controversial and misunderstood that they have often been attributed to right- and left-wing politics!
    Demand-side economics is more often taught in schools.  The basis for demand-side economics is that the economy is stimulated and perpetuated by the needs and wants of those with money.
    Supply-side economics is based on the concept that the economy is stimulated by the manufacture of what is needed and wanted.  Supply-side economics is sometimes summarized by the often misunderstood statement, "Supply creates demand."
    These two economic systems seem to be the same, but the differences are subtle and wide.
    During the Great Depression, many people were very poor.  They didn't have jobs, and they didn't have money.  People couldn't afford food or comforts, and they suffered.  It was beginning to look like the Soviet Union, with extremely poor people waiting in line to get a tiny portion of what they needed to survive.  Many thought the problem was lack of money to buy the products needed, and it's quite understandable how this conclusion can be drawn.  Essentially, the solution seemed to be as simple as winning the lottery.  Just make more people with money.
    We can begin to understand both supply-side and demand-side economics when we make the realization that money is worthless.  A trade is the exchange of goods for goods.  Labor is a good, and we can sell our own labor to an employer and receive goods.
    If a person worked for an apple farmer, the apple farmer could pay the employee in apples.  This person could then turn the apples into something he actually wanted by trading them with someone who has the desired good for trade.  Perhaps he needs some work done to his roof.  He could pay the roofer in apples, if the roofer is willing to take them.
    Of course, apples are an inconvenient way to transfer wealth.  Pigs have been a goods-trade standard for thousands of years and in fact still are, but you don't want to bring a herd of pigs to a real-estate closing.  Apples and pigs may be more valuable to some people than to others.  They significantly lose value when transferred from person to person, because they are damaged during shipment.  We could be much more efficient if we used some valueless, weightless, lossless, easy to secure, easy to manage item as an intermediary.  This is where the virtual item known as money comes in. The only difference between a dollar and a dollar worth of goods is the form.  A dollar worth of goods is in a precarious form.
    Remember, money is not printed paper.  Printed paper dollars represent a virtual concept.  Money is the same whether in the form of cash, bank account, credit, or goods.
    During the Great Depression, it was easy to believe that the answer to the poorness would be simply to give the people more money.  This would be accomplished not just by minting money, but by requiring employers to pay a minimum wage and not fire certain employers and by allowing debts to be paid late without penalty.  When you have more money, it can be reasoned that you will be able to buy more goods, that manufacturers would in turn be able to pay their employees more, manufacture more, hire more, and so on.  The problem would be theoretically fixed by printing more money.
    The problem with this idea is that money is not a good.  Increasing the supply of money only causes inflation, which decreases the wealth of the wealthy while only giving wealth to those who are at the receiving end of the cash flow.  At its best, this would steal from the rich and give to the poor.  During the Great Depression, however, everyone was poor.  Plus, this ended up being a planning nightmare for manufacturers and companies.  A manufacturer knows that efficiency could be improved by hiring more employees, but the minimum wage made it impossible to do that.  Add to that the labor lost to the process of transferring the money, and you have an overall much poorer country.
    A company, manufacturer, business, or corporation is not a big wealthy man in control of employees.  It is a group of people who all have the same job in mind.  Ten poor tailors know they can work more efficiently if they work together.  While ten poor people working harmoniously can make enough money to survive, one hundred very poor people working together in a company can also make enough money to survive.  Taking from the "rich" to give to the "poor", especially when "rich" includes any business entity, merely steals from one set of poor people and gives to another.  Even if the concept that the rich don't really need nor deserve their money were true, arbitrarily inflating money still hurts the small companies and the middle to lower class much more than the rich.
    Demand-side economics would address the Great Depression by saying that there was enough stuff, but that people simply didn't have the money to buy it.
    Supply-side economics shows that the value of a dollar is arbitrary so that the total amount of money in the economy is equal to the total amount of goods.  It is therefore impossible for there to be insufficient money.  Unsold goods simply drop in price.  This doesn't mean that the manufacturer can no longer afford to manufacture that product, although the initial drop in price may cause a minor loss.  Instead, it means that the value of a dollar has been adjusted.  Bread is still bread, no matter how many dollars it costs.
    Those new to the concept of supply-side economics are probably wondering how the manufacturer can then afford to continue making goods if the goods sell for less and less.  More importantly, what happens to the unemployed workers who have no money as opposed to little money?
    This is very easily explained but not so obvious.  This is the answer: Labor is a good.  Just like unsold goods sell for a lower price, unemployed workers work for a lower price.  Before jumping to the conclusion that this is a bad thing for workers, remember that the prices of all goods, both items and labor, have dropped.  What just happened in this common scenario is called deflation; the value of a dollar went up!  Inflation is often considered to be a "bad" thing.  Is deflation a good thing?  Not really.  Change, whether inflationary or deflationary, is painful.  It's ideal to always be exactly right, but that simply doesn't happen.  Fortunately, the market automatically corrects itself.  What causes inflation and deflation on a large scale is modification of the logic governing the market.  Specifically, when the moderator of money, the government, changes the dynamics of money, via tarriffs, tax incentives and rebates, welfare, minimum wage, and printing extra money, the natural flow of money builds up in one location or another until it painfully bursts into its correct location.
    The statement, "Supply creates demand," is misunderstood very frequently, even by highly accredited economists.  It is incorrectly imagined to mean that simply manufacturing a product creates a demand for it, as in, "Supply creates its own demand."  This is only a little bit off, but it means a world of difference. The demand for a product is governed by the wealth that people have (not specifically money, since money is arbitrary).  You would always like to be richer, because that means you can buy more things.  If you manufactured more goods (including labor), then you could trade that for the things you desired. Therefore, your supply of goods is your means to purchase goods.  Your supply creates your demand. This is quite easy to see in the following example:  If you work more, you will earn more money.  If you earn more money, you can buy more goods.
    Clear examples of demand-side economics can be seen in politics.  Have you ever heard a politician promise to bring less jobs to an area?  Of course not.  However, the best way to bring less jobs to an area is by increasing the efficiency of the manufacturers.  This would mean that a total community would have the same overall wealth, but fewer people would have to work for it.  Less jobs would actually be a good thing, since more people would be free to work on arts, community services, charity, protection, and other things that are not urgent to survival.  This scenario would probably yield less "jobs", but the same number of people would be working the same amount.  The main difference is that much more is being produced.  In these United States, a huge portion of a person's annual wage goes into items not required for survival.  High efficiency yield a low real cost of living.  If you lost your job to a robot, rest assured that the robot will bring the cost of the product way down, and the amount of work you need to do to earn one of those products will equally drop.  In a poor nation, you wouldn't be able to survive creating miniature handmade porcelain and wood dolls.  In a rich nation, such a job pays high dollar.  More extremely, in a third world country, it wouldn't matter if you're a professional actor; you're still hunting, farming, or whatever it takes to make money.  They don't have the free resources to pay for actors.  In a rich nation, actors are paid an enormous amount.  Thanks to increased efficiency, a rich nation has more bounty and can afford such luxury.
    Those promoting "more jobs" are in effect attempting to increase the demand (employment) for a good (labor).  That is the example of demand-side economics in politics.  I can increase employment by destroying all clothing factories.  More workers would be required to make the clothes by hand, but less would be manufactured.  You would then need to pay more for clothes.  Don't confuse this with an inflation or a deflation, since that is an adjustment of the value of money.  This is considered a catastrophic loss.
    Many claim that World War II ended the Great Depression.  More accurately, it was a precipitous event.  Any forces that were already ending the depression were chronologically adjusted to occur at that time. War causes enormous short term loss, which is why in World War II, these United States did not enter until there was no other option.  (For fear of offending anyone, I won't say whether or not the military action against Iraq occurred when there was no option.  However, I would be glad to post your opinion in the next newsletter!  To have your point posted, try to make a good argument.)  Losing a war depletes a country's nearly entire wealth, while winning doesn't have as bad of an effect.  This is one reason why we didn't feel much of an impact from the war.
    Speaking empirically, there is no way that war can improve economies.  Plunder, escaping slavery and tyrrany, and increasing national security are all separate from war.  The war is the act of fighting.
    When you are hungry, you make food.  Is it therefore a good idea to have a tapeworm?