Monday, December 3, 2007

Keynes' Pyramids

Did the ancient Egyptians have a problem with overproduction? The Great Depression was a dramatic example of the havoc overproduction can cause in an economy. In that case the increased production from industry plus the collapse of export markets, created a situation where supply out-stripped demand. Many of my colleagues argue that we have to maintain money sinks to remove excess production as needed, so that the economy has a release valve. The military is a key example of this, as the products it needs are both expensive and useless for further production. An investment in the military removes capital from circulation, and itself does not produce anything. Another good resource sink is education. Thought it will result in a higher level of production over time, there is ample opportunity to invest heavily without directly increasing production. The building of gargantuan monuments may have server a similar purpose in ancient Egypt. The reasoning behind this is fairly straightforward. The Egyptians were an advanced civilization, and were clearly producing more than they required for their domestic needs. Much of this was exported. However, would a decrease in the availability of the export markets result in a depression as levels of surplus increased? If it would have then it would make sense for the Egyptians to pursue large projects to keep demand above production. The one flaw here is this was not a free economy. It was an economy dominated by the ruling class. They were in fact perfectly capable of simply hording wealth, and since they could control production either by law or force it is somewhat fanciful to think they would use economic manipulation. As cool as it would be to find Keynesian economics at work in the ancient world, I don't think the pyramids are examples of either deficit spending or production management.

--
Robert Alverson

m*lambda=d*sine(theta)

*Edited on 12/5/2007 to correct formating errors

No comments: