EKIP– Expert Club for Economics and Politics A Different Opinion
By deciding not to invest now, the entrepreneur conserves factors of production for another time and another use (an unknown time and use). He keeps valuable resources from being used in the present because he speculates that they will be put to better use in the future.
Ivan Georgiev
For almost a century, the dominant economic doctrine has been Keynesianism. The unifying thesis in the various versions of this theory is the claim that the market by itself cannot maintain full employment of resources, including labor resources. This concept is based on the assumption of the existence of unoccupied resources. It was developed as a response to the theory of classical economists, according to which the action of demand and supply creates a tendency towards market equilibrium, in which all factor units that have a positive marginal contribution to production are engaged. The classical theory is based on the functioning of the price system and the importance of relative prices, coordinating the economic activity of people and the allocation of resources.
The Keynesian thesis can be summarized as “equilibrium with idle resources”, which casts doubt on the ability of the market to coordinate the competitive use of resources in a way that leaves no unit idle. It is from the theory of “idle resources” that Keynesian prescriptions for government intervention, aimed at achieving full employment as they define it, arise.
But in the first place, is the theory of “lagging resources” plausible? According to it, a stagnant resource is, for example, an individual who wants to work but is unemployed. Or a machine that can be used in production but is not currently being used. What Keynesians do not realize is that the so-called. lag has a meaning in the context of economizing resources by individuals.
As we know, the use of a resource has opportunity costs and the decision of the owner of a resource to prefer to dispose of it in one way means that he cannot or does not want to use it in an alternative way. Another essential element of a person's economizing activity is the uncertainty of the future, i.e. a person cannot be sure of the effect of his chosen course of action. Before proceeding with such a course of action, he makes an assessment of the benefits and losses and, based on this assessment, makes a decision on the way to use the given resource. One of the decisions he can make is to conserve the resources at his disposal. This can be done by both buyers and sellers of production factors.
This could explain the temporary lack of investment activity on the part of entrepreneurs. If the entrepreneur does not consider the investment opportunities he is considering in the present to be profitable, speculating that more profitable opportunities will be available in the future, he will refrain from investing now and proceed to do so again later.
The entrepreneur who has temporarily suspended his investment activity is still doing what he is doing - he is engaging in the uncertain process of speculation about the most profitable production activity. His job is to allocate the means of production over time and among their alternative uses. Part of his job is to wait passively and reflect, and he proceeds to invest only when there is an investment opportunity that he considers profitable. This means that when the entrepreneur refrains from investing, he has a reason for doing so - he does not consider the current investment opportunities profitable and postpones making new investments until he recognizes a (relatively more) profitable opportunity. This process can be protracted, but it is limited in time, since the entrepreneur cannot wait forever.
By deciding not to invest now, the entrepreneur conserves factors of production for another time and another use (an unknown time and use). He keeps valuable resources from being used in the present because he speculates that they will be put to better use in the future.
“Stuck resources” can also result from the decisions of individuals who supply the factor of production, labor. Like any other scarce commodity, labor has a price at which it can be sold, i.e., a price at which the market clears (all those looking for work find one, and all those offering work hire the workers they need). If someone is unemployed at a certain wage level, this means that the wage they want to start work is higher than what any employer would pay them. This is not a market failure, but an example of how inefficient production is not tolerated in the market, because the entrepreneur will hire an additional unit of labor only if the expected marginal revenue from hiring it is greater than the marginal cost. When an individual seeks employment at a wage level above the discounted marginal product that he is expected to produce, he will remain unemployed. At this level, the supply of labor exceeds the demand for labor. This means that his requested wage is higher than the maximum price any employer would pay to hire him. In this case, the individual is unemployed because he chooses to wait for a change in market reality that will produce an equilibrium that meets his requirements.
All this leads us to the conclusion that “stake” can be defined as the economic use of a given resource that results from the preferences of individuals and the prices that are asked and given for a unit of it in the market.
In the next part, I will look in more detail at the causes of unemployment and how the market deals with them.
