A Note on Aggregate Demand and Aggregate Supply – NYTimes.com

Some of you will have noticed how in this and in P Krugman’s subsequent piece on aggregate demand, the possibility of producing material wealth and in fact value even though the capital generating that wealth rests on bad debt may point to an additional conclusion that Krugman himself does not draw. Notice what happens when this wealth and the value that produces it and then underwrites its consumption is discovered to rest on bad debt; the material wealth persists, but its value declines. Because its abstract value declines, producers must lay off workers, cut wages and benefits, to shore up their losses. Less abstract value in consumer pockets leads to a further decline in the abstract value of material wealth; that is until producers sufficiently reduce their inventories to meet effective demand. But the point is that the material wealth remains constant while the labor value of that wealth declines and while workers are laid off. This may point to the possibility of producing material wealth without the need for its being underwritten by immaterial value. But it only points there.