John Steward of Jesus
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Production-consumption tensions

September 4, 1980

In a free market, price serves to keep supply and demand in balance, and thus maintain the balance between producers and consumers. If prices are too high, consumption decreases. If prices are too low, production decreases. Because production and consumption are in constant, creative tension, only a freely moving price will keep the relationship balanced. The record of the price of a commodity can be seen as the history of this tension.

Perhaps the large (Kondratieff) swings of history reflect the swings of production. New inventions, such as steam, autos, electricity, lead to  increased production, which over time leads to greater inventories, thus lower prices, more consumption, greater optimism, less effort, and ultimately to the need for greater production as reflected in higher prices. This leads to lowering of expectations, more production, and eventually to the lowering of prices. It is ironic that as production increases, prices fall and optimism decreases. Delusions are replaced with realism.

The further the forces of consumption take a trend, the more basic is the level at which the resumption of production must be concentrated--the earlier in the sequence of food, clothing, housing, services, luxuries, etc.

Government price setting prevents this creative process from functioning.