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Strategies & Market Trends : Booms, Busts, and Recoveries
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To: Don Lloyd who wrote (5867)7/15/2001 9:16:47 PM
From: Ilaine  Read Replies (1) of 74559
 
I agree, the money supply doesn't have to increase - but when the population increases and/or productivity increases, but the money supply doesn't increase, what happens to prices?

If the thing you make costs you more to produce than you can sell it for, of course, you can sell it, at a loss, but then you don't have any profit, so either you consume your working capital or you quit producing. Well, after you consume your working capital you have to quit producing.

But you might keep selling for enough to pay the fixed and the variable costs without a profit, or maybe you can sell for enough to pay the fixed costs, just to keep going until things pick up.

And the downward spiral begins. You start consuming the seed corn, as it were, and then you're done.
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