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To: Ilaine who wrote (7568)	10/4/1998 5:03:00 PM
From: Joseph G.	Read Replies (1) \| Respond to of 86076

Demand is not what people would like to buy. Demand is what they would like to buy AND can afford. Some people can afford to buy a lot, but don't want to. Some people would like to buy a lot, but can't afford. In 1930's there was generally more capacity to produce than that real demand. There was no need for capital investment because there was already too much productive capacity built up during the 1920s and during WWI. During WWI industrial, agricultural, and mining capacity was diminished in Europe and alternative sources were developed elsewhere. Then in the twenties European productive capacity was restored, and also some was further added in US and elsewhere because potential profits seemed so high. For a while it seemed that demand was also in line, but as it turned out the real demand was significantly exaggerated by innovations in credit and by people spending away speculative gains.

To: Ilaine who wrote (7568)	10/4/1998 7:21:00 PM
From: Seaworthy Lyric	Respond to of 86076

CB, Sorry for budding in with these few random thoughts: <<He confirmed that in Russia, people say that the IMF money went straight into private Swiss bank accounts.>> I think that the above statement is partially true but what is often forgotten in the west is that a lot of this money is allocated to the purchase of western products: Dell computers, GE plants, etc... If Russia of the 90's is anything similar to Poland of the 70's, they were basically buying products that could not be paddled in the west. This is only a hunch based on recent history.....but my guess is that this will be Russian interpretation of events that led to the present disaster. <<In Russia, the level of education is high, there are factories and people to work in them, and there is demand, but there is no production. Why not?>> A side note on this point: in these days of overcapacity extra production is not necessarily the cure, and Russians do not really have a great industrial history...What they do have is unlimited resources (a la Canada and Australia) , and my guess here is that in the near future a reactionary gov't will try to take advantage of this....The road to democracy is hard indeed...but like you said they are educated, extremely kind and proud people...They have survived suffering greater suffering........What really worries me is how quickly our administration has written off Russia and jumped on Latin America.....This could backfire in the near future. Jerry

To: Ilaine who wrote (7568)	10/4/1998 8:17:00 PM
From: Moominoid	Respond to of 86076

The institutional framework - money, credit etc. - all these things aren't physically real but determined purely by legal and other conventions. They have however their own dynamics which interplay with the physcially real factories, educated people, and resources. In Russia the whole thing has broken down to the extent where no-one has the ability to pay anyone, or borrow from anyone and so the system is totally logjammed. (Obviously not totally but in a low level equilibrium of some sort). If I own a factory my suppliers won't supply because they suspect I can't pay and I can't pay till I sell product in the meantime I have to pay my workers and the banks for previous loans etc. The property rights which worked well in a normal equilibrium are now preventing the system from returning to that equilibrium once it has been dealt a severe shock. The same kind of thing happened in the US Great Depression when bank after bank collapsed. Remember - money is not real wealth it is just a bunch of institutional units of account which circulate around and keep the system running. Also that the banks create money on top of the money created by the government and this additional credit money can be easily destroyed. So an economy can have real wealth - machines, factories, people, natural resources etc. but be institutionally bust and unable to operate. After a short while of this bust the real wealth starts to decay rapidly. David