The "desire" to own a good is considered necessary... In economics, demand is the desire to own anything, the ability to pay for it, and the willingness to pay...
Demand = Willingness x Ability
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Will" encompasses "desire", and is influenced by "advertising"
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Ability" encompasses "money", so that increases in available money supply could increase ("consummated") Demand
Yeah, basically we are on the same track. I was just being sure to put in the full definition from the Wiki. I don't think, as a science, economics has any business speaking of "desire". Claiming knowledge of someone elses state of mind isn't admissible in court and it isn't part of objective science.
Even so, it is questionable if advertising influences desire or just reminds people of what they already want to do. That has been my experience. It's like hypnosis. You can't get people to do something that is against their nature. If it is in their nature to upgrade that automobile to a better model, well, that's something else. And, it is said, that McDonald's advertising doesn't cause people to go to McDonald's. What it does is make them feel good about the last time they went to McDonald's. The commercial attaches to their memory of their last visit, making it feel good.
We should be careful about stating demand as a mathematical formula, "Demand = Willingness x Ability". There is a demand equation that is D = f( q ) and has something to do with price elasticity and all that.
Though I agree, and it is because that's what economics says, ability is having the money. Obviously, and it is the only clearly measurable quantity, they have to have the money.
"willingness" is a bit tricky. We cannot really measure that until they have actually paid for it. All manner of orders have been canceled at the last minute.
But the Wiki definition is "demand is the desire to own anything, the ability to pay for it, and the willingness to pay".
In other contexts, willingness to pay refers to the maximum price that a person is willing to pay. And, it really doesn't sound as strong as it is intended to mean. It is like, what is a person's willingness to pay when they have an abscess tooth and need the dentist to fix it? That "willingness" just bugs the shit out of me for the same reason as "desire". It isn't observable or measurable. It is a state of mind. We cannot drill a hole in people's heads and see what they desire. (And, by the way, there are indications that we don't need them. It is our failing to properly conceptualize observable reality that leaves us falling to subjective descriptions)
Well, no, actually, ".. so that increases in available money supply could increase ("consummated") Demand" isn't quite precise or accurate enough. Or maybe it's not specific enough to be sure.
Here is what I mean. The money used in exchanges is the money in the supply.
That MV=PQ thing is the money in circulation and the prices that are paid, according to the original observations made by Hume, from where it all comes.
DSGE would beg to differ because he's a federal reserve macro guy that is concerned with the practical proxy measure of base money, M1 and the like. But that gets into the whole liquidity trap thing.
And, in fact, Hume has no interest in the money locked up in a treasure chest, unless they take it out. The only way I can see that we can possibly capture what we are after, which is why M1 and M2 distinguish between check-able and savings deposits, is by assuming that money in the wallet and sitting in a checking account is "intended" to be spent.
Suddenly, we start to get away from the physical definition of MV=PQ, by increasing M to include money that isn't strictly being used for purchases. That forces V to change from the flow of money as it moves from the store keepers shop, gets walked down to the bank for depositing, is counted, some used to pay the bank teller at the end of the week, and then spent at the store keepers shop again.
But you know what, that V is an outcome of the money in the storekeepers money bag, as he carries it to the bank, is no different then outcome of the money in the teller's purse, as she carries it to the store.
I keep holding to the vision of the money in the exchange, to ensure I don't inadvertently cross some necessary line. But that money has to get from one exchange to another. So anywhere it is moving, from one to the next is part of that M.
So it get's kind of fuzzy, unless we agree to a specific boundary. We can pick anyone we want, just that we have to stick to it. The further we get from just the exchange, the more physical territory V starts to include.
My point being that the money in the purse, wallet, checking account, or a check in the mail is all part of that M. The spending of money isn't an increase in the money. It is the existing money.
That is our boundary around the existing money supply. And I am not so sure we shouldn't also include personal savings. It kind of depends on what time frame we are interested in and how long people keep money in savings before drawing upon it.
It is an increase in the money supply as a result of that whole fractional reserve thing. In Hume's case, I assume it was due to trading with neighboring regions.
In all manner of things, we are assuming constant V. Though, by all rights, it is either M or V that causes a change in P or Q.
I think this is where the Fed gets to expand their concept of MV to include base money, which, as I recall, includes money in reserves. They just adjust V. But then they are getting a bit fuzzy about that boundary. After all, they manage the increase in the money supply by changing the discount rate. That changes all sorts of rates down line. And the increasing money supply is entirely dependent upon businesses taking out business loans. And they did increase base money by 208%. As well, interest rates are near zero. And still, no inflation and no increase in production. V just won't move. In fact, as they increase M, they have to decrease V because it's the only way to account for the fact that PQ hasn't changed.
Still, my point being that the existing money in peoples wallets, in circulation, and subsequently used in purchases isn't an increase in the money supply. At the tightest boundary we can draw, around checking, wallets, purses, POS transactions, checks going out with invoices, etc. that is the money that need to increase for quantity to increase so that jobs are created. It has to increase from outside of that boundary.
Like borrowing it on a credit card from Target National Bank, which is someone elses saving.
Or lowering taxes and the government running a higher deficit by borrowing by selling bonds, which is borrowing against someone elses savings. Or sending out stimulus checks.
Or, increased endogenously through the fractional reserve banking system then invested in an increase in output by hiring people and paying them with that, before they make a sale.
See, from a very static position, short of those credit cards and gov't borrowing by selling bonds, it's all this question of how the money supply increases such as to increase output when there is this whole chicken and egg problem, that we have to pay people to make the stuff before it can be sold but we can't pay people to make the stuff until we've sold it and have the money.
It works all find if demand is there and we pay people after they made it and it was sold. That is the usual thing. We get paid two weeks after we start. We get paid with the proceeds from the stuff we built. And if everything has been ticking alone nicely, so it's in this steady state upward climb, then it just nicely feeds back on itself.
The question is, how does it kick start when it has wound down to flat.
And the answer to that is basically, thermal noise. It is random fluctuation. The economy, even when it has gone flat, is not a completely static thing. There is considerable noise. The money isn't spread out smoothly. The CPI fluctuated wildly from month to month. Short of physically putting brand new money into peoples hands or it being borrowed, it is the random fluctuations that cause some instantaneous and localized increases.
I know what it is, hypothetically, but that is not enough. I need a theory and evidence.
It's the same problem as how the supply increases while population is increasing. Some where in there, money is borrowed. That money pays for capital equipment which then pays wages. Those wages are demand which stimulated output.
It really comes down to the question of exactly how it functions that money is created endogenously. How does it manage to continue to increase when the increase itself is causing it to increase? How is it that it shuts off and goes the other direction, into a balance sheet recession, which is the opposite process, the money supply contracting?
And the, in the balance, for instance, how is it to be expected that an increase in consumer spending of credit will be amplified such that incomes increase to consumers can pay off that credit without the supply contracting. Income has to increase faster then the credit cards are getting paid off or it simply won't function.
This thing here, that I've tried to describe, is exactly how jobs are created. I just cannot get it refined enough, down to the concrete of a model, that can guide picking up the data which, in fact, shows it functioning.
And perhaps it is in the thing that one man's income in another man's debt. So, in fact, it becomes a bit of a problem trying to separate out the two. They are commingled.
And it all just runs on the ragged edge of disaster. It seems like the only way it can function is if growth is enough to keep that income just ahead of the debt. As soon as the growth fails to keep ahead of it, the thing just collapses again.
And I am not sure, with labor force at the very edge of every able bodied adult, like it was just before the last two recession, if population growth is sufficient to sustain it, to give business owners the impression that a solid ROI is there. And once that ROI is not demonstrably there, borrowing stops, the money supply begins to contract, and down we go.
