 Therefore, capitalist economies are always expanding, expanding, expanding, expanding. Now this gives us two other approaches to economic downturns like those of 1929, 2007, 1893, etc. The first is a Marxian approach. The Marxian approach argues that capitalist economies have a regular tendency towards economic collapse and economic expansion. Because capitalist economies are always expanding as long as capital is making profits. They're out there trying to hire more labor, take the profits, reinvest, increase production, sell it to more markets, hire more workers, produce more stuff, sell to more markets. And that leads to problems on both sides. First, the labor side. Wages start to be pulled up by competition for more workers. That squeezes profits. And on the other side, they're selling this stuff or finding more markets. So it's becoming a problem. You finish selling videos to everybody in California, then you sell to everybody in the United States, and you sell to everybody in Mexico. And before you know it, you're trying to find people in Bolivia who will buy your videos, and you got to walk up the big mountains with your llamas, and your dogs tie it out. And you have no profits left. Once that happens, you lay everybody off, and the economy collapses. That's the capitalist business cycle according to Marxist. Up, down, up, down. A regular rhythm. Expansion until you run out of labor and run out of markets, collapse, and then you rebuild. Because everybody's laid off, nobody can buy anything, so you've got big markets out there and lots of labor. The Keynesian approach was developed in the 1930s, is rooted in the capitalist, in the Marxian approach, although Keynes himself would never have accepted that label. But he hung around with people who read Marx, he himself had read Marx, and he viewed capitalism as a distinct social system, distinct from the use value economy, production for use of Say's law. For Keynes, the key thing in a capitalist economy comes from the fact that workers earn less than the value of what they produce, which Marxists would call the existence of surplus value. Workers, Keynes argues, will always spend their money. They'll buy stuff. But if they spend all their wages, they still won't be able to buy everything they produced, because the rest is profit. What happens to that profit? If people don't buy it, it just sits on the market, drives down prices, people get laid off and the economy collapses. If you don't get enough effective demand to absorb the stuff that's produced over and above workers' wages, you'll have an economic problem. What absorbs that surplus? Government spending over and above tax revenues, exports over and above imports, and investment. What drives these? Government spending is largely exogenous. It depends on what the government's doing, how much of a deficit is it going to run, or how much of a surplus. Exports minus imports depends on your foreign trade, is your foreign trade situation, depends on the value of your currency, depends on what's happening in other countries. The big one, though, is investment. Investment demand drives the economy. Where does investment demand come from? Here, Keynes dismissed all the say's, law stuff, everything that is in your regular macro textbooks, and says, capitalists invest for the hell of it. He calls it animal spirits. There's no rational way to decide, or no meaningfully rational way to decide to invest. Dan wants to open a business. How much money is he going to make from this business over the next 10 years? He could pretend, he could get a spreadsheet and put numbers in and say, oh, I'm going to sell this much stuff, I'm going to sell this much. But it's all just a wild guess. Who knows what's going to happen? Depends on what's happening to the university over here, depends on what's happening to the business community, depends... Will we have a war? Will we have an economic collapse? Will Bank America go bankrupt? Who knows? You know, will we still have oil? Who knows? If Dan's feeling good, as capitalists do sometimes, wakes up in the morning, thinks, I just smell the roses. It's wonderful. Business is going to be great. I'm just going to go out and borrow a lot of money and spend. Great! The economy booms. If Dan wakes up in the morning, says, oh, God, I slept on the wrong side of the bed, I left the window open, I have a stuffed nose, the cat clawed my hair. You know, it's like everything's lousy, nothing's going to work. I'm going to revise that spreadsheet and admit failure. And he won't invest. And the economy collapses. There you have it. Different approaches. The Say's Law approach that you get in textbooks doesn't account for the regular and law, sometimes large economic problems we have. Marxian approach predicts probably more regularity than we actually have. And then the Keynesian approach, driven by animal spirits, phases of the moon, wild irrational excitement and panic. Probably closer to reality. Next time, we're going to talk about other approaches to great depression of the 1930s in particular, including Milton Friedman and the New Deal. Thank you. Have a good day. Bye-bye.