The speech is in a way quite humorous because it gives the sense of deep thought and analysis. In fact, Dudley regurgitates significant amounts of Keynesian non sequiturs. A book would be required to refute the non sequiturs that Keynes launched on the economic industry, most of which Dudley appears to have down pat. Thankfully, a book exists that has detailed and demolished the non sequiturs, Henry Hazlitt's The Failure of the New Economics.
But even more curious is about Dudley's speech is his quoting of the great economist Jean Baptiste Say to provide, I'm guessing, gravitas to his speech. That's the only reason I can think of, since Dudley sure as hell doesn't have a clue as to what Say wrote or thought. Let me put it this way, the modern day public figure whose thinking is most in line with Say is Ron Paul. Somehow I don't see a Fed governor, much less the New York Fed governor, quoting Ron Paul.
Dudley says in his speech:
Say's law—named after the French economist Jean-Baptiste Say—states that the aggregate value of incomes earned in an economy over some period of time must by definition equal the value of all goods and services produced over that same time period. Or, put somewhat differently, on an ex post (i.e., realized) basis, saving must equal investment. Investment in this case means current spending on new physical, human and intangible capital. This insight is the conceptual basis for national income accounting and the gross domestic product (GDP) statistics that we follow so carefully.This is about as tortured a version of Say's Law as you can get. Say never wrote about "aggregate value of incomes earned in an economy". This is a major over aggregation of what say wrote. In fact, here is what say wrote:
It is worthwhile to remark that a product is no sooner created than it, from that instant, affords a market for other products to the full extent of its own value. When the producer has put the finishing hand to his product, he is most anxious to sell it immediately, lest its value should diminish in his hands. Nor is he less anxious to dispose of the money he may get for it; for the value of money is also perishable. But the only way of getting rid of money is in the purchase of some product or other. Thus the mere circumstance of creation of one product immediately opens a vent for other products. (J.B. Say, 1803: p.138-9)Say wrote about specific products being produced and how there very production, in a sense, is used to bid for other products. This aggregation of incomes nonsense by Dudley is a not in Say's work but is a typical Keynesian straw man built against Say. Nevertheless Say is given enough respect so he is not ignored by the power elite, like Dudley, as Ron Paul is.
But, it is doubtful Dudley ever read Say, since he is simply as "radical" as Ron Paul and if Dudley knew this he wouldn't given him the attention, even in an attempt to knock him down.
Consider Say on the methodology of economics, Say would most assuredly reject the current love affair with econometrics that exists in the industry and most certainly at the Fed. Writes Larry Sechrest:
[Say] combines a healthy skepticism regarding the usefulness of statistical investigation with an emphasis on observing the facts of reality. A statistical description "does not indicate the origin and consequences of the facts it has collected." For Say, only a causal analysis based on the essential natures of the entities involved can achieve that end, and such an analysis is the core task of political economy. He sees economics as a genuine science capable of establishing "absolute truths,"8 but insists that it "has only become a science since it has been confined to the results of inductive investigation."
And on money, it's clear Say would find the same uselessness in the Federal Reserve as Ron Paul does. Here's Sechrest again:
Say draws the familiar conclusion that the precious metals (gold and silver) are excellent choices as monetary substances. In other words, if individuals are left free to choose, it is highly likely that they will choose a commodity money (specie). While it is true that Say is a strong proponent of gold and silver as money, it is provocative to notice that he does allow for the possibility that they could be replaced by something else if "new and rich veins of ore should be discovered."16 In short, Say is not unalterably wedded to the proposition that "money" means gold or silver. However, if money consists of precious metal coinage, then he does agree that monetary units, such as the dollar, should be renamed in terms of the mass of gold or silver contained in the coin. For example, if a coin denominated as one French franc is supposed to contain 5 grams of silver, then it should be named "5 grams of silver," not "one franc."17Got that? Any nominal supply of money is optimal. No need for a Federal Reserve to be manipulating the money supply by draining this week and expanding it the next.
According to Say, the only justifiable intervention by the State into monetary matters is the minting of coins...Say emphasizes that as the division of labor extends ever farther, horizontally and vertically, through the society, that is, as individuals specialize ever more, the number and the importance of exchanges will increase. And this requires an identifiable medium of exchange. Briefly put, money is an integral part of the rise of modern civilization.28 Second, Say agrees with Mises and Rothbard, who insist that any nominal supply of money is "optimal," as long as prices are free to adjust, because any increase or decrease in nominal terms will simply change the purchasing power per unit in inverse proportion. Thus the real money supply will remain the same.
Bottom line: It is clear that at the Fed, it is standard operating procedure not to quote Ron Paul, even to knock him down,since it would give credence to his views. It is good to see, though, that Fed members are who, shall we say are a bit unfamiliar with the thinking of the people they quote, are actually quoting some of Ron Paul's intellectual mentors.
May students everywhere dig into the thoughts of this man, Jean Baptiste Say, whose name has been uttered by the president of the Federal Reserve Bank of New York.
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