🚀 go-pugleaf

In article <1993Jan27.162223.29959@gasco.com> fpf@lyra.gasco.com (Frank Ferguson x3584) writes:

>... Falling prices presents the producer with the 
>awkward situation of having produced a product which can only be sold
>at a price lower than the sum of the prices of the inputs that went
>into said product.  This is not good business.

I don't see this.  If the business is profitable, then in a environment 
with neither inflation or deflation it will sell the goods for *more*
than the cost of the inputs.  Only if the deflation rate exceeds the
prevailing rate of profit will there be a problem of the sort you outline.  
One would not expect such a high deflation rate to arise simply from keeping 
the supply of money fixed.

In fact, to stay in business, a firm need only be able to buy the raw
materials for the *next* cycle of production using the money obtained
from selling the goods produced in the *last* cycle.  It is quite
irrelevant whether the amount of money obtained from selling the last
cycle's goods is more or less than the amount spent on raw materials
in that cycle, except in so far as that might be an indication of the
prices for the next cycle.  This means that a business should be
able to continue operations even with large rates of deflation, though
for deflation rates exceeding the rate of profit in the firm it might 
be to the owners advantage to liquidate the firm in favour of just holding 
on to the money (or investing it in some other business where the rate 
of profit is more than the deflation rate).

    Radford Neal