Substitution is an important concept in economics, whether we consider consumers or producers, whether the latter produce bubble gum or, like nations, national defence. If the price of one good (or service) increases relative to the price of other goods, a rational consumer may be willing to partially substitute another substitutable good according to his or her preferences. Sho. Similarly, if the price of one input increases relative to the price of another, rational producers will replace some of the input with some of the latter. For example, if the price of labor increases relative to the price of robots (a type of capital good), companies will substitute the use of robots for some labor services. (Co-blogger Kevin Corcoran pprovided further explanation In a recent post. )
There are many formal theories that explain the rationality of such substitutions for utility-maximizing consumers or profit-maximizing producers. As I have suggested, this theory (in more sophisticated theories) does not, at least to some extent, produce formal profits, but instead maximizes defense (or attack) production. This also applies to any rational government or military interested in. state, other maximums also exist).
story from economist We have just given an example of an alternative in war production (“Why Economic Wars Almost Always Miss the TargetOctober 3, 2024). The magazine explains how today’s “economic warfare” of “sanctions” and export restrictions does not seem to be having the intended effect. The goal is to deprive an enemy or potential adversary of “strategic goods” or, in a mercantilist world, a commercial “adversary” of important inputs. Economic warfare methods generally do not work because there are few goods for which there are no substitutes. The use of alternative raw materials increases costs or reduces production, but it continues. A workaround can be found.
of economistThe illustration depicts what happened between August and October 1943 when American aircraft bombed Schweinfurt, Germany, a city where half of the Third Reich’s ball bearing supplies were produced. It’s related. Ball bearings were used in many munitions, from engines to automatic weapons. In the short term, after the production capacity in Schweinfurt was destroyed, the German government substituted other inputs, and after a while, the production of ball bearings that were still “needed”, despite the higher costs. We were able to resume production.
In many cases where the manufacturer recommended ball bearings, we quickly discovered that simple bearings were sufficient. For the remaining uses, large stockpiles were available, which bought time to build alternative factories and eventually manufacture ball bearings from many munitions.
a US government report It was later found that there was “no evidence that attacks on the ball bearing industry had any measurable impact on critical war production.” However, it likely imposed higher costs to the engaged enemy.
*******************************************
DALL-E, who provided the featured image for this post, did a good job as a bot, but readers will easily spot many errors and glitches. Your blogger is responsible for inventing the name of the German manufacturer depicted.
Bombing of a German ball bearing factory during World War II. With a little artistic license from DALL-E and other artists
