Re: The Long-Term Problem of Full Employment (was German real wages in the Depression)

[Jim Devine <jdevine03@xxxxxxxxx>]

I asked: 
> > what are the assumptions of Keynes' "model" that he
> > uses to predict an
> > excess of saving and to derive his policy
> > recommendations? is he
> > following Alvin Hansen's version of stagnationism?

Tom answes:  
> I don't really understand your first question. His
> assumptions presumably had to do with experience of
> recent history -- the post WW I transition and the
> depression -- and the idea that he was not engaged in
> some academic exercise. 

extrapolation from past experience is just as much an academic
exercise as is prediction based on models. That is, extrapolation is
based on assumptions, which may or may not be true (or true enough for
practice). And JMK''s extrapolation was off-base -- perhaps because he
didn't anticipate "military Keynesianism" as a way of life.

> ...  I'm not saying that Keynes was "right" because he is
> some kind of ultimate authority or something. What I'm
> saying is that this unmentioned (or unmentionable)
> aspect of his thought is intriguing in light of the
> anti-reduced work time ideology that prevails in the
> neoclassical orthodoxy.
> 
> Instead of sneering at "a widespread popular belief"
> or "left wing kooks", those who invoke the claim that
> the expectation of employment gains through reduced
> work time is based on a fallacy could perhaps more
> constructively engage the specific recommendations of
> a Keynes ...

FWIW, I wasn't "sneering" at anything. 

BTW, in the old "new Keynesianism" of the late 1960s (Patinkin,
Clower, Leijonhuvfud, Barro & Grossman, etc.), if aggregate demand is
fixed (relative to potential), there is a sales-constrained labor-time
market: lower wages don't induce greater employment (despite the
assumption that an aggregate neoclassical production function exists) 
because biz can't sell the extra product that arises. The effective
demand for labor-time curve is _vertical_. This means that if the
number of hours of labor-time per worker hired falls, the number of
workers hired rises, ceteris paribus.

Of course, the old NKs didn't focus on this element. Instead, they
focussed on the idea of shifting the sales constraint on the labor
market. This involves either raising C+I+G+NX the old fashioned
Keynesian way or relying on bogus "Pigou" or "real balance" effects to
boost aggregate demand as prices fall.
JD