[Pen-l] Re: money [was: Skidelsky on Keynes

[John Vertegaal <vertegaa@xxxxxxxxx>]

I'll see if I can get a little closer to what I mean. But first let me
say that I think Keynes had it right, when he opined something to the
effect that: a theory cannot contain within itself the entire scope of
its subject's surface phenomena; but that instead as an apparatus of the
mind (existing on a different level) it allows one to make sense of
those phenomena. Since I've never tried to resolve your particular
question before, this will be new for me too; but if my theory is worth
its salt, it should be able to come up with some answers.

Second, before I take the bull by the horns, I believe I have to say 
something more about the determination of values within that artificial 
construct called the economy. If that system exists for the purpose of 
bettering/sustaining living standards more efficiently than without it; 
say because of influencing specialization, a division of labour, or 
whatever; then the determinant of its internal values cannot occur at 
every step of the way. Instead, as a meaningful subset, its determinants 
come into effect only at the very end, when its share in the overall 
purpose becomes fulfilled.

Now the real world has no problem at all to deal with the fact that any 
present in that process is always tentative and never a fait-accompli. 
Accountants all have their book values, knowing full well that none of 
them are written in stone, always subject to change, and it certainly 
won't stop them from making their (tentative) projections. However for 
economists this is a different matter. Whether derived from Y = C + I, 
or C + V + S, comparative static or dynamic, their equations need their 
point of departure to be fixed in time and all its elements to be 
determinate; the very thing that these cannot be, if their subject of 
inquiry is indeed a meaningful subset with an exogenous purpose.

If on the other hand, as I understand the Mainstream to maintain that 
the economy is not a subset from Nature at all, but instead a set with a 
subset of natural resources; then although all its elements are indeed 
determinate, its equations become trivialities that are unable to 
explain anything. So either way you want to approach our subject: exit 
mathematical economics; a conclusion already reached by my idol Sismondi 
over two centuries ago, _after_ having devised sets of lagged aggregate 
income equations that are fully in line with those of modern Post 
Keynesians. Ontologies cannot be faked however, it _is_ either one or 
the other. And as far as I'm concerned, all crises provide the proof of 
that pudding.

Having explained why my model approaches all economic values as being ex 
ante indeterminate, I'll proceed. Rejecting the concepts of simultaneous 
determination and bootstrapping, the buying and selling of stocks and 
homes is necessarily a sideshow to the economy's main event. Taking for 
granted that it isn't necessary to waste time explaining in detail why
such trade couldn't exist autonomously, but is fully dependent on a
production economy for its existence; this not only factually sets a
limit to its overall feasible extent, but rules out any self-generated
determinants as well. However, since the intrinsic limit of its extent
is obscured by expectations, sustaining the system well past the point
of actual no returns, I don't believe there to be a theoretical approach
to it. All we can say is that as long as the income obtained from the
selling of stocks and homes that originated in the production economy,
will again find its way back to the production economy before creditors
in the latter start to pull plugs, an equilibrium will be maintained.
But if this income stays in the stocks/homes trading circuits for too
long, a corresponding contraction or growth constraint in the real
economy will occur.

I can't emphasize enough that for every dollar invested, someone at the
retail level has to do the exact opposite and spend directly instead;
withdrawing the investment embodied article from the economic sphere
into the supra-economic domain. It is the latter, and not the investment
itself that indicates economically provided prosperity; and so is the
"positive" in this equation, thereby designating capital to be the
shocking negative. One could of course reverse the signs, but would it 
be more realistic? Bidding up the "value" of some existing asset thus 
requires the economy to resolve a greater negative with its pre-existing 
means; deteriorating the situation, rather than signifying economic 
success; and hence should be deterred by the authorities with all means 
available.

Keynes and Econ 101 either are confused or completely overlook the fact
that there can be _no_ independent capital-good demand coefficients. The
same goes for Wall Street and the real-estate industry. Convinced of
inputing wealth and demanding their return as a god-given right, they
are blind to the fact that the economy is man made and not a god-given
system at all; and that consequently its determinants rest with those
haughtily disdained direct spenders. In the absence of the latter, the
system will collapse and nothing on the supply side can stop it from
doing so.

This post is getting a bit long and I hope that by now I've answered your
question, but let me know if things still aren't clear.
John V


michael perelman wrote:
> It depends what you mean.  If you bid up the price of a stock or a 
> house, I have (the illusion of) an increase in my assets.
>
> John Vertegaal wrote:
> > > Fair enough, but from my perspective, you're leaving out something 
> > > vitally important, namely that our economic system is accounted for 
> > > on the principles of _double_entry bookkeeping. In such a system, any 
> > > notion of accumulating assets that exceed liabilities is 
> > > inconceivable. In other words it is a system of _debt_ acquisition 
> > > and a subsequent resolution, for a specific ultimate purpose; which, 
> > > in order to keep the system itself meaningful, has to be situated 
> > > outside the economic system as such, having lost all its economic 
> > > mensuration. Marxians may recognize this supra-economic domain to 
> > > consist of use values; and all of us happen to occupy it too, just 
> > > supplying our vitality to the economic sphere and obtaining the bulk 
> > > of our standard of living in return. I'm working on drawing a 
> > > schematic representation of this. If the above isn't 
> > > self-explanatory, I'll post it later.




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