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

[John Vertegaal <vertegaa@xxxxxxxxx>]

Jim Devine wrote:
> John Vertegaal wrote:
> > Ok, and as you said yourself to I believe Charles B, "a definition isn't
> > going to convince anybody". I guess that means: unless you can point it
> > out as a source of conflict, it'll stand, take it or leave it; which is
> > fair enough, I won't challenge you on that. It will add another axiom to
> > your theory though.
>
> Definitions aren't _meant_ to convince anyone. Rather, the point of
> definitions is to facilitate communication.
>
> A definition is also not an axiom. If you'll allow me, here's another
> definition: an axiom is a "self-evident and necessary truth; a
> proposition which it is necessary to take for granted; a proposition
> whose truth is so evident that no reasoning or demonstration can make
> it plainer." (from the Wiktionary) Instead of "self-evident," I'd say
> "true by general agreement in the context being discussed."
>
> In geometry, one defines a "line." But an axiom might say something
> like "two parallel lines never intersect." (Obviously, though this
> axiom may be "self-evident," it may not be true. Non-Euclidean
> geometry allows parallel lines to intersect, as on the surface of a
> globe.)
No stringent objections.


> me:
> > > Money is the "universal equivalent." It can be used to buy absolutely
> > > everything else that's for sale on markets (commodities). To be a
> > > useful, "base" money (currency) it has to be more than just scarce: it
> > > must be acceptable (e.g., non-toxic), durable, homogeneous, portable,
> > > and divisible. Credit or bookkeeping money must be backed by such base
> > > money and faith in and the good credit of the borrowers and lenders.
>
> John:
> > Nothing in the above that would indicate money to be non-axiomatic, so
> > that's another one? Any idea how many of them altogether in your theory?
>
> Since I don't have a unified deductive theory of everything, there's
> no point in counting "axioms." As I've said before, I think it's silly
> to rely entirely on deductive/axiomatic reasoning.
> Inductive/descriptive reasoning is just as important.
In any natural system, yes (as if we had a choice). But _my_ economic
system is an entirely _man-made_ set of accounts. Its accounted for
inputs are either going to be resolved by its outputs, fulfilling its
purpose, or they are not and will be wasted. Except for setting its
axioms, and given that waste as an antinomy is not directly derivable 
from those, the only need for induction would be to to conclude that 
perhaps some waste isn't all bad; thus not ruling inductive reasoning 
out entirely, but relegating it to be of very limited use instead. Is 
there inductive reasoning in accountancy? Economics is 
macro-accountancy. Tell me what this assertion misses, and why that is 
so vitally important.


> In any case, the above is NOT axiomatic. The first part is an
> empirical _description_ of money in commodity-producing societies. The
> second part (non-toxic, etc.) is partly theoretical: I have a hard
> time imagining that powdered plutonium would be a very good form for a
> usable money. But economic history indicates that actually-existing
> monies fit my description.
But no particular empirical description can lead us to the general
underlying systematic truth. Didn't Marx say something to that effect
too? Aren't our discussions meant to seek out that truth? I find that it
helps me tremendously with putting the whole fuzzy picture, I started
out with a couple or three decades ago, into focus. I'm finding all the 
time that it is still fuzzy in spots, but your comments and questions 
force me to clear those up. That's also why answering your posts usually 
takes me a lot of time.


> > In mine, the identity of money rolls out of a total of _three_ axioms, it
> > doesn't look like your theory going to beat that. Would you agree that the
> > theory requiring the least amount of axioms is the most general and
> > therefore is a superior one (all else being equal and no ideologies entering
> > the picture)?
>
> This represents an utter commitment to axiomatic/deductive reasoning.
Because, if applicable, it's by far the best mind-tool we've got. It
allows us to establish the general, and from that determine the truth of
the particular. There is no way to get there the other way around, for
inductively reasoned particulars may or may not be true. Empirical
observation remains an indispensable means to detect contradictions, but 
a reliance on inductive reasoning is a good way to find yourself in the
middle of nowhere, unable to see the forest through the trees.


> As I've said before, I think it's silly to rely entirely on this kind
> of reasoning.
It's silly only when applied to a "natural" system, like the one NC 
(with their "economic man") is touting.


> BTW, what are your axioms? does having fewer axioms make you a better person?
My axioms are concise assertions of WHAT the economy is, WHY it exists,
and WHO is supposed to benefit from it. I don't like to pull them out of
context if I don't have to; http://www.vcn.bc.ca/~vertegaa/outline.pdf
Since there is no way to prove the truth of an axiom, having fewer of
them makes it less dependent on potential untruths, as well as easing
its subject's comprehension, those are its "virtues". Perhaps there are
others, but I'm not a philosopher.


> me:
> > > huh? If assets cannot exceed liabilities, there's no net worth, no
> > > equity, no capital!
>
> John:
> > Right, in terms of an economic flow, these "quantities" are immaterial.
> > $0, $1T, $1Q, it's all the same. They could be faked to be at any level,
> > it doesn't make one iota of difference. e.g. Is one's ability to draw
> > returns altered by having misled creditors about the value of one's
> > collateral, instead of having played the game like one is supposed to?
>
> This does not make any sense at all. 
You're right, I got carried away a bit. Those quantities do matter
insofar their build up, drags the resolution of the economy down. The
criterion to keep in mind, is that wealth is maximized through a full
_resolution_ of exchange values, so that these may emerge as use values, 
while keeping a reproduction capacity intact. Any build up of residuals 
is only going to hinder that objective. See below for more.


> In the kind of property-rights
> system we live under, equity (capital) is not the same as debt.
Before we get to Max's stock, let's deal with this assertion as it
stands. Is "equity (capital)" a means or an end? If you'd say that for
capitalists it is an end, I would tentatively agree but also say that
this has nothing in common with the underlying, and presumably desired,
stable economy I'm trying to clarify; so a discussion along this line
would need to be suspended until we get to the point of discovering
impediments to stability. For now, only capital as a means is fodder for
pursuance.

You see it as inherently positive, inductively because (from what I
gathered so far) it commands a price. I'm tracing it from its humble
beginnings as a loan, a to be resolved debt, peddled by a bank;
wondering under what circumstances this can turn into the positive
quantity you now hold it to be. Let's assume our enterprise, situated
somewhere above the retail level, to be successful; having been able to
sell its output at cost+ prices to other enterprises having made similar
borrowings, until the output is resolved at the retail level by our
entrepreneurial employees, bank employees and various profit/rent
collectors, whose wages and fees had all become embodied in retail output.

What happens if at some point all the loans are paid off, but the means
of production is still going strong. Does the above economy yet come to
a sudden stop because all the money had supposedly disappeared? Has all
its capital now become the positive entity, enabling renewed borrowings
to keep it all going; making bank loans indispensable in perpetuity? In
spite of what conventional economics, not having a coherent theory of
money, might have you believe, the answer is no to both questions.

From the beginning, our borrowing enterprise has been disbursing
income, in the expectation that a later reimbursement will occur in
full. From a systematic point of view, this outlay will proportionally
resolve the debt burden of _other_ entrepreneurs, while it will be
resolved in turn by the outlays of those others. Cause and effect are
round-about, and not linear. Having gone into debt with its bank in
order to initialize this process, the repayments to the bank are
relatively tiny with respect to the entire outlay; and after the banks
have been paid off, the books still show a to be resolved debt after
_each_ outlay. The only thing that changed, is that beneficiaries of the
bank no longer will be receiving their share in our economy's output.
The return on investment, included in the output's price now accrues in
full to our entrepreneurs and becomes realized in the aggregate, only by
them (or the newly hired in a continual expansion mode) having spend it
directly.

So where do we stand so far? Because outlays occur before returns come
in, the economy is always in debt to itself; that is, at least with
respect to its costs. But what about its mark-ups? Retailers readily
assume all mark-ups above their own level as a cost, so that their books
show a to be resolved debt of virtually the entire economy's cost+
billings; while at the same time the potentiality of its resolution is
there too, in the form of disbursed personal incomes. The only aspect of
resolution not yet dealt with are retail mark-ups. These can only be
resolved by retailers themselves (or again any newly hired retail
employees) bit by bit in a horizontal fashion, slowly petering out over
time. In other words, the direct spending of retail level profit, allows
a whole new set of retailers to realize their profits too, and these
being spend directly will have the same effect, etc., on an ever
diminishing scale; while being mixed in with the resolution of
vertically integrated output, that will be coming down during those
successive periods.

However idealized the above depiction may be, it is absolute necessary 
to get it clear into one's mind before deviations can be recognized as 
such; and thus suggesting which ameliorative activities would likely be 
effective. One logical deduction would be that a build up of "funds" can 
only occur at the cost of having firms perish. Inductive reasoning could 
momentarily enter the picture here, concluding that some of this could 
even be healthy, as entrepreneurial deadwood gets pruned and those whose 
output is most in demand are allowed to expand. With deduction taking 
over again, by reasoning that without such expansion, unemployment is 
ensured, and that a malaise will set in regardless of apparent capital 
value increases by some.


> Max
> _owns_ stock in a company. He does not automatically owe any money to
> anyone as a result (though he could have bought it on margin).
>  
Linear reasoning will get you nowhere, if your subject is structured in
a round-about way. Stocks are bought with personal income. Disbursed as
corporate costs, that are passed down all the way to the retail level,
these incomes are meant to be exchanged for retail output, resolving all
those earlier corporate disbursements and turn it into living standard
enhancement. Buying stocks suspends a resolution of the debt, assumed by
the retailer, until a seller of stocks somewhere, takes Max's place and
buys retail output with the proceeds. So, albeit in a round-about way,
Max does owe money to the retail level. But this is just part of the 
story; the debt, inherent in Max's received income, is only a transient one.

The prime goal of public corporations is to increase shareholder value.
Perhaps this sounds innocent enough, but it runs exactly counter to the
economy's goal of maximizing exchange value _resolution_. For when such
corporations are successful in their goal, they do it by getting more
out of less input cost, i.e. less employee remuneration that serves to
resolve aggregate output. Rising capital value of existing means, equals
lower resolution capability. On top of that with rising share prices, we
get more income into the resolution suspension mode, as indicated above.


> The
> company _owns_ the factories, etc. It can be ahead of the game, having
> less debt than assets.
Constructing new means of production results in a "golden age" for
retailers, as more income will be available to resolve previously
generated retail output. Retail "discounts" will diminish accordingly,
and prices become subject to being raised. But after that boom period,
the resolution of those new factories, equipment, etc., is forced upon
the economy. Can its owners get ahead of the game? Yes, but not without
sowing detriment to others.

In an economy subject to resolution, all action requires an equal but
opposite reaction to it by others. Creativity is determined by the
reaction of others towards it; before that starts to happen, it is a
non-entity. Capital without a return is such a non-entity, but as soon
as it impels other capitals to go into debt for its own realization, it
takes on the identity of debt itself, by returning the favour to the
benefit of those other capitals. Simply because of the fact that outlays
have to be made before returns can be expected to come in. Furthermore,
while we can easily calculate the aggregate value of retail output, the
aggregate exchange value of capital is again a non-entity, or perhaps
better said an absurdity. For what would its price be, if everyone only
would want to sell?


> > So now the question becomes, what is the purpose of an economy? Is it to
> > accumulate irrelevant quantities (stocks), or does it exist to provide
> > us with a standard of living (flow)?
>
> That's a completely different (normative) question. I don't remember
> asking that kind of question in this thread.
It may be normative in your approach, but since it pertains directly to
axioms in mine, in my view it's entirely positive; and therefore an
admissible continuation of the above, not needing a direct question.


> > Do Marxians have a way of
> > identifying capital value, that would prove it not to be irrelevant, or
> > is that axiomatic too? Isn't adhering to the idea of capital being a
> > root cause of economic activity, being unnecessarily apologetic to
> > capitalist "power"?
>
> Capital value has already been identified by accountants. Marxian
> political economists don't have to add anything (though they might
> measure it in labor-value units).
Huh? Doesn't this admission put you straight into the GE camp? I always
thought Marxians were disequilibrium economists. I don't know of any
economic theorem that identifies capital. As far as I know, most hold it
to be a self-evident truth. Other's, noting contradictions, admit that
it needs more work; and then there are two that I'm aware of: Joan
Robinson and Mat Forstater, who came right out and said that economists
don't know what capital is. Do Marxians fall in the first group, or did
I miss something?

First of all, it is my understanding that accountants realize that there
are unknowns "out there" that could very well have altered the values
they calculated as true. I'll check this with my accountant son-in-law
on Thursday. Second, if economists indeed do accept accounting values as
a valid determinate point of departure, then they cannot possibly
consider the economy to be a subset, where its purpose will find its
meaning only in terms of the exogenous set; I already explained this in
my reply to Michael P. The only alternative is a set, wherein means and 
ends would be too intertwined, to be separated logically; hence only to 
be made sensible in a dogmatic way. Do you consider the latter to be a 
valid approach? if an alternative is available!!?

My interpretation is that Keynesians vacillate between the set and 
subset principles of subjectivity and objectivity. Their realization 
that the validation of increased investment requires a proportionally 
increased future consumption, places the observer outside the system - 
subset, objectivity. Trying to remain conformant with that observation 
by taking Y = C + I, as a point of departure, puts them right back into 
the confines of a set - subjectivity; with all its restrictions this 
implies.



> Seeing capitalist domination as the basis for the normal operations of
> a capitalist economy isn't apologetic, since that system involves not
> only social domination of the working class but also exploitation and
> alienation.
I think that I fully share your antipathy as far as capitalists are 
concerned. It's the deference you show when it comes to their "stuff", 
as being the economy's driving force, that lays way too much power at 
their feet.


> me:
> > > In the right-hand column of a double entry books,
> > > there's an entry at the bottom, i.e., net worth = assets minus
> > > liabilities.
>
> John:
> > Right, and what is this "net worth" worth in the absence a return; or,
> > IOW, in terms of itself?
>
> what does "IOW" mean?
>  
in other words


> Net worth would be zero if there's no return.
This agreement, that capital in and of itself is worthless, is all I 
need to make my point. See further below.


> Even a consumer durable such as an owner-occupied house has a return
> (the ability to avoid the cost of renting an abode) to its owner.
>  
In terms of my approach, this does not make sense. I guess that's what
you must often think too, when you read my scribblings ;)
First, an owner-occupied house does not have an inherent exchange value,
because only a small fraction of those houses can be put up for sale
without the market collapsing. This rules out the taking of this value
in whole or in part as a determinate point of departure in deductive
reasoning. I get around this conundrum by placing them among use values
exclusively; which, as you rightly point out, cannot be aggregated. I'll
leave it at that for now because this post is getting to damn long.


> Just
> because assets are associated with returns does not mean that they
> have to correspond peso for peso to debt.
If their worth above zero can only be identified in terms of returns, 
and if those returns can only be initiated by going into debt, then 
their identification corresponds peso for peso to debt. This deduction 
seems more sensible to me than taking capital to be a self-evident 
positive quantity. No?


> me:
> > > Someone owning equity can use that M to hire labor-power to produce
> > > new commodities C that can be sold for a larger amount M', so there's
> > > a surplus-value M'-M. Some of that surplus-value can then be
> > > accumulated, raising the equity. In theory at least, no new debt
> > > accumulation is required for this process to occur.
>
> John:
> > ... What's the point of
> > abolishing profits, if a similar objective can be achieved through
> > profit sharing? There is no need for those in the non-profit sectors, to
> > miss out on productivity increases in the private sector either, if
> > that's a concern.
>
> I don't understand your point here. It doesn't respond to my point,
> i.e., that the amount of equity (capital) can be increased over time.
You tried to make your point by throwing a whole bunch of terms around, 
sometimes freely exchanging one for another, without defining any of 
them. Are you sure (e.g.) that your "surplus value" is not a meaningless 
tautology? What would it do to the whole if it was? It would need a 
thread by itself to sort that all out. That's why I said, I wouldn't 
challenge any of it. I understood your point to be that equity (or is it 
money? capital?) can be increased to _the detriment of the workers_. In 
hindsight, I obviously misread its emphasis. My point was to take that 
detriment away by having them share in the proceeds; cut out the 
(Marxian) chase to the end, by simply providing the end.


> John before:
> > > > 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. ...
>
> me:
> > > we live in a world of use-values, but we also live in a
> > > commodity-producing economy where these use-values have
> > > exchange-value. Further, we live under capitalism, where surplus-value
> > > can be produced.
>
> > ... Having to account for identical output in terms of two
> > incompatible sets of value within the same domain, doesn't strike me as
> > being particularly enlightening; to say the least.
>
> Marx (or was it Engels?) referred to a contradiction under capitalism
> between use-value and exchange-value. If such a contradiction exists,
> then having two "sets of value" is required for understanding it.
I wonder how much of this contradiction would have remained, if Marx or 
Engels had put their theoretical analysis in terms of a subset to human 
existence.


> > I adapted H. Daly's
> > ecol_econ_feedback depiction by moving the human population into the
> > ecological domain. Feedbacks in the form of pollution/destruction will
> > be altering use values. Infrastructure not being charged with having to
> > provide monetary returns, e.g. roads, bridges, the output of home and
> > civil (armed) services, etc., exist in the eco_sphere too. There is no
> > financial limit to any involvement; if it can be produced, we can pay
> > for it. The vertically integrated economy only borrows a portion of our
> > avails and with loans equaling deposits, it nets to zero. ...
>
> This seems to be a use-value standard. That's fine, except that
> use-values cannot be aggregated.
It's axioms derive from the use-value domain; as well as all
intellectual impetii*), misguided as these may be. But all the necessary
aggregation is contained within the isolated economic sphere, nominated 
in exchange values.


> Your picture is nice, but hardly self-explanatory. 
Thanks. I accept that even if it's worth a thousand words, it couldn't
possibly explain our economy. It does set some vital parameters though.
Happy New Year,

John V


*) Wondering if I got the right plural for impetus, I googled it and 
found I used it myself 10 yrs. ago in an interesting PKT discussion with 
a.o, Bruce McFarling re: Definition of Income.






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