Re: Colander and New Keynesian Economics

[Paul Davidson <PB108928%UTKVM1.BITNET@xxxxxxxxxxxxxxxxx>]

FROM:  Paul Davidson
"      Economics Department
"      523 Stokely Management Center     974-4221
To Alan Issac, Steve Keen and Barley Rosser: Perhaps it would be helpful in thi
s discussion if you read my  papewr "Would Keynes Be a New Keynesian?" in the E
EASTERN ECONOMIC JOURNAL, 18, Fall 1992 where I discuss briefly why NKs are pro
viding there constraints on the classical axioms; while Post Keynesianism istr
ying to provide a "nonEuclidean" economics (to use Keynes's splendiforous
example on p. 16 of THE GENERAL THEORY of what "is required in economics
today". For example, the neutrality of money is still an axiom of New Keynesian
economics --even though Keynes overthrew it in working out his "monetary
theory of production". Please be advised that classical economists before
Keynes recognized that os demand and supply curves were not monotonic, there
could be multiple equilibria. If that is all that Keynes is about -- multiple
equilibria, and/or nonlinearities than there is nothing revolutionary
in Keynes's GENERAL THEORY. After you have read my paper I think we can have
a meaningful discussion. Until we understand the basis of a nonEuclidean
Keynes analysis where unemployment is nested in the existence of a nonneutral
money that has "essential properties" [THE GENERAL THEORY] in that money
(or any other liquid asset) cannot be produced by the use of labor, i.e.,t
its elasticity of production = zero (or in plain English, money does not grow o
on trees and therefore cannot be harvested by unemployed workerrs when people
demand liquidity. The second
essential property of money is that it has a zero gross subtituability with the

products of industry so that if people demand more liquidity,and the price of
liquidity rises relative to the price of the products of industry, people will
not substitute the products of industry for (nonproducible) liquid assets and
hence any increase in the demand for liquidity per se cannot spill over into
a demand for labor!  This type of unemployment has nothing to do with
coordination failures, nonlinearities, etc., For it can be logically demonstrat
ed (see my forthcoming book POST KEYNESIAN MACROECONOMIC THEORY) that even if
all markets were coordinated, and if all functions were linear, a stable
employment equilibrium would exist and if that it is at less than full employ-m
ment because of a lack of effective demand, (too much demand for liquidity) the
re are no market forces that will automatically restore full employment in
the short-run or the long run. Keynes's theory of employment does not require
nolinearities, coordination failures, or any other esoteric goop! As long as
the future is nonergodic (uncertain) and people use  money to organize producti
on and exchange activities -- a permananet stable underemployment equilibrium
is possible. As Joan Rivers says --"Can We discuss this"?
 Paul Davidson

Have a good day!