Re: Minsky, FIH, and stability

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

FROM:  Paul Davidson
"      Economics Department
"      523 Stokely Management Center     974-4221
Dear Steve:
       I guess I still have not made myself perfectly clear. Keynes's explanati
on (theory) of an underemployment equilibrium is a general one because it
is applicable whether the world is linear or nonlinear.
        There are an infinite variety of nonlinearities that will explain
unemployment. Each different nonlinearity is a special case of unemployment.
Notice that in Rosser's response to me he presented a different explanation
(i.e., theory) for Germany than for Japan, and he indicated that he did not
know enough  about the NICs -- but indicated there could be another explanation
(theory?) applicable to them. (Did he mean a different explanation for each
NIC?) Of course the real world is complicated -- but does that mean that for
each complication we should introduce another theory? What is the purposeof a "
general" theory anyway?
      In response to Dunlop and Tarshis, Keynes noted that his task would have
been much simpler if he had merely assumed imperfect competition to explain
real world unemployment --- but that would not have been a general theory.
An imperfect competition theory (special case!) of unemployment would have
as a possible policy to break up monopolies (anti-trust policy) to achieve
full employment.  Do you really think a more competitive economy assures
a closer to full employment equilibirum?
      What I am arguing is that whether there are linearities or nonlinearities
, whether there is perfect competition or imperfect competition, whether there
is perfectly and instantaneously flexible relative prices or not, whether there
 is coordination failures or not, Keynes had an explanation of why there could
still be an underemployment equilibrium (in the Marshall sense), as long as the
economic future is uncertain (nonergodic) and the agents in the system use
money and markets to organize production and exchange activities. Moreover,
if the world is uncertain in the nonergodic sense, no one can correctly
draw as a policy conclusion that the solution to unemployment is to increase in
formation (reduce uncertainty) to reduce coordinationation failures. It is the
nature of a nonergodic system that nothing humans can do can per se reduce the
degree of nonergodicity. Paul Davidson

Have a good day!