Re: Keynesian contradiction

[Peter Skott <ecoskott@xxxxxxxxxxxxxx>]

Paul Davidson suggests that there are substantial differences between
his own position and those of Devine and Skott. I'm sure that this
is correct. But I'm not sure we've got to these differences yet.
So far the picture, it seems to me, is being clouded by completely
spurious issues.

     On the "first question" of Marshallian supply. In my previous
message I, sloppily, used the short-hand expression "the firm is
off its short run supply curve" to mean that the expectations
underlying the firm's supply decisions had failed to be met. Paul Davidson
doesn't seem to deny that this may indeed happen. He may prefer a
terminology but as far as substance is concerned I don't see
any real disagreement here. (I'm not sure, on the other hand,
that I like his Marshallian terminology. Under imperfect
competition firms aren't price-takers
and it doesn't seem useful to insist on definitions that run in
terms of "that price which is just necessary to induce the entrepreneur to
make the effort necessary to produce any given supply quantity".
My own reference to a "supply curve" obviously suffers from
a similar problem - under imperfect there is no supply curve - but
it was only a sloppy short-hand reference.)

     Davidson seems to claim that unless one uses his terminology then
"there is no organizing concept for explaining what motivates entrepreneurs"
and "hiring decisions are indeed not only in disequilibrium but in
chaos since firms can then be anywhere in the price-quantity quadrant".

     I simply don't understand this claim. The starting point of my
first intervention in this debate was that firms make a price-output
decision in order to maximize profits. I don't see any signs
anywhere that participants in the debate disagree on the substance
of this. (Needless to say, one may argue that other objectives,
say growth, are also being pursued and one can discuss the ability
of firms to "maximize". These issues, however, are orthogonal to the
debate. What matters is that firms pursue some objective).

      Davidson also claims that "it is a logical muddle to suggest that
a constant mark-up could be consistent with fluctuations AROUND
short run equilibrium".  I fail to understand this claim. Is it
logically inconsistent to suggest that there can be fluctuations
around short run equilibrium? Or is it inconsistent to assume that
firms choose to maintain a constant mark-up in the face of such
fluctuations (and associated fluctuations in inventories)?

     In short, we may have many and substantial disagreements. But
I thought we agreed that firms' supply decisions depend on demand
expectations and that these expectations may not be met. Paul
Davidson seems to detect differences even at this very abstract
and preliminary level. I don't see them.

Cheers,
Peter Skott
University of Aarhus
ecoskott@xxxxxxxxxxxxxx