Re: Conference on Saving and Investment

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

FROM:  Paul Davidson
"      Economics Department
"      523 Stokely Management Center  (615) 974-4221
Lynn quotes Alan Blinder's "HARD HEAD" to suggest that 5.8 % unemployment
represents "full-employment". I would be interested in finding out how
many on the network have heads hard enough to believe 5.8 % represents
full employment.  Can we have a write-in vote?
      Allin Cotrell believes that NAIRU is an acceptable part of the GT. He has
probably forgotten the message of Chapters 2, 19-21 (especially  pp. 269-71
and the last sentence on p. 309) . Keynes argued (p. 328) "No one has a legit-
imate vested interest in being able to buy at prices which are low because
output is low" .

   If firms are running into diminishing returns as they expand
output then this is a real cost of expansion and must be borne by someone in
society (see GT, pp. 42-43 esp. notes, pp.268-71, 299-300, also Treatise
I, p. 210, 271, II,p. 351.) Or else please see my Chapter on Inflation in
MONEY AND THE REAL WORLD.

Secondly, perhaps I have misinterpreted Cotrell but he appears to conflate
the NAIRU concept which involves ACCELORATING  inflation with the possiblity
of some (stable?) rate of inflation before full employment. Or some inflation
occuring as we move to full employment but ending once there! If inflation
due to diminishing returns
occurs with expansion because  of either the classical law of variable
proportions, or what I have called "hiring path dimishing returns" due
to hiring less efficient labor and capital equipment inputs (while paying
them the same time rate of nominal price as earlier hired inputs), then
this is a ONCE-FOR-ALL rise in the REAL COST of a greater flow of output.
The rate of inflation associated with the increase in the flow will end once
this ONCE-FOR-ALL real cost has been incorporated into the nominal prices
of goods.  And nobody has a vested interest in low prices because
output is deliberately kept low to avoid this real increasing cost of
a larger production flow.
     There need not be any Accelorating rate of inflation associated with  any
rate of involuntary unemployment. This does not require a "radical" change
in the distribution of income; it requires an inccomes policy as described
in Davidson, G. and Davidson, P. 's book ECONOMICS FOR A CIVILIZED SOCIETY.
Civilized people can negotiate how the fruits of the INCREASE in output
are going to be divided -- so that everyone in society can gain some
(but not necessarily equal) increase in absolute real income. Apparently
appeal to civilized instincts in humans which would preserve the
entreprenurial system while eliminating its major faults through expansion and
continuous full employment growth rubs Marxists such as William F. Mitchell
the wrong way.  Mitchell wants to be a "post-Keynesian" but he is not a
"Post Keynesian".  He has not noticed the subtley of this distinction between a
 lower case hypehated post-Keynesian and an upper case non hyphenated
Post Keynesian.
   I noted in my PUBLIC INTEREST (1980) paper entitled "Post Keynesian Econ-
omics: Solving the Crisis in Economic Theory " (reprinted in  MONEY AND EMPLOYM
ENT, THE COLLECTED WRITINGS OF PAUL DAVIDSON, VOL 1, 1990) that to avoid the
lack of uniformity in classifying schools of thought "there is no hyphen
between the words Post and Keynesian". Others such as Samuelson and Solow have
called themselves post-Keynesians and in the chronological sense they are corre
ct. They, like William  Mitchell, come after Keynes historically. By Post
(no hyphen) Keynesians, on the other hand, I mean those whose analysis is based
on the axiomatical logical foundations that Keynes provided in the GT. If being
logically consistent is demeaning in the sense that the analysis is
"tome-bound" as Mitchell insinuates, then I prefer to be logically consistent
compared to Mitchell's willingness to apparently accept bits and pieces from
any academic scribbler who strikes his fancy -- whether these scribblers were
using different axioms or not. I echew Marx because Marx's logical analysis--
as opposed to his penetrating politcal arguments -- are based on the classical
axioms including an ergodic immutable economic reality which assures
ultimately the dictatorship of the proletariat. In a non-ergodic world, there
is no inevitable path where more and more workers are inevitably "exploited"
(as are capitalists). Mitchell is correct in his fear of the GT "tome"
was not a "tomb" for the entrepreneurial systerm -- but a method of logical
analysis to explain the outstanding faults and how to remove and reduce them
while maintaining the advantages of an entrepreneurial economy (see the
last chapter of the GT.)
Such a message must be a loathesome to a good Marxist such as Mitchell.
    Please note that Mitchell is inconsistent in indicating that in his "versio
n of the world... being a post keynesian (note he left out the hyphen here but
used it earlier in his screed) is tantamount to being heterdox".  But
since Mitchell believes that there were heterodox economists "long before
Keynes", then he can not mean post-Keynesian in the chronological sense as
"after Keynes" even though eight lines earlier he says "i (uncapitalized)
am a post-keynesian (uncapitalized). after keynes (uncapitalized)".
     Why does Mitchell not call himself a post-Smithian, or a post-Ricardian,
or even a post-Hicksian? Why pick on poor old Keynes -- when Mitchell clearly
thinks Keynes's GT "was neither well written nor without problems inasmuch as
it aspired to a GT of capitalism but said very little about capitalism
per se". Maybe I can even convince Mitchell that he should also be called
a post-Hayekian, the latter not only wrote trying to explain captialism
per se but also the road to Marxian serfdom!
   Anyone who believes in a macroequilibrium unemployment rate below full emplo
yment -- and believes that this is somehow natural (Mitchell doesn't say
his "MRU" is natural but he says it is not "dissimilar to the NAIRU"), can
not believe that a civilized society can exist which provides the fruits of
full employment. Given the obvious failures of STATE PLANNING -- both in theory
 and in practice-- I prefer to believe that a civilized entreprenurial
system can be developed by intelligent peaceful policies.
   Regarding Ric Parkin's comments on NAIRU and hysteresis (also implied in
some of Mitchell's comments), I think he might be interested in the minisymposi
um on hysteresis with contributions by Rod Cross, Don Katzner (especially Katzn
er's if you are interested in the mathematics of hysteresis and the
incorrect interpretation many give it ) in the JPKE, Spring 1993 issue.

Have a good day!____Paul Davidson
))))_ fax # (615) 974-1686