Globalizing Keynes

[Gernot Kohler <gernot.kohler@xxxxxxxxxxxxxxx>]

[re: world system studies]
Globalizing Keynes             by: Gernot Kohler     mini #43   March 1997

Globalizing Keynes? Never?
Davidson has used the concept of "global effective demand".
Thirlwall has used the concept of "world income Z".
How are these concepts related to global (full) employment?
    One possible answer can be derived from Keynes's _General Theory_
by transposing it from the macro to the mega-level of analysis.

[the following is adapted from Keynes GT ch. 3 p.28-31:]

CHAPTER 3 -- THE PRINCIPLE OF GLOBAL EFFECTIVE DEMAND

....This theory can be summed up in the following propositions:

(1) In a given situation of technique, resources and costs, global income
(both money-income and real income) depends on the volume of global
employment Nz.

(2) The relationship between the world's income and what it can be
expected to spend on consumption, designated by Dz1, will depend on the
psychological characteristic of the world community, which we shall call
its global propensity to consume. That is to say, global consumption will
depend on the level of global aggregate income and, therefore, on the
level of global employment Nz, except when there is some change in the
global propensity to consume.

(3) The amount of global labour Nz which the entrepreneurs decide to
employ depends on the sum (Dz) of two quantities, namely, Dz1, the amount
which the world is expected to spend on consumption, and Dz2, the amount
which it is expected to devote to new global investment. Dz is what we
have called above the global effective demand.

(4) Since Dz1 + Dz2 = Dz = phi(Nz), where phi is the global aggregate
supply function, and since, as we have seen in (2) above, Dz1 is a
function of Nz, which we may write chi(Nz), depending on the global
propensity to consume, it follows that  phi(Nz) - chi(Nz) = Dz2.

(5) Hence the volume of global employment in equilibrium depends on (i)
the global aggregate supply function, phi, (ii) the global propensity to
consume, chi, and (iii) the volume of global investment, Dz2. This is the
essence of the General Theory of Global Employment.

.... The global propensity to consume and the rate of new global
investment determine between them the volume of global employment, and
the volume of global employment is uniquely related to a given level of
real global wages -- not the other way round. If the global propensity to
consume and the rate of new global investment result in a deficient
global effective demand, the actual level of global employment will fall
short of the supply of global labour potentially available at the
existing real global wage...

....This analysis supplies us with an explanation of the paradox of global
poverty in the midst of global plenty...
   The insufficiency of global effective demand will inhibit the process
of global production...

[I added the words "global" and "world" where applicable and changed
Keynes's symbols of D, D1, D2, and N to Dz, Dz1, Dz2, and Nz in order to
underline their use at the world system level.]


Regards,
Gernot Kohler
Oakville, Canada