Re: Does debt matter

["John B. O'Donnell" <jackodonnell@xxxxxxxx>]

John Gelles wrote:
>
>         Basil Moore writes today:
>
>         "The Post Keynesian position is that modern capitalist
>          economies are demand-constrained rather than supply-
>          constrained.  Inflation is cost driven, and output is
>          demand driven.  The AS curve [aggregate supply on
>          the x axis, price on the y axis]  is horizontal, and the
>         AD [aggregate demand] curve is vertical."
>
>         If  Gelles has the picture right, as demand increases,
>         there will be sufficient supply to meet it.  But as
>         supply increases, there will not be the necessary
>         demand to buy it at a level price -- the price must
>         descend vertically to allow such supply to be bought.

This is one of those interesting depictions that gloss over the
dimensions being used. A horizontal AS curve says basically that
whatever amount is supplied the price of each dollars worth of
supply is priced at $1. A vertical AD curve says that for a given
quantity of some real dollar amount of demand, the price in
nominal dollars will not cause a change in the amount demanded.
An interesting switch on the classical depiction of AS as the
vertical line. [It can also be noted that if the AD and AS labels
were reversed the descriptions can be applied in reverse.]

The error of depicting two relationships requiring two different
sets of coordinates as if they are plotted on the same
coordinates does not reveal any meaningful functional
relationships. It reveals only a disregard of the necessity of
dimensions. If AS and AD are depicted using the same coordinates
[either set] they become either vertical or horizontal
overlapping lines depending on which set of coordinates is used.

			-- jbod
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