Re: Bruno Ventelou responds to Peter Dorman

["J. Barkley Rosser, Jr." <rosserjb@xxxxxxx>]

Paul,
      Three points:
      1)  Of course a garden variety Samuelson model will
give a unique equilibrium.  Big whoop.
      But, suppose that one has a nonlinear investment
function as a function of the level of income?  Such things
have been suggested by quite a few people, including
your pal, Hicks.  It is not in the simple Samuelson model,
but it certainly could lead to multiple equilibria even in
that model.
     2)  My remark that Keynes thought multiple equilbria
to be rare, meant that they are so in the real world, that is
that the conditions generating them do not hold.  We have
no disagreement on this point.
      3)  You are quoting the wrong part of page 191 of the GT.
What I am looking at is further down on the page where he
declares, "in the extreme case where money-wages are
assumed to fall without limit....there will, it is true, be only
two possible long-period positions---full employment and the
level of employment corresponding to the reate of interest
at which liquidity-preference becomes absolute..."
Barkley Rosser
-----Original Message-----
From: Paul Davidson <pdavidson@xxxxxxx>
To: POST-KEYNESIAN THOUGHT <pkt@xxxxxxxxxxxxxxxx>
Date: Thursday, April 15, 1999 4:13 PM
Subject: Re: Bruno Ventelou responds to Peter Dorman


>Barkley wrote:.
>
>>>      Just for the record, Keynes most certainly
>>>knew about multiple equilibria, although I think
>>>that he viewed them as rare and mostly
>>>unimportant, an important distinction.
>
>
>
>No --quite the contrary Keynes diud not think them rare among economists --
>he thought them to be based on assumptions that were unrealistic.. Keynes
>thought the classical case of Say's Law  involved the pinnacle of multiple
>equilibrium -- when he described Says Law  as "That is to say, effective
>demand [i.e., the interrsection of the aggregate supply and demand curves],
>instead of having a unique equilibrium value, is an infinite range of
>values all equally admissible" --GT, p. 26.  In other words, the
>assumptions underlying Say's Law resulted in an infinite number of
>equilibria -- which, Barkely, is as many equilibria as you can get!
>
>Keynes inisted that effective demand would have a "unique equilbrium value"
> -as long as the classical supply analysis (i.e., given the degree of
>competition, the existing techniques of production, the erxisting quality
>and quantity of equipment, the existing skill and quantity of labour [see
>p.245 GT]) was combined with an aggregate demand curve where the marginal
>propensity to consume was always greater than zero and less than unity.
>
>Unfortunately many people misuse the concept of effective demand when they
>talk "as if" there are multiple equilibria and the government can choose by
>its policy which of the multiple equilibria it wants.  This obfuscation
>involves conflating movements along the aggregate demand curve with shifts
>in the curve!!
>
>For any given combination of fiscal and monetary policy plus the propensity
>to consume and the marginal efficiency of capital there is a UNIQUE point
>of effective demand equilibrium.  Each different government policy mix
>implies a shift in the aggregate demand curve relative to the aggregate
>supply curve to determine a different unique point of effective demand.
>
> [Hint: Think of Samuelson's old aggregate demand vs. 45-degree line
>analysis. There can only be one point of intersection given the marginal
>propensity to consume is less than unity!!  A change in government policy
>shiftys the aggregate demand curve relative to the 45 degree line (which
>represents the aggregate supply curve in Samuelson's analysis).By
>construction it is impossible to have multiple equilibria unless one
>hypothesizes some strand propensity to consume which in certain ranges has
>a marginal propensity that is greater than unity!!]]
>
>
>>>      Keynes recognized the possibility of multiple
>>>macro equilibria in a few scattered places in the GT.
>
> But
>>>one has to do some stretching to make the interpretation,
>>>and his have nothing to do with either of the above, but more
>>>with funny expectational effects, arguably not "true" equilibria
>
>
>Changing expectations involve shifting the aggregate demand curve -- not
>multiple equilibria (see chapter 5 of GT -- especially p. 48 where there is
>a given state of expectations one achieves a sterady level of employment
>"corresponding to that state of expectations".
>
>>>(but then lots of anti-Keynesians dismiss his work because
>>>it supposedly does not reflect "true equilibria").  One such
>>>case for Keynes may be on p. 191 of the GT in his discussion
>>>of Ricardo's theory of interest.
>
>
>Even on page 191 Barkley Keynes notes that for "every banking policy there
>corresponds a different [unique] long-period level of employment; so that
>there are a number of positions of long period equil;bium corresponding to
>DIFFERENT conceivable interest rate policies on the part of the monetary
>authority". (Emphasis added).  In other words for each possible interest
>rate there is a different level of investment which added to the propensity
>to consume assures a unique and different equilibrium.  This is a case of
>shifting aggregate demand curves -- not a multiple equilibruia.
>
>Paul
>
>>>Barkley Rosser
>>>
>>>-----Original Message-----
>>>From: Greg Nowell <GN842@xxxxxxxxxxxxxxxxx>
>>>To: POST-KEYNESIAN THOUGHT <pkt@xxxxxxxxxxxxxxxx>
>>>Date: Wednesday, April 14, 1999 9:41 PM
>>>Subject: Bruno Ventelou responds to Peter Dorman
>>>
>>>
>>>>I translate Bruno Ventelou's note to me and include the
>>>>original French.   I don't really want to be his
>>>>interlocutor on this group, but I do want to bring his
>>>>work to the attention of the PKT discussion group, so
>>>>here it is, by way of publicity.  Please note, folks
>>>>that this is in theory an *introductory intellectual
>>>>history* of what came before Keynes, Keynes, and many
>>>>strands of thinking that followed, so I find myself
>>>>rather bemused by the heavy intellectual apparatus
>>>>brought to bear on the translation of "substitutabilite
>>>>brute."  --gn
>>>>
>>>>Here's le Professeur Ventelou:
>>>>
>>>>Gross substitutability is the correct term, used in
>>>>micro textbooks.  The notion of multiple equilibria,
>>>>based on very orthodox arguments, seems to me necessary
>>>>to present in this part of the book.  The most orthodox
>>>>references to Keynes refer to it,  showing that
>>>>wherever there are multiple equilibria, it is possible
>>>>for the government to intervene to move market actors
>>>>to the "right equilibrium."  This is not necessary for
>>>>Keynesian policy in the strict sense of the term, but
>>>>it suffices to show that even orthodox economics does
>>>>not exclude public intervention.  I chose Wald because
>>>>he published in 1933!  But Arrow et al are better known
>>>>for their equivalent, and better stated, results.
>>>>
>>>>The notion of subsequent (posterieurs) multiple
>>>>equilibria, including the most heterodox ones based on
>>>>non-participation in exchange, are very interesting,
>>>>and very useful in interpreting Keynes in the largest
>>>>sense of the term.  BUT,
>>>>
>>>>1.  Keynes didn't know about them;
>>>>2.  They are less convincing, for orthodox readers,
>>>>than arguments coming from orthodox theory.
>>>>
>>>>Nonetheless, Peter Dorman is right.  I should take up
>>>>better this second, more expansive reinterpretation of
>>>>multiple equilibria.  I tried to do that in Chapter 5
>>>>of the 1997 version of Lire Keynes et le Comprendre,
>>>>but at the time I didn't understand the question
>>>>well.   I'm much more comfortable with it now.  I
>>>>intend to take it up in the second French edition, and
>>>>naturally with you [Greg Nowell], in the English
>>>>translation.
>>>>
>>>>--BV.
>>>>
>>>>
>>>>
>>>>Après lectures des débats :
>>>>
>>>>"Gross substituability" est le bon terme (celui utilisé
>>>>dans les manuels de
>>>>microéco)
>>>>
>>>>La notion d'équilibres multiples (celle basées sur ces
>>>>seuls arguments très
>>>>orthodoxes) me paraît nécessaire à présenter dans cette
>>>>partie. Les lectures
>>>>de Keynes (les plus orthodoxes) y font référence, en
>>>>montrant que là où il y
>>>>a équilibres multiples, il y a possibilité pour le
>>>>gouvernement d'intervenir
>>>>pour orienter les agents sur le "bon équilibre". Il ne
>>>>s'agit pas
>>>>nécessairement d'une politique keynésienne au sens
>>>>stricte du terme, mais
>>>>cela suffit à montrer que l'économie même orthodoxe
>>>>n'exclut pas
>>>>l'intervention publique. Wald est choisi pour sa date
>>>>1933!!! C'est Arrow,
>>>>et al qui sont connu pour leurs résultats équivalents
>>>>(mais mieux dits).
>>>>
>>>>Les notions d'équilibres multiples postérieures
>>>>(celles, plus hétérodoxes,
>>>>basée sur la non participation à l'échange) sont très
>>>>intéressantes, et
>>>>utile pour réinterpréter Keynes d'une manière très
>>>>large. MAIS
>>>>1 Keynes n'a pas pu en avoir connaissance
>>>>2 elles sont moins convainquantes (pour les orthodoxes)
>>>>que des arguments en
>>>>provenance directe du corpus orthodoxe...
>>>>Néanmoins P Dorman a raison, il faudrait que j'aborde
>>>>mieux cette deuxième
>>>>réinterprétation large de Keynes par les équilibres
>>>>multiples (dans le
>>>>chapitre 5 de la version 97 de LKC, je m'y essaye mais
>>>>à l'époque je
>>>>connaissait mal cette question. Aujourd'hui je me sens
>>>>plus à l'aise. Je le
>>>>ferai donc prochainement, à la fois pour une seconde
>>>>édition française, et
>>>>bien sûr avec toi pour une traduction en anglais).
>>>>
>>>>--
>>>>Gregory P. Nowell
>>>>Associate Professor
>>>>Department of Political Science, Milne 100
>>>>State University of New York
>>>>135 Western Ave.
>>>>Albany, New York 12222
>>>>
>>>>Fax 518-442-5298
>>>>
>>>>
>>>>
>>>
>>>
>>>
>>
>>
>>
>Paul Davidson
>Holly Chair of Excellence in Political Economy
>University of Tennessee
>SMC523
>Knoxville, Tennessee 37996-0550
>office phone# (423)974-4221
>fax# (423)974-1686
>home phone # (423)573-9160
>email: pdavidson@xxxxxxx
>http://econ.bus.utk.edu/Davidson.html
>