Re: General Theory Seminar

[Paul Davidson <pdavidson@xxxxxxx>]

At 05:15 PM 02/05/2000 -0500, Barkley wrote:
>       Given the lively discussion that has come out of
> Chap. 12, I would like to see bringing in some of the
> material from the nearby Chapters as well, such as
> 11, and 13-15.  One question:  is a crash best
> characterized as a surge of liquidity preference?
> Is a liquidity trap related to a crash, perhaps the result
> of one as in Japan?


the concept of a liquidity trap, i.e., a perfectly elastic
[horizontal]  segment of the speculative demand for money is a not a Keynes
concept--- as I ave pointed out at various times in the literature. On page
202 of the GT, Keynes points out that the speculative demand for money
follows a square root rule -- and is therefore a rectangular hyperbola --
which by definition never has a truly horizontal segment.  The liquidity
trap or what Milton Friedman calls "absolute liquidity preference" is
a  delusion -- not required (i.e., not a necessary condition) for Keynes's
liquidity preference analysis of involuntary unemployment equilibrium .

moreover, as Keynes argued in his 1937 EJ  finance motive addendum to his
liquidity preference theory , an increased in planned spending  (an hence a
decrease in unemployment) can be held up  by a lack of sufficient
additional liquidity added to the system.  So it is not a "surge of
liquidity preference" in the sense of  a "surge" in bear holding position
that may prevent employment expansion, Barkley {See  chapter 8 in my POST
KEYNESIAN MACROECONOMIC THEORY book]

>       BTW, I would note that we now have a rather complicated
> and nuanced collection of actors in financial markets, not
> just the old fundamentalists and chartists, but true-false
> switchers, insiders and outsiders, noise traders and quiet
> traders, informed and uninformed, and others, with few of
> these distinctions necessarily correlating with the others.

But that is just Alan's pragmatic and realistic economists trying to
categorize each player as a separate entity . Of course if there are a
million players there may be a million differing reasons for each players
action.  Just as there are millions of humans -- most of whom do not look
very much alike.  We do not separate hunmans by say their height  or
weight,  etc-- when trying to explain market behavior. Taxonomy requires
that we categorize by the fewest necessary and sufficient properties and/
or functions into homogeneous groups -- despite individual differences
among members of the group. [ See , for example, page 33 of my PKMT book]

Paul
Paul Davidson
Holly Chair of Excellence in Political Economy
Editor, JOURNAL OF POST KEYNESIAN ECONOMICS [JPKE]
Economics Department -- 523 SMC
University of Tennessee
Knoxville, Tennessee 37996-0550
email: Pdavidson@xxxxxxx;   phone: (865)974-4221;    fax: (865) 974-4601
http://econ.bus.utk.edu/Davidson.html