Re: General Theory Seminar --Savings and Investment

["William B.Ryan" <william_b_ryan@xxxxxxx>]

Referencing http://csf.colorado.edu/forums/pkt/2000/msg00115.html from
Clifford Poirot, which was in reply to Geoffrey Gardiner's
http://csf.colorado.edu/forums/pkt/2000/msg00114.html

1. "In equilibrium Y = AE (aggregate spending) = C + I..."

This cannot be correct if Y is defined to be factor income in terms of
cash flow, that is to say, in terms of purchasing power placed into
the hands of final consumers.

Returning again to the terminology of the A + B Theorem, from the
perspective of the firms sector, such spending is categorized as "A"
payments.  All other spending is categorized as "B" payments.  At
"equilibrium" or more properly steady-state, it is only correct to say
that the ratio of A + B remains constant to A.
See: http://www.geocities.com/CapitolHill/Senate/7018/ratio.jpg
If there are natural growth vectors causing parametric shift, the
concept of equilibrium in a regime of laissez-faire becomes
meaningless.

Conventionally, in accounting, the proceeds from loans are not
classified as "income," nor when loans are repaid are such
disbursements classified as "expenses."

2. "...If I > S, then spending increases..."

Macroeconomically, spending increases only if a) there is the spending
down of previously accumulated balances, in which case the effects can
only be transitory to the limit of such previously accumulated
balances; or b) there is credit expansion.  It is only through credit
expansion that long-term growth in the financial sense becomes
possible.  In principle, credit expansion can occur in either the
consumers or firms sectors.  Therefore increasing spending is
accommodated by credit expansion, not I > S.

3. "S = Y - C"

See the diagram at
http://www.geocities.com/CapitolHill/Senate/7018/flux-reflux.jpg
Where credit expansion is to the firms sector, t1 represents
increasing "A" payments to consumers, while t2 represents increasing
consumer spending in reflux back to firms.  The gap between
instantaneously measured t1 and t2 represents accumulation to debt,
not savings.

4.  "S = I"

This postulate of equality (saving-investment equality postulate) is
an unnecessary hold-over from the classical analysis that causes great
confusion.  Saving is never "equal" to investment "ex post" or "ex
ante," because they are quite different processes--both in real and
financial terms.

Saving is the process of accumulating wealth; macroeconomically, it is
a measure of the accumulation of wealth.  Investment is the process of
improving the quantity or quality of capital.

Bill Ryan
william_b_ryan@xxxxxxxxxxx
http://www.geocities.com/CapitolHill/Senate/7018


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