RE: General Theory Seminar --Savings and Investment

[Clifford Poirot <cpoirot@xxxxxxxxxxx>]

See my comments below

> -----Original Message-----
> From:	Paul Davidson [SMTP:pdavidson@xxxxxxx]
> Sent:	Friday, February 18, 2000 11:07 AM
> To:	POST-KEYNESIAN THOUGHT
> Subject:	RE: General Theory Seminar --Savings and Investment
>
> At 06:14 PM 2/17/2000 -0500, you wrote:
> >se
> > >
> >         [Clifford Poirot]
> >         The condition as one for equilibrium-the level of employment,
> income
> >and prices as determined by spending was first developed by Keynes in the
> >GT.  Keynes' use of equilibrium is quite different from the Classical use
> of
> >the term equilibrium. In Marshallian economics, equilibrium means that
> >markets clear at the individual level.
>
> No -- otherwise unemployment could not be equilibrium in Keynes -- who as
> a
> student of Marshall used the concept in the same way that Marshall
> did.  Marshall "borrowed" the equilibrium concept from the engineers and
> physicists -- e.g., the swinging  pendulum reaching rest -- when forces
> balanced out.  Clearing may be a sufficient condition but it is not a
> necessary condition. [The partial vs. general clearing condition is a red
> herring as for the difference between Marshall and Walras.]
>
	I'm quite willing to be proven wrong on this, never actually having
read Marshall in the original. However, it sounds counter intuitive to the
basic operation of the Marshallian mechanism of supply and demand, and value
being determined by both the cost of production and the marginal utility of
consumers. How does a market-in either the short or long run-in the
Marshallian model, attain equilibrium and have either surpluses or
shortages?

	My preference for what I view as the Marshallian model, over the
Walrasian model, is that predictable, stable relationships exist only in the
short run, and only for specific commodities at specific points in time. But
I still maintain that in order for the Marshallian framework to make sense
it has to depend on price adjustments that clear the market of excess supply
and/or demand.


> >In the Walrasian world, all markets
> >clear simultaneously. This was quite obviously not Keynes' view of
> >equilibrium. To Keynes, equilibrium was a condition where all the
> incentives
> >were to continue on.
>
>
>
>          Though the net leakages, net injections model is simple, it does
> >illustrate some very good details of the Keynesian model. Specifically,
> that
> >of the relationship between the financial sector and the "real" economy
> as
> >well as the possibility of feedback effects and path dependency. In the
> >Classical model, when I > S, interest rates must rise, thus causing a
> >decrease in quantity of investment demand and increase in quantity of
> >savings. This brings S and I into equality. In the Keynesian model, I>S
> has
> >feedback effects on the rest of the economy. This spending is accomadated
> by
> >the creation of credit and rising income allows savings to expand. In
> other
> >words, you missed the point about the difference between applying
> >Marshallian price-quantity adjustments to the macro level and analysing
> the
> >macroeconomy in terms of dis-equilibrium income adjustments.
>
>
> Not necessarily  -- according to Keynes in 1937 finance motive, if
> aggregate planned spending increases  from the
> previous period (when the economy was in equilbrium with planned
> investment
> equal to planned spending), then "if the liquidity preference of the
> public
> (as distinct from the netrepreneurial investors) and of the banks are
> unchanged, an excess in the finance required by current ex ante output [it
>
> is not necessary to write investment, since it is true of ANY output which
>
> has to be planned ahead) will lead to a rise in the rate of interest..."
> [Keynes, EJ 1937, p. 667]. To understand why read my chapter 8 of POST
> KEYNESIAN MACROECONOMIC THEORY.
>
	I see your point and concede it. However, in moving from one time
period to the next with an increase in aggregate planned spending, the
economy is moving through a process of disequilibrium.

>  > 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.
> > >
>
>
>
> No INVESTMENT IN REAL CAPITAL IS THE MEASURE OF ACCUMULATION OF REAL
> WEALTH.
> The decision to save (planned savinghs) is the decision NOT to use today's
>
> claims on resources. Real resources that are SAVED are those that are NOT
> employed today to produce anything today!!
>
	I disagree. In a capitalist economy, it is money and financial
assets, not numbers of cattle and  or factories and machines that is the
measure of wealth. And then it is the purchasing power of that wealth for
useful commodities-in short symbolic wealth-that is the measure of well
being in a capitalist society.
> >         Well, on this last point at least, we agree-almost. Saving is
> the
> >process of increasing a household's individual financial wealth,
>
>
> Increasing financial wealth is increasing one's holding of liquid assets
> (liquidity).
>
> >collectively, the nation's financial wealth. However, the process of
> >physical capital accumulation also increases the productive capacity.
> >Financial wealth is the expression of this.
>
>
> Not necessarily the increase in financial wealth on the Stock market of
> more than 20+ per cent per year in the last few years has NOT been matched
>
> by an increase in real capital stock by 20+ per cent per annum.
>
> iT IS ONLY CLASSICAL ECONOMICS WHO CONFUSED THE DESIRE TO ACCUMULATE
> FINANCIAL WEALTH (LIQUIDITY) WITH THE DESIRE TO ACCUMULATE REAL PHYSICAL
> WEALTH
>
> 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