Re: General Theory Seminar --Savings and Investment

["Kazuhiro Kurose" <kurose@xxxxxxxxxxxxxxxxxxxxxx>]

Since I found many people participated in exciting discussions about Savings and Investment, I would like to ask you a
question which have bothered me for long time.

In General Theory, Keynes have admitted that saving and investment were necessarily equal in amount, as classical
economists had argued. But in a case of Keynes, the causality was opposite to classical economics, in other words,
saving are an entirely passive variable and always turns out to be equal to investment.

Thus, according to Keynes, I seem that saving can't emerge unless investment exists. In other words, saving result from
investment. What I can't understand is whether saving at time t can't be funds to invest at time t. I seem that
arguments about finance motive may prove my correctness, because finance motive has nothing to do with saving. Thus
possible choices to raise funds for investment are (1) bank credit expansion (2) past saving accumulated in the form of
bonds or stock and so on.

Please reply to my question !

Sincerely

 **************************************
  Kazuhiro Kurose
  Hokkaido University, Faculty of Economics
    Kita 9 Nishi 7, Kita-Ku, Sapporo, Japan
    060-0809
    TEL: ++81-11-716-2111 ex:4065
 **************************************

> 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.]
>
>
> >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.
>
>  > 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!!
>
> >         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
>
>