RE: General Theory Seminar --Savings and Investment

[Clifford Poirot <cpoirot@xxxxxxxxxxx>]

William,

This is all well and good. I am sure that the concepts you are developing
are worth exploring.

The point I am trying to make right now is that the terms and definitions
used are standard and fairly non-controversial among economists.

Profits=Firm Income-net expenses including wages, rent and interest.

My suggestion is not necessarily that you must agree with me, or anyone else
about the validity of these terms. Please simply recognize that these terms
are used by governments, the IMF, the  World Bank, and other multi-lateral
agencies in recording and measuring categories.

> -----Original Message-----
> From:	William B.Ryan [SMTP:william_b_ryan@xxxxxxx]
> Sent:	Sunday, February 20, 2000 6:52 PM
> To:	POST-KEYNESIAN THOUGHT
> Subject:	Re: General Theory Seminar --Savings and Investment
>
> Replying to:
> http://www.geocities.com/CapitolHill/Senate/7018/pkt/poirot-2-20-00.html
>
> [Clifford Poirot]
> Y is total Income (Net factor payments + profits).  It is what people
> earn.  It does not go into the hands of those who "receive" it,
> necessarily, since some of it is taxed.  Disposable income is what
> people earn, less taxes.  This is just an identity, given the
> definition of the terms.
> -------
>
> Let's for the moment separate the two sectors, firms and consumers.
>
> The term "disposable income" pertaining to consumers is easy enough to
> understand.  The problem is trying to understand what is meant by
> "profits" in Keynesian analysis.  It is by no means clear.  Before you
> said that Y = AE, now you say that Y = net factor payments + profits.
> To be consistent, we must conclude that AE = net factor payments +
> profits.  How do you reconcile this with the definitions of
> accounting?
>
> In accounting, not all disbursements by firms are expenses and
> therefore are not "expenditure."  For example, repaying the principal
> of a loan is not accounted for as an expense.
>
> Profit itself is very much a function of the rules and definitions of
> accounting.  I'll again refer you to the diagram at
> http://www.geocities.com/CapitolHill/Senate/7018/flux-reflux.jpg  What
> the diagram depicts are rates of flow plotted against time on the
> horizontal axis, for example, so many dollars being spent per unit
> time at any given point in time.  Let T1 represent the rate of
> spending, in terms of cash flow, by firms in the aggregate increasing
> with the progression of time.  T2, sales, is the reflux, in terms of
> cash flow, from that spending from both firms and consumers.
>
> T3 will have the same slope as T1 and presumably T2 (in steady-state)
> but is arbitrarily delayed in time. T3 does not represent cash flow.
> Its placement along the horizontal axis is determined by the expensing
> of costs according to the arbitrarily determined conventions of
> accounting.  A machine tool is purchased that is not expensed
> immediately but according to a depreciation schedule over several
> years.  When the tool was purchased there was a disbursement but not
> an expense.  One asset was exchanged for another.
>
> >From accounting, the flow of profits is the difference between sales
> at T2 less expenses at T3 as instantaneously measured at TX.
>
> Entrepreneurs incur debt as they invest, which is expensed into
> production over time through depreciation.  If, on the other hand,
> debt is somehow shifted from firms to consumers, the rate of profit
> --while the shifting is occurring to the limit of the shift--increases
> commensurately, thereby becoming available for investment or squander.
>
> Much debt masquerades as equity.
>
> Bill Ryan
> william_b_ryan@xxxxxxxxxxx
> http://www.geocities.com/CapitolHill/Senate/7018
>
>
>
>
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