Re: General Theory Seminar --Savings and Investment

["Ronald Calitri" <calitrir@xxxxxxxxxxxxx>]

Who'd have thought?

----- Original Message -----

From: Paul Davidson <pdavidson@xxxxxxx>

To: POST-KEYNESIAN THOUGHT <pkt@xxxxxxxxxxxxxxxx>

Sent: Sunday, February 20, 2000 12:09 PM

Subject: Re: General Theory Seminar --Savings and Investment

> At 07:23 PM 02/19/2000 +0900, you wrote:
> >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.
>
>
> If past savings are in the forms of stocks and bonds-- then they are NOT
> available as money to meet payrolls in the capital goods producing industry.
>
> If past savings is being currently held as "money" then this is available
> to finance new investment --

 

The alteration of corporate control is as much a matter of balancing future "securitization" to future "liquefaction". The predictability of that is about equal a tentacle in the water. We are back then unfortunately to being required to model the system as "squirming" between internal as well as external sources of investment funding.

 

I have a question. That wealth effect Greenspan referred to - 1/6 housing and 5/6 equities. What does that proportion refer to? Does it include all privately held businesses at their own market price, or just the market price of US stocks?

 

> but only if the public who  holds the money
> changes its liquidity preference and agrees to hold securities rather than
> money at the current rate of interest.

could you change that to "their" current "rates" of "interests" ?

It does not matter to the participant in a private banking arrangement in Switzerland  what is the current rate of interest on margin cover at Merrill Lynch. Only local or "accessible" interest rates matter.
 

    I suggest discussing ergodicity again. It has been often discussed as a time series property, but is quite routinely allowed in a cross-sectional context. I recall that Paul Einzig, in several books written during the 1930s described in exquisite detail the gradations of successively riskier and higher interest rates that surrounded the traders in "governments". This perspective had roots in the modeling of the country-city cycle stretching back into the eighteenth century, was in Thornton and appears to have underlaid the pedagogic "current rate of interest" in the GT, as well as much use in training city workers. The model appears in my mind as a basin-like structure, very flat and broad, that steps upward into working-capital small-shop financing rim.

 

    As modeled in the nineteenth century by Moirier Evans, financial crises  ocurred when the inhabitants of one of these levels multiplied through self-interactive financing, and basically oozed over the rim. The panic of 1857 horribly cinched this critique and over the next twenty years British banking began to concentrate and the city alone became of political importance

      A way of looking at the result is if you put contours round these levels, with a few gates, an efficient market perspective allows the passage of whatever substance is maintaining the structure to levels of lesser gravity, through these gates so that its balance is held rigidly. That is for our modern eyes. At the time this was modeled in a hydraulic manner with pumping stations between the pipelines. Both are ergodic simplifications and some such ergodic assumption is required for the current rate of interest to have such predictable consequences..

    But historically if you recall, "bank rate" began to be "out of touch" with other major interest rates. The episodes recurred sporadically c. 1880-1906, and returned with vigour after WWI. One imagines that was one of the reasons Keynes pumped for "THE" current interest rate with the word "Bank" attached and reattached at convenience.

 

I wonder, if we look at the time series of cross-sections of the interest rate structure, as the varieties of credit processes pass through them, look at the "complex" of interest rates, are they are in ergodic or non-ergodic relationships?

 

 

 

Ron

>
> 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
>
>