Re: General Theory Seminar --Savings and Investment

["Harry Veeder" <veed0001@xxxxxxxxxxxxxxxx>]

----------
>From: "William B.Ryan" <william_b_ryan@xxxxxxx>
>To: POST-KEYNESIAN THOUGHT <pkt@xxxxxxxxxxxxxxxx>
>Subject: Re: General Theory Seminar --Savings and Investment
>Date: Tue, Mar 14, 2000, 1:02 am
>

>http://csf.colorado.edu/forums/pkt/2000/msg00848.html
>[Harry Veeder]
>"There is some confusion here between the consumption of income and
>the consumption of purchased goods..."
>-----------
>
>I think, correct me if I'm wrong, by Keynesian definitions consumption
>is spending on goods intended for final consumption and investment is
>spending on capital goods--not their actual utilization.


Keynes sees all spending as ultimately being consumption according to
Paul Davidson.  The distinction exists only because it is
*useful* in organzing our thinking about the economy rather than as a
matter of fact. I know that sounds strange but that is what
happens when one tries to obey the weird economic methodology of Keynes.



>I don't have
>a problem with that, presumably spending correlates to utilization.
>Where I have a problem is the syllogism's algebraic identity S = Y - C
>and its conclusion that S = I.

There are other inconsistencies in Keynes reasoning.
If we apply Keynes thinking to Y = C + I,
the conclusion S = I must be yet another "apparatus of the mind"
describing nothing independently real.

>Look again at
>http://www.geocities.com/CapitolHill/Senate/7018/flux-reflux.jpg
>If T1 represents total factor disbursements and T2 consumer spending
>in reflux, the difference at TX would be net saving by consumers in
>the cash flow sense.  There is no way except by pure chance that could
>equal spending for capital goods.  Keynesians then will define Y as
>being net factor payments, depicted graphically as T1, PLUS profits.
>See http://csf.colorado.edu/forums/pkt/2000/msg00641.html  So there is
>income going to consumers and firms.  Evidently there is consumer
>consumption and firms consumption.  Consider the case where T1
>represents total firms disbursements to consumers and firms, and T2
>its reflux as before but from both consumers and firms.  The
>difference between simultaneously measured T1 and T2 still represents
>accumulation to savings but savings accumulated by both firms and
>consumers.  There again is no way the gap between T1 and T2 would
>exactly equal spending for capital goods.
>
>Keynesians mix cash-flow concepts with accounting concepts.  The prime
>examples are "profits" and "expenses."

Isn't "cash flow" also an accounting concept? If not, then at least
I would say it is only applicable at the (micro) level of individual
businesses rather than the whole (macro) economy.

>See
>http://csf.colorado.edu/forums/pkt/2000/msg/00649.html which states
>"Profits=Firm Income-net expenses including wages, rent and interest."
>But in terms of cash flow in a growing economy in steady-state, the
>flux is always greater than its reflux.  In terms of cash flow,
>therefore, firms in the aggregate are always receiving from sales in
>reflux less than they are disbursing.  They book a profit through the
>conventions of accrual accounting, which delays the "expensing" of
>certain disbursements into the future.  T1 and T2 represent actual
>cash flow streams that are in principle measurable.  T3 is an
>accounting "fiction."  Its placement along the time axis is completely
>arbitrary.  Accounting profit is the difference between T2,
>representing actual sales, and T3.  Therefore profit itself is a
>fiction without objective reality.  It is meaningful, to the extent
>that there is consistency in the rules of accounting, by providing a
>benchmark to judge entrepreneurial productivity.  It also provides a
>useful smokescreen to justify exorbitant shareholder dividends and
>executive compensation.
>
>But this creates a bias in the system toward disbursements for capital
>goods as opposed to human capital, since capital goods can be
>depreciated while human capital ordinarily cannot.  Say that an
>entrepreneur could increase the productivity of his plant, in terms of
>labor hours per unit output, by spending the same amount over the next
>six months in either of two ways.  He could purchase a machine tool
>which could be expensed over several years, thereby increasing his
>ostensible rate of profit.  Or he could invest in better management
>techniques, organization and training.  Both the capital good and
>improved human capital will depreciate in utility over time if not
>maintained.  But only the capital good is depreciable according to the
>conventions of accounting.  So there is a bias toward the most energy
>consuming and polluting forms of production.
>
>Because it shifts the burden of debt from firms to consumers,
>increasing consumer credit also has the effect of raising the
>ostensible rate of profit.  But here the rate of profit increases
>simply because of shifting debt, not through the improvement of
>productivity by any conceivable definition, further eroding the
>rationale for laissez-faire.
>

Anyone who borrows is entrepeneur in my opinion. There can, however,
be excesive entrepeneurism just as there can be under employment.
A state of excessive entrepeneurism is infact a state over employment.


Harry Veeder