PKT message, Fw: Keynesian "Economics"?

For background information.

Gunnar

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

To: gang8

Sent: Saturday, May 13, 2000 2:10 PM

Subject: Keynesian "Economics"?

Dear Gang:

Further to recent exchanges on the concepts of Saving and Investment, the following are brief extracts from Keynes' General Theory and my comments on same:

(1) So far as I know, everyone agrees in meaning by Saving the excess of income over what is spent on consumption. It would certainly be very inconvenient and misleading not to mean this. Nor is there any important difference of opinion as to what is meant by expenditure on consumption. Thus the differences of usage arise either out of the definition of Investment or out of that of Income. (Ch. 7)

Comment: Say's Law Of Entrepreneurial Balance Sheets concerns the Savings-Investment IDENTITY with respect to Entrepreneurial Investment in Factor Services.

(2) During any period of time an entrepreneur will have sold finished output to consumers or to other entrepreneurs for a certain sum which we will designate as A. He will also have spent a certain sum, designated by A1, on purchasing finished output from other entrepreneurs. And he will end up with a capital equipment, which term includes both his stocks of unfinished goods or working capital and his stocks of finished goods, having a value G. (Ch. 6)

The amount paid out by the entrepreneur to the other factors of production in return for their services, which from their point of view is their income, we will call the factor cost of A. The sum of the factor cost F and the user cost U we shall call the prime cost of the output A.

We can then define the income of the entrepreneur as being the excess of the value of his finished output sold during the period over his prime cost. The entrepreneur's income, that is to say, is taken as being equal to the quantity, depending on his scale of production, which he endeavours to maximise, i.e. to his gross profit in the ordinary sense of this term; - which agrees with common sense. Hence, since the income of the rest of the community is equal to the entrepreneur's factor cost, aggregate income is equal to A - U.

Income, thus defined, is a completely unambiguous quantity. Moreover, since it is the entrepreneur's expectation of the excess of this quantity over his outgoings to the other factors of production which he endeavours to maximise when he decides how much employment to give to the other factors of production, it is the quantity which is causally significant for employment. (Ch. 6)

Comment: This is incoherent!

Consider first that intra-entrepreneurial sales at factor cost cancel out.

Next, abstract from "user cost" such that A comprises an entrepreneur's "finished output [sold] to consumers".

Then A would stand for (a) Factor Cost of Production; (b) Factor Income; and (c) Final Sale Proceeds.

Or, to paraphrase Keynes, "since it is the entrepreneur's expectation of the excess of this quantity A (c) over his outgoings A (a) to the other factors of production A (b) which he endeavours to maximise when he decides how much employment to give to the other factors of production, it is the quantity A - A which is causally significant for employment."

Also, the identity of A (a) and A (b) implies that G = 0 for end-period "capital equipment...having value G"!

Gunnar