At 04:22 PM 3/7/01 +0900, you wrote:
> A low elasticity of production in Keynes's sense should not be taken to
> mean that the quantity of money cannot be increased, either exogenously or
> endogenously. It merely means that very little or no labour can be
employed
> to produce money.
I don't think so. The argument of elasticity of production is related to
the own-rate of interest. Keynes said, " in
the case of assets having an elasticity of production, the reason why we
assumed their own-rate of interest to decline
was because we assumed THE STOCK OF THEM TO INCREASE AS THE RESULT OF A
HIGHER RATE OF OUTPUT. In the case of money,
.....the supply is fixed"(GT, p230).
No - you are confused. The elasticity of production refers to the first
derivative of the production function in log terms --which you can check
if you look at books written iabout the time Keynes was writing the GT,
e.g., R. G. D. Allen, MATHEMATICAL ANALYSIS FOR ECONOMISTS (I think that
is the correct title). This elasticity measures the percentage change in
output with a percentage change in input. A zero elasticity implies that
if no matter what proportion of workers one tries to hire to produce
money, no more can be produced. Money -- unlike the products of industry
is a nonreproducible (in the private sector with the input of labor).
Paul
It seems to me that own-rate of interest is assumed to be function of its
quantity.
Of course, nothing can be produced without labor, but I think that Keyens
didn't weight importance, in there, to labor
itself, but the relationship between own-rate of interest (that is,
own-rate of return) and its quantity produced by
labour. In other words, since the quantity of money produced by labor is
reluctant to increase, its own-rate of interest
is reluctant to decrease relative to other assets. In another page,
Keynes said, "since land resembles money in that its
elasticities of production and substitution may be low, it is conceivable
that there have been occasions in history in
which the desire to hold land has played the same role in keeping up the
rate of interest at too high a level which
money has played in recent time". This is the very evidence that Keynes
weight importance to the quantity, not labor.
Because land can't be produced by labor.
The own rate of interest is nothing more than the equation that I wrote
earlier for deciding whether a saver is a bull or a bear -- the only
difference is my equation was written in terms of absolute monetary sums,
while the own rate would take the same equation and reduce it to a
percentage of the original cost of purchasing the asset. For a way of
seeing how I I derived that equation from Keynes's "own-rate" formulation
see my MONEY AND THE REAL WORLD
Keynes is assuming all productive durables are subject to the law of
diminishing returns -- which therefore has an OBVIOUS implication for the
elasticity of production
Paul