Re: Keynes and competition

[Bruce McFarling <ecbm@xxxxxxxxxxxxxxxxxxx>]

On Mon, 21 May 2001 15:46:43 +0900,
Kazuhiro Kurose <kurose@xxxxxxxxxxxxxxxxxxxxxx>
wrote,

>... According
>to them, the perfect competition means that the individual (not aggregate)
>demand curve is flat, and then the capitalists expect that they could sell
>the goods whatever they want. But there are no demand constraints in this
>circumstance.

First, we would do well not to put words into Keynes mouth,
especially when he already had a sufficient supply in there
already.  He claimed that his model applied whatever the
degree of competition.  However, under the model labelled
perfect competition, there is a lot of extra stuff in there
in addition to the degree of competition.  So arguing about
perfect competition in all its abstract "angels on the head
of a pin" glory is somewhat beside the point.  Pure competition
is the competitive extreme that his claim applies to is
pure competition -- he explicitly denies the feasibility of
the kind of full information, for example, that perfect
competition assumes.  A shorthand for this argument is that
having perfect information is no more a matter of degree
than being pregnant, so perfect information is distinct
from degree of competition.

Anyway, turn this "no demand constraint" argument around.
No matter what the costs of production, a sufficiently
strong increase in demand at the industry level will result,
under pure competition, in a market price that will justify
an increase in output -- either in the short run, or if not
then in the long run.  Therefore, you can conclude that
there is no supply constraint, only demand constraint.

Since you can use a similar argument to "prove" that
there is no demand constraint, only supply constraint,
all that is proved is that this style of argument is
flawed.  Either an increase in demand or a reduction
in costs at the industry level can result in an
increase in industry output under pure competition,
so both constraints are in place.

Whether there can or cannot be demand constraints
under perfect competition, as opposed to pure
competition, is entirely beside the point, as no
actual economy can have or approach perfect
competition, so the question would have no bearing
on whether or not there can be demand constraints
in the real world.

>I think that the judgment on whether Keynes' system is
>perfect competition or imperfect one depends upon the
>judgment on whether there is disequilibrium in goods
>market or not.

So, I'd say that Keynes' system aspires to be a model
of real world economies, and therefore cannot be based
on perfect competition, as the term is currently
understood.  However, it is compatible with pure
competition or impure competition -- that is, does
not depend upon the degree of competition -- and
does not depend on a disequilibrium in goods market.

Virtually,

Bruce McFarling, Shortland, NSW
ecbm@xxxxxxxxxxxxxxxxxxx