Re: Keynes and competition

["John M. Legge" <jlegge@xxxxxxxxxxxxxx>]

Kazuhiro, Philippe,

I am currently ploughing through Marshall, and it seems clear to me that he
did NOT contemplate "perfect" competition in the modern neoclassical sense,
with free entry and exit and the mathematically incredible horizontal firm
level demand curve, now exposed by Steve Keen.  To paraphrase Schumpeter,
"no matter how many horizontal infinitesimals you add up, you will never get
a sloping industry demand curve thereby."  Marshall clearly recognises
market power and his discussion of competition between firms is recognisably
one of oligopoly.

Since Keynes followed Marshall it seems unlikely, to me, that Keynes had the
remotest idea of Samuelson's "perfect" competition.

With respect to Philippe, Say's law might hold in a state of perfect
competition, since Keynes referred to uncertain future demand as affecting
investment and liquidity preference; and firms in perfect competition have
no uncertainty, since, as Kazuhiro puts it, they can sell all that they
produce until stopped by their rising marginal cost.  Under imperfect
competition the activity of other firms can affect firm level demand,
creating uncertainty and hence liquidity preference even if consumer
behaviour could be forecast perfectly (which Keynes never claimed).

The whole towering madhouse of perfect competition was barely under
construction when Keynes died, and he certainly did not incorporate it into
the GT.  When Keynes wrote that uncertainty, varying liquidity preference,
and therefore an unemployment equilibrium could exist in a state of
competition he meant no more than that abolishing cartels and trade unions
would not solve the unemployment problem.  He did not assume the SMD or A-D
or any of the other ridiculous preconditions for the existence of perfect
competition.

>From Smith through Marshall (and  Keynes, IMHO) it was taken as obvious that
firms had non-negligible market power, given that there were a finite number
of capitalists who were richer than the average person,

JML



> -----Original Message-----
> From: pkt-owner@xxxxxxxxxxxxxxxx
> [mailto:pkt-owner@xxxxxxxxxxxxxxxx]On Behalf Of PHILIPPE BURGER
> Sent: Tuesday, 22 May 2001 1:51 AM
> To: Kazuhiro Kurose
> Cc: PKT
> Subject: Re: Keynes and competition
>
>
> Kazuhiro,
>
> I think one needs to remember that although the demand curve
> for the firm is
> horizontal, the demand curve of the industry is not.  Thus,
> it is not the
> demand for the output of a small company, which is insignificant seen
> against the whole, that is relevant, but the industry demand.
>  In addition,
> the company would not want to produce more than the quantity
> determined by
> the point where his marginal revenue and cost are equal.
> Thus, even if the
> company could expect to sell everything it produces at the
> going market
> price, it would not want to.
>
> By arguing that a flat demand curve means that you can sell
> everything you
> produce and therefore, must rely on imperfect competition,
> reintroduces
> Say's law through the backdoor.  It also weakens Keynes' idea that the
> reason for a lack of employment is a lack of investment.  If
> the problem
> merely was one of imperfect competition we should just sharpen our
> anti-trust laws everytime a recession sets in.  I don't think
> that is what
> Keynes had in mind.  The Great Depression was not so much a problem of
> monopolism as one of a lack of confidence.
>
> Best wishes,
> Philippe
>
> ----- Original Message -----
> From: Kazuhiro Kurose <kurose@xxxxxxxxxxxxxxxxxxxxxx>
> To: <pkt@xxxxxxxxxxxxxxxx>
> Sent: Monday, May 21, 2001 8:46 AM
> Subject: Keynes and competition
>
>
> > Davidson has been insisting that the existence of
> involuntary unemployment
> > has nothing to do with the assumption whether the economy
> is the perfect
> > competition or the imperfect one. This means that the principle of
> effective
> > demand is still valid even if we are in the perfect
> competition world.
> > However, those, whom I should call the new Keyensian such
> as Clower or T.
> > Negishi, emphasized the importance of the imperfect
> competition. 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. Therefore, they thought that there is
> disequilibrium in the
> > goods market at Keynes' system, and it is plausible for
> them to assume the
> > imperfect competition.
> >
> > What would you think about the new Keynesian thought like this?
> > 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. It is obvious that the new
> Keynesian
> > thought that there is disequilibrium in goods market. What
> do you think
> > about this opinion?
> >
> > **************************************
> >   Kazuhiro Kurose
> >   Graduate School of Economics and Business
> >   Administration, Hokkaido University
> >   Kita 9 Nishi 7, Kita-Ku, Sapporo, Japan
> >   060-0809
> >     TEL: +81-11-716-2111 ex:2786
> >  **************************************
> >
>