Re: Keynes and competition

[Paul Davidson <pdavidson@xxxxxxx>]

At 11:03 AM 5/23/01 +0900, you wrote:
> > The trouble here is that you are (like
> most mainstream economists)
> > confusing market clearing with market equilibrium.  As I have
> written many
> > times (but no one bothers to read Davidson) Marshall took the
> term
> > equilibrium from physics where it means merely a balancing of
> forces.
> Thus
> > a market can be in equilibrium WITHOUT it being cleared!! 
> Keynes, a good
> > Marshallian followed Marshall's terminology (and generally
> accepted
> > "scientific" terminology)  -- but it was the
> General  Equilibrium people
> > who conflated CLEARING with Equilibrium.
> >
> > Let me say it again Clearing is a suffficient BUT NOT  A
> NECESSARY
> > CONDITION FOR EQUILIBRIUM!!
>
> OK! I used the term "equilibrium" as the same meaning as
> "clearing", of
> course, I know its difference as you said. I'm sorry. I'll hereafter
> take
> care of the differences.
> Then I would like to ask you, again, whether or not you think that the
> goods
> market is always cleared in Keynes' system. If you answer
> "yes", I can
> satisfy.


For involuntary unemployment equilibrium , the quantity of goods demanded
in the goods markets equals the quantity of goods supplied by profit
maximizing entrepreneurs

> I think that the following two
> points are  critical in considering about
> Keynes' system and the condition of competition. One point is whether or
> not
> one thinks that the goods market is cleared in Keynes' system, the
> other
> point is whether or not one thinks that money is non reproducible
> asset.
> If one thinks that the goods market is cleared and money is
> reproducible
> asset, he has truly classical economic thought kept Say's law holding.


That is correct for the unemployed can always be employed or self
employed -- if money grows on trees (is reproducible) -- then as long as
the marginal utility of harvesting money from the money tree exceeds the
worker's marginal disutility of reaching up to harvest the tree, then
workers will  be employed or self employed util the marginal utility
of harvesting the last dollar equals the marginal disutility of reaching
up-- And this equality is the definition of full employment.

> If
> one thinks that the goods market is cleared and money is non
> reproducible,
> he has, at least , the similar( I don't know the same) idea as you in
> the
> sense that involuntary unemployment can arise because of the existence
> of
> non reproducible money. The above two cases are  consistent with
> the
> assumption of the perfect competition. For no one can affect the price
> at
> all since goods market is cleared. And if one thinks that goods market
> is
> not cleared, he is in the imperfect competition world, irrespective
> of
> whether or not he thinks  of money as non reproducible asset, as
> shown by
> Arrow's paper titled "Toward a Theory of Price Adjustment" in
> THE ALLOCATION
> OF ECONOMIC RESOURCES (1959).
> Is my understanding correct??


Not quite.  Even in imperfect competition, for involuntary
unemployment equilibrium , the quantity of goods demanded in the goods
markets equals the quantity of goods supplied by profit maximizing
entrepreneurs, i.e., the goods market clears given the profit
expectations of entrepreneurs and the  price elasticity of the
downward sloping demand curve that they face. If Arrow claims otherwise
then he is just wrong.  (See 1977 Frank Hahn's article that I
mentioned in my previous email.}

I reiterate for the umpteenth time. Imperfect competition is neither a
necessary NOR a sufficient condition for involuntary unemployment
equilibrium. [If it was a sufficient condition then New Keynesians could
never recommend a policy for achieving full employment. If it was a
necessary condition, then toy could never have involuntary unemployment
even with pure competition and non producible liquid assets.].

Paul

Paul.

Paul Davidson

Editor, JOURNAL OF POST KEYNESIAN ECONOMICS

Holly Chair of Excellence in Political Economy

Economics Department - University of Tennessee

523 SMC

Knoxville, Tennessee 37996-0550

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