Re: Keynes and competition

[Bruce McFarling <ecbm@xxxxxxxxxxxxxxxxxxx>]

On Wed, 23 May 2001 13:31:07 +0900, Kazuhiro Kurose
<kurose@xxxxxxxxxxxxxxxxxxxxxx> wrote,

>I surely understand that the principle of effective demand is satisfied,
>irrespective of whether the economy is the perfect competition or the
>imperfect competition. But I think that the reason why the involuntary
>unemployment arises becomes different due to the assumption on competition.
>In the perfect competition world, namely, in the state that goods market is
>cleared, the reason of involuntary unemployment is, Davidson argued, only
>that money is non reproducible asset. And in the imperfect competition,
>namely, in the state that goods market is not cleared, the reason of
>involuntary unemployment is that individual demand curve is also downward
>sloping, irrespective of money's non reproducibility. I think that these
>differences are very important from the purely theoretical perspective,
>apart from whether these are appropriate interpretation or not.

Copy and paste here my preceding remarks on the distinction between
degree of competition and perfect competition, and the argument that
degrees of competition refers to the degree to which it involves
pure competition.  It doesn't make much sense to talk about perfect
competition in the technical sense with reference to the GT, because
the GT rules out the possibility of perfect information on all
matters of importance to a market decision.

I would say that impure competition indicates all market institutions
outside a certain narrowly defined group.  If the narrowly defined
group of (very nearly) purely competitive market structures imply that
the markets must clear, then the opposite SUFFICES to identify the
institutions as "non-pure competition" ... you cannot infer further
that being "non-pure competition" implies non market clearing.

Under impure competition, BOTH non-market clearing and the role of
money can lead to unemployment.  This is why Keynes had to insist
that his theory applied to whatever degree of competition, to make
clear that pursuing a higher and higher degree of competition is no
cure-all to "the unemployment problem".

So rather than, "either/or", its non-market clearing IN ADDITION TO
the role of money.

(Of course, if a government was fighting a WAR on unemployment, it
could offer a job to anyone willing to work at prevailing wages
but unable to find work, "and declare victory in time for tea.")



--
Dr. Bruce R. McFarling, PhD
Bus. Office 1.72 -- (02) 4348-4078
School of Business
Faculty of the Central Coast
Newcastle University, Ourimbah