Gunnar's Junk Economics (was Keynes's Cockamamy Economics)

["William B. Ryan" <w_b_ryan@xxxxxxxxxxx>]

Replying to http://csf.colorado.edu/forums/pkt/2001III/msg00934.html

"...so long as Factor Incomes generated in the production process are the SOLE source of Aggregate Demand for Final Output, it is completely off-the-wall for Keynes or anyone else to reason AS IF 'entrepreneurial profit' could be other than ZERO."

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It would be helpful if economists would use the definitions actually used by entrepreneurs in keeping their books.  Effective demand is meaningless outside the conventions of actual accounting practice, they way that firms actually calculate profitability.

Keynes' ersatz "user cost" most closely resembles what an accountant would call "depreciation."  It is a charge against sales representing past rather than current disbursements.

Attached is the diagram inadvertently omitted from my October 20 post http://csf.colorado.edu/forums/pkt/2001III/msg00770.html in illustration of the concept.

Letting the curve at T1 represent the costs of production, at TX T1 - T2 + T3 represents the rate of accumulation to transactional account balances held by firms.  T2 - T3 represents accumulation to balances held by consumers.  Entrepreneurial profit is T3 - T4 which is normally positive.

Note that T1 - T2 + T3, what Keynes called entrepreneurial "income," does not necessarily equal T3 - T4, what entrepreneurs themselves define as "profit."

 

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