Re: Surplus Value or Profit

[Bruce McFarling <ecbm@xxxxxxxxxxxxxxxxxxx>]

On Sat, 24 Nov 2001 13:20:39 -0600, "William B. Ryan"
<w_b_ryan@xxxxxxxxxxx> wrote:

>Bruce McFarling writes:
>>And as we all know, this is not true of Keynes' system, primary
>>effective demand (D1) is generated by financial arrangements that
>>do not depend upon the prior receipt of income...only secondary
>>effective demand (D2) is generated in that way.

>This does not appear to be consistent with the General Theory?s
>chapter three definition:

Indeed it does not, as I have D1 and D2 turned around.  Primary
effective demand is Keynes' D_2, and secondary ('induced')
demand is Keynes' D_1.

>The amount of labour N which the entrepreneurs decide to employ
>depends on the sum (D) of two quantities, namely D1, the amount
>which the community is expected to spend on consumption, and D2,
>the amount which it is expected to devote to new investment.  D
>is what we have called above the effective demand.

>?Primary effective demand? and ?secondary effective demand? were
>not Keynes? terms.

No, they were not.

>My understanding of what Keynes meant is illustrated through the
>attached phase diagram.

>Let the curve at T1 represent the rate of flow through time of
>entrepreneurial disbursements to the factors of production.  These
>disbursements are divided between that which is paid to final
>consumers and that which is paid to entrepreneurs.

>That which is paid to entrepreneurs is D2.

At this point you have left Keynes' theory and headed off in
another direction.  Entrepeneurial disbursements to the factors
of production are all the factor incomes other than profits,
and profits are the residual incomes from what is
received but not disbursed.

D2 is, in Keynes theory, _INVESTMENT_, which is not financed
by factor incomes or profits, but by lending.  This is why
you will see earlier in this same chapter that inducement
to invest includes interest payable on loans.

Indeed, you have to be careful as to how much of the
theory of effective demand translates into rates of flow
through time ... Effective demand is the point where the
employment generated by the demand *anticipated by*
entrepreneurs generates that level of effective demand,
via its impact on secondary demand (D_1).  An exclusive
reliance on rates of flow of disbursements may well
overlook the anticipations of the producers against which
those rates of flow are being judged.

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