Re: Surplus Value or Profit

[Gunnar Tómasson <gunnar.tomasson@xxxxxxxxxxx>]

Re. the following:

I did not say that I took that description from a single
passage.   I said that he has already explained how effective
demand arises in part from income, and in part from finance

> (3) The amount of labour N which the entrepreneurs decide
> to employ depends on the sum (D) of _two_ quantities, namely
> D_1, the amount which the community is expected to spend on
> consumption, and D_2, the amount which it is expected to devote
> to new investment.  D is what we have called above the
> _effective demand_.

Comment:

Keynes prefaced his above summary statement (3) with the following
paragraph:

"Thus, given the propensity to consume and the reate of new investment,
there will be only one level of employment consistent with equilibrium;
since any other level will lead to inequality between the aggregate supply
price of output as a whole and its aggregate demand price.  This level
cannot be *greater* than full employment, i.e. the real wage cannot be less
than the marginal disutility of labour.  But there is no reason in general
for expecting it to be *equal* to full employment.  The effective demand
associated with full employment is a special case, only realised when the
propensity to consume and the inducement to invest stand in a particular
relationship to one another.  This particular relationship, which
corresponds to the assumptions of the classical theory, is in a sense an
optimum relationship.  But it can only exist when, by accident or design,
current investment provides an amount of demand just equal to the excess of
the aggregate supply price of the output resulting from full employment over
what the community will choose to spend on consumption when it is fully
employed."

Here, Keynes holds it to be a condition of full-employment equilibrium that
D_2 be "just equal" to the difference between "Aggregate Supply Price" and
D_1.

In other words, the ONLY kind of "finance" envisaged is that whereby
community savings out of current income are re-cycled into investment in the
amount of D_2.

Gunnar

----- Original Message -----
From: "Bruce McFarling" <ecbm@xxxxxxxxxxxxxxxxxxx>
To: <pkt@xxxxxxxxxxxxxxxx>
Sent: Monday, November 26, 2001 12:57 AM
Subject: Re: Surplus Value or Profit


> On Sun, 25 Nov 2001 13:08:05 -0500, Gunnar Tómasson
> <gunnar.tomasson@xxxxxxxxxxx> wrote:
>
> >Bruce:
>
> >With respect to the key point at issue, you wrote earlier:
>
> >> Of course he does not explain *at this point* how effective
> >> demand can exceed the factor cost of A, since he has already
> >> explained that effective demand arises in part from the
> >> fraction of aggregate income devoted to expenditure, and in
> >> part from the creation of purchasing power through finance.
> >
> >And I noted the following:
> >
> >A brief cursory look through Chs. 1-6 did not reveal any passage
> >in which Keynes 'explains' that "effective demand arises in part...
> >from the creation of purchasing power through finance."
>
> I did not say that I took that description from a single
> passage.   I said that he has already explained how effective
> demand arises in part from income, and in part from finance
>
> *****************************
>
> 29: (3) The amount of labour N which the entrepreneurs decide
> to employ depends on the sum (D) of _two_ quantities, namely
> D_1, the amount which the community is expected to spend on
> consumption, and D_2, the amount which it is expected to devote
> to new investment.  D is what we have called above the
> _effective demand_.
>
> 28: (1) In a given situation of technique, resources, and
> costs, income depends on the volume of employment N.
>
> (2) ... consumption will depend on the level of aggregate income
> and, therefore, on the level of employment N, except where
> there is some change to the propensity to consume.
>
> 27: The amount of current investment will depend, in turn,
> on what we shall call the inducement to invest; and the
> inducement to invest will be found to depend on the relation
> between the marginal efficiency of capital and the complex
> of interest rates on loans of various maturities and risks.
>
> *****************************
>
> So, Effective demand rests in part on the portion of income
> devoted to expenditure, D_1, and in part on the portion of
> expenditure on investment that is due to the creation of
> purchasing power through finance, D_2.
>
> Of course, you have recently specified that you do not
> define investment as the acquisition of assets but in
> some other way, but as Keynes does specify that he is
> using the term "investment" in its ordinary sense, with
> the only peculiarities arising from the ordinary cancelling
> out consequences of looking at investment in the aggregate,
> you surely will be using Keynes' semantics rather than
> your own when reading Chapter 3.
>
>
> --
> Dr. Bruce R. McFarling, PhD
> Bus. Office 1.72 -- (02) 4348-4078
> School of Business
> Faculty of the Central Coast
> Newcastle University, Ourimbah
>
>