Debunking Holy Writ - [Was: Re: Surplus Value or Profit - Keynes

[Gunnar Tómasson <gunnar.tomasson@xxxxxxxxxxx>]

Re. the following:

> I guess those who see the GT as a work in progress  believe Keynes'
> "fundamental ideas" are sound but the particular forms in which
> they have been embodied are not completely satisfactory. Many though
> question the soundness of his fundamental ideas and I think this is
> what Gunnar meant by the GT not being a holy writ. However, a good
> critique of Keynes fundamental ideas is not going come from probing
> his work for logical inconsistencies. It will come from offering
> competing ideas based on an alternative metaphysical understanding
> of the world and the human mind.

Comment:

In my view, there are three distinct, but related, points at issue.

First.  IF the "fundamental ideas" of the General Theory are unsound, THEN
the great majority of Bank of Sweden Prize Laureates and their intellectual
peers must be held to be perpetuating unsound ideas in the name of economic
'science' - the question is HOW can such scholars be knocked off their
pedestals in order that the dead hand of Holy Writ ideas may be lifted from
economics education in our universities and economic policy formulation (The
Washington Consensus)?

Second.  IF mainstream and monetarist scholars were open to objective debate
on the merits or demerits of their respective Holy Writ ideas, THEN they
would have given fair hearing to the thoroughly researched work published in
the late 1980s by one of PKT's own whose opening paragraphs read as follows:

"The central message of this book is that members of the economics
profession, all the way from professors to students, are currently operating
with a basically incorrect paradigm of the way modern banking systems
operate and the causal connection between wages and prices, on the one hand,
and monetary developments, on the other.  Currently the standard paradigm,
especially among economists in the United States, treats the central bank as
determining the money base, and thence the money stock.  The growth in the
money stock is held to be the main force determining the rate of growth of
money income, wages, and prices.

"This paradigm may once have been relevant to a commodity or fiat money
world, but it is not applicable to the current world of credit money.  This
book argues that the above order of causation should be reversed.  Changes
in wages and employment largely determine the demand for bank loans, which
in turn determine the rate of growth of the money stock.  Central banks have
no alternative but to accept this course of events, their only option being
to vary the short-term rate of interest at which they supply liquidity to
the banking system on demand.  Commercial banks are now in a position to
supply whatever volume of credit to the economy their borrowers demand.

"This alternative paradigm implies that in modern capitalist economies the
total volume of bank deposits is effectively determined by the demand for
bank credit, so that the money stock is credit-driven.  Since the financing
of investment is intermediated largely by the banking system, an increase in
income due to a rise in the marginal efficiency of capital will normally be
associated not only with a rise in velocity, but also with and *endogenous*
increase in the money supply." (Basil Moore, 'Horizontalists and
Verticalists', pp. 3-4)

Third.  The continued dominance in world economic policy circles of The
Washington Consensus is proof positive that this alternative paradigm has
yet to be given serious hearing - that the academic suppliers of economic
ideas to policy makers in Washington and other capitals around the world
have chosen to circle the wagons around the Holy Writ ideas that comprise
their intellectual capital.  Hence the frontal attack on the logical
coherence of such Holy Writ ideas themselves represented by Steve Keen's
'Debunking Economics' and, in small measure, my own challenge to the logical
coherence of the analytical scheme sketched by Keynes through Ch. 6 of the
General Theory.

Gunnar