Re: M-C-M' fallacy

["William B. Ryan" <william_b_ryan@xxxxxxxxxxxxxxx>]

----- Original Message -----
From: "Schulte-baeuminghaus" <schulte.baeuminghaus@xxxxxxxxx>
Date: Wed, 24 Apr 2002 12:10:08 +0200
To: "William B. Ryan" <william_b_ryan@xxxxxxxxxxxxxxx>
Subject: Re: M-C-M' fallacy


> The consumer spends what he earns, the entrepreneur earns what he spends.
> Is that true?
>
>
> James Cumes
>

Strictly speaking, no.

This is Michal Kalecki's dictum which he expressed as "Capitalists get what they spend; Workers spend what they get."

Kalecki's version is more straightforward, for yours very much depends on the definition of "earns."

The dictum, which does have some heuristic value, is empirically false.  It abstracts time from the discussion.  It says nothing about the rate of "getting" as compared to the rate of "spending."  They are by no means equal in the real world.  It is as meaningful as saying that a falling object will at some point strike the surface of the earth.

The conventional approach to economics includes a great many pre-industrial or pre-scientific concepts.  These are superstitions that seem reasonable to our common sense, such as the belief in ghosts.

It is difficult if not impossible to see the acceleration of a falling object with the naked eye.  It seems that a falling object is falling at a constant rate.  But we know almost intuitively that while you might safely jump from a chair, you risk serious injury if you jump off a roof.  So something is happening to a falling object as it falls.  More sophisticated pre-scientific theories concluded that the speed of a falling object is proportional to the distance it has fallen.  Most people today who didn't pay attention in physics class still believe that.  It was through experimentation that Galileo proved that its speed is proportional to the TIME it has fallen.

The entrepreneur and consumer spend from their lines of credit which can take many forms, tangible and intangible.  Their lines of credit are, ideally, proportional to their future incomes.

In respect of the individual entrepreneur or consumer, he spends from his line of credit which is based upon his future projected income, which is prospectively greater than his income today.  It is from tomorrow's income that he will repay the debt incurred today.
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