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 22:22:15 +0200
To: "William B. Ryan" <william_b_ryan@xxxxxxxxxxxxxxx>, <pkt@xxxxxxxxxxxxxxxx>, <pdavidson@xxxxxxx>, <martinh@xxxxxxxxxxxxxxxxxxxxxx>, <kwilde@xxxxxxxxxxxx>, <geoffrey.gardiner@xxxxxxxxxxxxxxx>, <ChrisOfDulwich@xxxxxxx>
Subject: Re: M-C-M' fallacy


> I thought what it was trying to say is that the earning - the producing -
> the growing economically - depend on spending by the entrepreneur, the
> investor, the producer.
> He earns what he spends.
> The worker, the consumer is an essential part of the equation - he has to be
> there to buy, to consume what is produced; but his spending does not
> directly bring about, as distinct from being a stimulus to, production.
> I think this is in the current context that high consumer spending may not
> cause the growth, high employment, etc, that we want. What is necessary is
> that spending by the entrepreneur, the producer, the investor should stand
> up. If it does not, then we are in trouble.
> Does that - in the practical context of the present - make sense or is it a
> nonsense?
>
>
>
> James Cumes
>
>
Apart from imprecision in terminology, in this instance, just what does "earns" mean? - He earns what he spends infers that there is an equality between earning and spending, not simply correlation.  If by "earning" you mean cash receipts, and by "spending" you mean cash disbursements, no such equality exists, except in a system in complete stasis.  Proportionality exists only in a dynamic system in the absence of parametric shift or innovation, where everything is increasing or decreasing at a constant rate.  Such a system, if growing, would quite rapidly reach its limits to growth.

As to the entrepreneur being the driving force in capitalism, I would beg to differ.  There is the entrepreneur, there is the consumer, and then there is the banker; I am using the term banker in its broadest sense.  They are each of them elements of a dynamic process.  Not one of them is a dependent variable.

Keynesians, of course, and especially the Post Keynesians, put the entrepreneur on top of the pedestle.  To them "investment" is all important, but then go on to define investment in a rather strange way.  What the entrepreneur spends on employing additional workers, even if they are recruited from the ranks of the unemployed, is not investment.  Investment is confined to what he spends on capital goods.  If you doubt this, I can supply several posts where Professor Davidson makes this very assertion.

The banker is absent from your equation.  It is a glaring omission. If the entrepreneur is incompetent, the productive process is simply not as efficient as it could be.  If the banker is incompetent, the entire economy might collapse, as it has in Argentina, as it did in the events leading up to, in fact causing, and not rectifying, when it was within his power to do so, the Great Depression.

It is possible to think of a state of affairs in which the consumer is sovereign, which is most certainly not the case at present.


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