Re: imcu questions

["Gunnar Tomasson" <gunnar.tomasson@xxxxxxxxxxx>]

Re. the following:

> >In the quoted passage, Keynes fails to distinguish between alternative
> >"first uses" of the buried-and-recovered" money, namely, (a) its use to
> >purchase final output, and (b) its use to purchase factor inputs for
> >production.
>
> >As underscored by Bentham in the early 1800s, only (b) would increase the
> >"community's real income and capital wealth".
>
> In the case of (a), if the result was to mobilise unemployed
> resources, in what way would this fail to increase the
> community's real income?  Again, it seems to be implicit
> in the argument that capital wealth is fully employed.

Comment:

Bentham's argument is one with that of which Keynes wrote to Hicks on March
31, 1937 (?) that "a strictly brought-up" classical economist would not
agree that an "increase in money" would increase employment and output
(quoted from memory).

Keynes went on to note that "we" - meaning Hicks and himself - used to argue
along these lines without realizing that it was inconsistent with other
parts of their reasoning.  When he revisited this point in a lecture in 1972
(published in Econometrica in 1973, as I recall it), Hicks expressed his
doubts that Keynes had ever belonged to the "we" who so reasoned.

We must not forget, Hicks explained, that Keynes was a social "prophet" as
well as an economic theorist.

As for the question whether Bentham's argument is predicated on full
employment of factor services, the answer depends on the logical validity of
two mutually exclusive analytical propositions, namely, (a) that final
demand inflation will entail increased demand for factor services (the "we"
position), and (b) that, as John Stuart Mill put it, "demand for commodities
is not demand for labour."

As I read him, Keynes was referring to (b) in his letter of March 31, 1937.

Gunnar




----- Original Message -----
From: "Bruce McFarling" <ecbm@xxxxxxxxxxxxxxxxxxx>
To: <pkt@xxxxxxxxxxxxxxxx>
Sent: Tuesday, June 04, 2002 6:29 AM
Subject: Re: imcu questions