Re: Savings fallacy redux (was Re: Method)

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

Some comments:

> In the Post Keynesian theory of creditary money, entrepeneurs write
> out IOU's to banks, which CREDIT them with a bank deposit to the
> amount of the newly created financial asset.  Entrepeneurs can then
> SPEND that money paying, for example, Suppliers of Factor Services.

No problem - as noted in a couple of 1980s working paper on related issues
posted in Gang8 files on the Internet, the INTERMEDIARY role of banks
transforms IOUs of Entrepreneurs into Bank IOUs.

> There is nothing in that which is in any conflict with Keynes'
> description of saving.  When that payment is made, prior to
> that income being used to pay for anything, it is saving, and
> it remains saving until it is spent.  When it is spent, the
> net saving is unchanged, by the location of the saving in the
> system changes.

In other words, while neither Entrepreneurial IOUs nor Entrepreneurial Bank
Deposits constitute "saving", any transfer from Deposit Account E (for
Entrepreneurs) to Deposit Account S (for Suppliers of Factor Services),
creates "saving"?

Here, I must respectfully state my agreement with Adam Smith:

"It would be too ridiculous to go about seriously to prove that wealth does
not consist in money, or in gold or silver; but in what money purchases, and
is valuable only for purchasing." (Book IV, Ch. 1)

> > Curiouser still, when I raised this point with Don Patinkin during a Q
and A
> > period following a lecture on the 'core' Keynesian GT model at the IMF
in
> > the early 1980s, Patinkin claimed not to recall the fable itself - "It
was
> > in the Treatise, you say?"
>
>
> What makes this curious?  In the early 1980's, American "Keynesians"
> who ignored the Treatise would have easily outnumbered those who
> took it into account.

When we had our exchange, Don Patinkin had spent a sabbatical year
researching the evolution of Keynes' monetary thought and published the
result in a book, whose title escapes me at the moment.

Gunnar





----- Original Message -----
From: "Dr. Bruce McFarling" <ecbm@xxxxxxxxxxxxxxxxxxx>
To: <pkt@xxxxxxxxxxxxxxxx>
Sent: Friday, August 30, 2002 4:12 PM
Subject: Savings fallacy redux (was Re: Method)


> Gunnar Tomasson <gunnar.tomasson@xxxxxxxxxxx> wrote,
> on Thu, 29 Aug 2002 10:39:30 -0400
>
>
>
> >> By showing that savings are the result, and not the source, of growth,
>
>  >> Keynes's theory overthrew one of the justifications of economic
>  >> inequality.  Since lower and middle income earners have a higher
>
> >> propensity to consume, redistribution could even mean stronger
> >> growth.
>
>
> > Alas, Keynes never got his basic monetary ideas right, the idea that
> > "savings are the result, and not the source, of growth" being a case in
> > point.
>
>
> > Had he done so - that is, started from the Creditary View of Money as
IOUs
> > issued by Debtors/Entrepreneurs to Creditor/Suppliers of Factor
Services -
> > it is fair surmise that Keynes would have recognized his mistake at
once.
>
>
> But nobody can spend IOU's issued by Entrepeneurs to Suppliers of Factor
> Services.  If that is what you are calling "creditary money", that could
> not conceivably be an example of the "correct" position that anyone
> ever "missed" to account for any supposed "flaws" of theirs.
>
> Because if you can't spend it, you are just playing semantic games
> calling it money.
>
>
> There is nothing in that which is in any conflict with Keynes'
> description of saving.  When that payment is made, prior to
> that income being used to pay for anything, it is saving, and
> it remains saving until it is spent.  When it is spent, the
> net saving is unchanged, by the location of the saving in the
> system changes.
>
> > For, insofar as the Output "growth" is concerned,
>
>  >  "savings" = Factor of the Economy's Work in Process.
>
> Surely a model can be constructed in which total savings
> at any point in time is equal to the dollar (value?/exended on?)
> Work in Progress.  But if it is not at the time compatible with
> Keynes' theory of saving, it is not compatible with our monetary
> production economy, since the theory of saving is not based
> on a simplified model of the economy, it is based on the
> implications of the institutional rules governing the
> economy.
>
>
> > Curiously, the "banana economy" fable of his 'Treatise'
>
>  > reflected Keynes' grasp of this analytical point.
>
> As many Post Keynesians have pointed out, the GT extended
> some apects of the Treatise on Money reasoning, and supplants
> some other aspects.
>
>
> > Curiouser still, when I raised this point with Don Patinkin during a Q
and A
> > period following a lecture on the 'core' Keynesian GT model at the IMF
in
> > the early 1980s, Patinkin claimed not to recall the fable itself - "It
was
> > in the Treatise, you say?"
>
>
> What makes this curious?  In the early 1980's, American "Keynesians"
> who ignored the Treatise would have easily outnumbered those who
> took it into account.
>
>
>
>
>