Re: Savings fallacy redux (was Re: Method)

["Dr. Bruce McFarling" <ecbm@xxxxxxxxxxxxxxxxxxx>]

John Vertegaal <vertegaa@xxxxxxxxx> wrote,
on Tue, 03 Sep 2002 07:22:31 -0700 (PDT):


> Now it's fine for a model to start out with the assumption that
> financial wealth over time can be turned into real wealth.


It certainly is not fine to start out with that assumption.
Starting out with the assumption of any mechanical relationship
between the sum total of all financial assets and the sum total
of all real assets would be a terrible thing to do.

That is a principle advantage of a General Theory type model over
a Samuelsonian so-called "Keynesian" model.  In the General Theory
model, you can try to liquidate a financial asset in order to
make a claim on a share of current product, but the success of that
effort rests on the willingness of someone else to surrender their
claim on a share of current product in order to take it off your
hands.

> But
> doesn't it risk losing its grip on reality when in order to stay
> coherent, it has to fall back on the assumption that the value of
> financial assets is determined exogenously; while at the same time
> obviously endogenous redirections in the income circuit also have
> the power to alter those valuations?


You may be confusing GT saving and some less clearly thought
through Samuelsonian terminology.  With saving referring to
unexpended disposable income, its liquidity is assured, but
obviously price inflation may always modify the amount of
goods or services that it can command, since of course the
GT multiplier relationship only establishes the dollar value
of effective demand.