Re: Savings fallacy redux (was Re: Method)

[John Vertegaal <vertegaa@xxxxxxxxx>]

"Dr. Bruce McFarling" <ecbm@xxxxxxxxxxxxxxxxxxx> wrote:

>Where in the devil does that particular misconception come from?
>In the System of National Account, the market value of final
>goods and services is neither ex ante nor ex post.  Its ex nuc.
>It is the price at which the transaction takes place.  There
>is not the slightest hint or shred of "ex ante" about it.

Recall that I was originally trying to point out the determination
of capital values through the sale of final output.  A line of
reasoning which you, with admitted justification, mistook for
solely determining final output values.  Having been a professional
appraiser (buildings & equipment, no real-estate) for some 15 years
in a previous life, the term "market value" must have left an
indelible impression on the back of my brain, that I didn't bother
analyzing in the context you placed it in.
But since we're still talking about it, what would you call the on
the retail level determined value of economy-wide capital assets?
Is there a better term for it than "true" value?


>When the first premise stated in a line of argument is a
>falsehood, an untruth, an unsupportable assertion (etc.), it
>does not bode well for the remainder of the argument.  It
>does not, of course, prove the conclusion wrong, but it does
>mean that the argument presented provides no support for
>the conclusion.

Aren't you perhaps a bit overreacting here?
I cannot see it as anything but a problem of keeping the
taxonomy straight.


>>There are costs associated with this flow that need to be
>>resolved, which in a *stable* system can only take place on the
>>retail level.


>True, but then two points must be considered.  First, the "costs"
>in financial terms is information, not matter-energy, and it is
>information about the requirements under current institutional
>arrangement to *command* resources, not information about the
>"real" costs of the order that has been created in matter-energy.

Agreed.  Except that I would reserve the term "resources" for god-
given natural inputs.


>Second, the requirements for stability do not necessarily
>impose themselves as immediate constraints.

True.  Expectations will take some time to be proven wrong.


>If the current position is not stable,

In a disequilibrium model *any* current position is not stable.
Stability is a potential only.

>but this results in adjustments that move the system toward
>greater stability in the cost-recovery sense, then over the long
>period it can *look* like a constraint, but it acts by the system
>moving towards a position that is more compatible with stability
>when it is in a position that is less compatible with stability.

An indeterminate position cannot be a cause ("results in") of
anything.  Adjustments will result from (the lack of) feedback;
which is non-linear with respect to the position, so that the rest
of your sentence is a non-sequitur.


>If the positions compatible with stability move around
>in response to a variety of influence, then you have the
>kind of restless moving "equilibrium" like a population
>equilibrium in biology, instead of the equilibrium of a
>mechanical system in a rest state.

True again.  But keep in mind that virtually any imaginary position
is potentially compatible with stability.  A dynamic equilibrium is
determined on the demand side only.


>You have essentially summarised Post Keynesian price
>theory, haven't you?  In the short period, variable costs
>must be recouped, and over the long period, fixed costs
>must be recouped, and in the presence of uncertain and
>variable levels of effective demand, that means that the
>"core" productive organisations that administer prices
>must end up with prices that are _de facto_ mark-ups over
>variable costs that are planned to result in sufficient
>surplus over variable costs on average to cover fixed
>costs with some additional margin for error.

The "core productive organizations that administer prices" also
have to periodically enter determinate capital values on their
ledgers.  This too is no more than a convention however, and while
as such quite proper; because it doesn't conform to economy's macro
account, it is a grave error of Post Keynesian (price) theory to
attribute causal qualities to these indeterminate quantities.  For
this is almost bound to lead to wrong conclusions, like: *lowering
wages means higher profits*; as well as be the source of internal
inconsistencies, which I will keep on pointing out when I come
across them on this forum.
  On the macro account the mark-ups are _de facto_ over variable
AND fixed costs.


>But the observation that there is no ex-ante determinable
>"stocks" of capital in value terms IS the Cambridge (UK)
>critique of the Cambridge (mass) Samulesonian evisceration
>of Keynes' General Theory system.

Then why do "stocks" remain within the theoretical domain of PKT?
Isn't supply self-determined in your model?  Nobody on this list
answered the questions on the "Stocks or Flow" thread recently in
the vein of the value of "stocks" being undefinable.  And how can
you yourself take that position, do you agree with my conclusion
that demand determines supply?


>>As I showed before, taxes are not abstracted from in the
>>model.   Direct or indirect taxation doesn't matter.

>Direct and indirect taxation is equivalent for your
>model *because*:

>>The only thing important to retailers (and to the
>>economy as a whole also), is that the final beneficiaries
>>of the disbursed income higher up and on their own level,
>>do turn around and compensate them for their expenditures.

That's the advantage of looking at the system in the framework
of debt and its resolution capability.  Remember, as far as I'm
aware (and I'm not ruling out the possibility that to formally
close it, or make it more relevant, a few more are needed), it is
all being deduced from just a couple of axioms.
  So that it's not even a close contest with respect to level of
generality reasoning.  The only thing not established yet is its
relevance.  For there will always be some questions, specifically
regarding the nature of Man, that will remain unanswerable and
determined exogenously.


>In the GT system, the final beneficiaries of disbursed
>income must compensate the firms that sell final goods
>the amount not already compensated by external finance.

Another axiom?

My model doesn't need perpetual growth through external finance.
  There is enough wealth potential around as it is, all we need is
a more equitable distribution.  Though the willingness to share it
with other less developed nations, does of course involve external
finance.


>*the stability questions are the same*: the question is,
>who decides?  Are the retailers quantity takers or
>quantity setters?  If they are quantity takers, then
>they cannot specify the nominal value of their activity
>over a period.  If they are quantity takers, then
>they must make some decisions about the level of
>activity in order to be prepared to meet the effective
>demand for customers that shows up.  If the effective
>demand that does show up is compatible with stability,
>then, among other consequences, the proceeds of sales
>will be able to satisfy the obligations of retailors
>will be refunded.

Yes, I don't think my model has much to add to the theory of
inflation.  Incomes policies, in full agreement with Paul D,
are the way to go.


>We have to be very careful when building models of
>social systems that we do not lapse into simple
>Newtonian causality.  There are material causes
>and formal causes and final causes.  Note that
>the latter is teleological (and therefore badly
>modelled) if it is the final realised state
>that is the final cause as opposed to the current
>anticipatory models of participants.  A well
>constructed model MUST be teleonomic, but
>CANNOT be teleological.

Did you have my model in mind when you wrote this?  (;
(Slightly reworded from the last time) here are my axioms again:
1.   The economy is an open, bounded, man-made system.
2.   It is a means to an end and not an end in itself.

Thanks for having given me the opportunity to bring some of it
to the fore.

John V