PKT message, Re: Keynes Stood On His Head?

"...the primary objective for Keynes was to overcome "sound money" objections to using Credit Creation for purposes of Final Demand Inflation in the analytical sense - namely, a technical means of ensuring Aggregate Sales Proceeds in excess of Aggregate Factor Cost of Output Sold alias Profits."
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In terms of the flux-reflux dynamic, the reality is the reverse of what you imply. It seems you are defining profit to be equal to "aggregate sales proceeds" minus "aggregate factor cost" in recast of the fallacious M-C-M'.

If "aggregate factor cost" is taken to be the flux, and "aggregate sales proceeds" is taken to be the reflux, the general case is that the flux is greater than its reflux as both are measured simultaneously. By your reasoning this should infer a continuous loss in the absence of "final demand inflation."

But profit derives from the rules of accounting not the rules of Gunnar.

It is not "aggregate factor cost" that is subtracted from the reflux to get profit, but what accounting calls "expense."

So that cost > sales > expense.

>From: "Gunnar Tomasson"

>To:

>Subject: Keynes Stood On His Head?

>Date: Sun, 29 Sep 2002 18:31:50 -0400

>The following Gang8 exchange may be of interest.

>Gunnar

>Re. the following:

>The remarkable feature about this strategy is that it can be pursued without creating more tangible output at all. That is an inherent characteristic of free lunches. But can this kind of zero-sum game be maintained over time? Faith in today's financial mythology is premised upon not posing this question.

>Comment:

>Today's financial mythology is Keynes stood on his head!

>Indeed, I formulated the concept of Final Demand Inflation in the mid-1970s while thinking my way through the How and Why thereof - a concept which may appear Politically Incorrect to modern mainstream advocates of Keynesian Aggregate Demand management. In this respect, part of the blame attaches to Keynes for buying into the classical/neoclassical notion that Profit is part of Income at the cost of analytical clarity insofar as the relationship between (a) credit creation; (b) production; and (c) inflation is concerned.

>In the circumstances of the 1930s, of course, inflation was not of much operational concern and the primary objective for Keynes was to overcome "sound money" objections to using Credit Creation for purposes of Final Demand Inflation in the analytical sense - namely, a technical means of ensuring Aggregate Sales Proceeds in excess of Aggregate Factor Cost of Output Sold alias Profits.

>Of course, "sound money" men understood that Final Demand Inflation dilutes the purchasing power of "old money". For example, Galbraith reports in one of his books that Graduates of the Harvard Department of Economics established a society in the late 1930s whose objective was to ensure that the General Theory would not be taught at Harvard - and threatened to withhold financial support if it were to become part of the economics curriculum.

>When properly managed, Final Demand Inflation (a) translates into Profits for Entrepreneurs and, thereby, offers an inducement for them to increase factor employment and output, and (b) is compatible with Unit Output price stability provided that the degree of Final Demand Inflation is commensurate with the concurrent rate of physical productivity growth per Unit Factor Input.

>Alas, the Aggregate Demand jargon used by Keynes and his disciples does not catch this elementary relationship between Final Demand Inflation and Employment/Output Growth.

>And that is Why today's financial mythology stands Keynes on his head.

>As for the How aspect, the most important example thereof is the DUMB - and, ultimately, destructive insofar as post-Bretton Woods world monetary arrangements are concerned - notion that the U.S. economy is a heaven-sent "engine of growth" for the rest of the world's economy thanks to U.S. Credit Inflation which feeds U.S. Consumption and decimates U.S. Production.

>Gunnar