Re: Samuelson vs. Keynes on "theory"

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

Re. the following:

> >If money is NOT wealth - or, more generally, if money is not an economic
as
> >distinct from free good - WHY should interest on production credit be
> >regarded as Income?

> Now, two implicit premises thrown in:
>
> (a) Money is not "real wealth" translates into money is not
> "financial wealth".
>
> (b) Income is a category that consists of "economic goods".
>
> Neither of these two premises hold up, empirically.

Comment:

Here is Adam Smith's statement again:

"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."

The statement concerns Money as "the great wheel of commerce" and, while
Gold and Silver can serve as Money in that respect, the metals are NOT
"wealth" in the context of Smith's analytical view of the Production
Process.

Therefore, it is not clear what (a) is meant to convey.

As for (b), there are only two kinds of "goods" - "economic" and "free".

While "free" goods - Sunlight, Rain, Money (Gold, Silver, or Paper IOUs),
etc. - are essential for the production process, the proposition that Income
accrues only to owner/suppliers of "economic" goods is NOT one with the
"implicit premise" which is being ascribed to me, namely, that  "Income is a
category that consists of "economic goods"."

Gunnar



----- Original Message -----
From: "Dr. Bruce R. McFarling" <ecbm@xxxxxxxxxxxxxxxxxxx>
To: <pkt@xxxxxxxxxxxxxxxx>
Sent: Sunday, October 06, 2002 8:17 PM
Subject: Re: Samuelson vs. Keynes on "theory"


> On Sat, 05 Oct 2002 12:55:20 -0400, Gunnar Tomasson
> <gunnar.tomasson@xxxxxxxxxxx> wrote:
>
> >Re. the following:
>
> >> Being casual about the dimensions of the terms that you are talking
> >> about ($ versus $/period, in this case) often leads into fallacies
> >> when the same term can be used to refer values of different
> >> dimension.
>
> >Comment:
> >The point at issue does not concern ($ versus $/period) but analytical
vs.
> >empirical economics.
>
> First, note that on the fallacy of interest paid exhausting the
> money created when credit is granted, going off on what is labelled
> as analytical versus empirical economics is completely a red herring.
> Noting that interest is an income term [* see note] lets us see that
> the money that is created when the credit is extended may be used
> multiple times in the process of making income payments, whether
> interest, wages, salaries, dividends, or whatever, without exhausting
> that money, and that the money is only exhausted when the principle
> is repaid (but of course if there is a demand for the money, the
> banking system will be free to recreate that money with a new loan).
>
> [* not: That is, in a general theory system of definitions of terms.
> However, clearly a Post Keyensian Thought list is one place where
> someone is entitled to use this system of definitions of terms
> without attaching a qualification to the discussion or to each use
> of each term.  Further, if an argument makes sense and is valid when
> read in those term, someone who deliberately misreads the argument
> in an effort to find a reading in which it is invalid is engaged in
> nothing more than a cheap rhetorical ploy.]
>
> So, the fallacy is one that comes from a basic misconception
> about the relationship between money-in-existence and
> monetary-payments-made in a monetary production economy.
>
> What about the supposed distinction between analytical and
> empirical economics?  Good empiricism requires clear
> analysis of what terms are observables in a given set of
> social institutions and which are not; while clear analysis
> requires a good empirical understanding about what terms of
> analysis have an actual empirical analogue and which terms
> are misrepresentations of the empirical economy in question.
>
> The specific red herring raised in response to the point
> about the basic fallacy does not concern analytical versus
> empirical economics.  It concerns empirical versus BS
> economics.
>
> >A case in point.
> >> To be a bit more precise, the question is nonsensensical given
> >> that interest is an income while oustanding credit obligations
> >> is a stock.
>
> >Here is Schumpeter's account of Böhm-Bawerk's - implicit - debunking of
the
> >proposition that "interest is an income":
> >"Böhm-Bawerk was indeed the first who expressly said that the whole value
of
> >the product must in principle be divided between labor and land, if the
> >process of production is to proceed with ideal perfection." (Theory of
> >Economic Development, Oxford University Press, 1961, p. 32).
>
> Read the following carefully (are opposed to carelessly):
> >A few weeks back, I cited Adam Smith's comment that "It would be too
> >ridiculous to go about seriously to prove that wealth does not consist in
> >money, or in gold and silver, but in what money purchases and is valuable
> >only for purchasing."
>
> What "real" wealth consists of ... not why money is valuable ...
>
> >As I recall it, Bruce expressed his agreement with Smith's comment.
>
> As I recall it, I expressed my agreement with what Smith was saying
> and disputed the implications that Gunnar drew from what Smith said.
>
> >If money is NOT wealth - or, more generally, if money is not an economic
as
> >distinct from free good - WHY should interest on production credit be
> >regarded as Income?
>
> Now, two implicit premises thrown in:
>
> (a) Money is not "real wealth" translates into money is not
> "financial wealth".
>
> (b) Income is a category that consists of "economic goods".
>
> Neither of these two premises hold up, empirically.
>
> (a)  Money is valuable ... it is a financial asset ... not
> because it is real wealth, but because it is intrinsically
> liquid, and is the only thing that is intrinsically liquid.
> In any economy in which there is uncertainty ... which means,
> empirically, in any economy whatsoever ... and in which command
> over the means of production is obtained with the means of
> exchange ... which empiricall means in all industrial economies
> at least ... and in which the default remedy for breach of
> contract is in terms of the means of exchange ... which
> empirically is also all industrial economies at least ...
>
> ... then it is valuable to hold a balance of money against
> windfall losses in money terms, when the monetary value
> of any item of real wealth that must be liquidated at
> short notice is uncertain.
>
> In any monetary production economy, money is valuable as an
> asset because of its liquidity.  Of course, if you get rid
> of true uncertainty because of the difficulty in modelling
> it with mid 1800 physics, then there is no room in such a
> model for money to have value as an asset, so that neoclassical
> economics is at least internally consistent in permitting
> model that exhibit long run neutrality of money ... but if
> your first priority is to have a model ABOUT monetary
> production economies, then analytical systems that purport
> to model monetary production economies as a whole in which
> liquidity is not valuable cannot be used unless it is
> possible to correct this flaw.
>
> For one aspect of Schumpeter's TED that I would see to be of
> value from a institutional perspective, see my JEI article
> on "Schumpeter's Entrepreneurs Under Common's Sovereign
> Authority".  There are other aspects of Schumpeter's work
> that I would see as valuable.  But first the implications
> that rely heavily on the picture of a Walrasian GE as
> "normal economic conditions" have to be winnowed out ...
> there is no need to keep the chaff together with the
> wheat.
>
> (b) Playing semantic games with a term like "Income" does
> not merit any extended critique.  This IS a post keynesian
> list, so when the term "income" is used in a way that makes
> perfect sense in actual, observable terms as a monetary
> value, then what more needs to be said?
>
> Income entitlements are in terms of the means of exchange,
> income disbursements are disbursments of the means of
> exchange, the means of exchange under someone's control
> can then be used to obtain a share of the economy's product.
> Interest entitlements and interest payments are obviously
> part of that.  Being deliberately obstruse does not strike
> me as the foundation of a persuasive argument, so there is
> nothing more to add in response to Gunnar's point (b).
>
>
>
>
>