Re: Keynes - Creditary Economist?

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

Gary:

I am inserting comments below.

Gunnar

----- Original Message -----
From: "Gary Santos" <evs@xxxxxxxxxxx>
To: "Gunnar Tomasson" <gunnar.tomasson@xxxxxxxxxxx>; <pkt@xxxxxxxxxxxxxxxx>
Cc: "Gang8" <gang8@xxxxxxxxxxxxxxx>
Sent: Friday, January 24, 2003 8:54 PM
Subject: Re: Keynes - Creditary Economist?


> <<And, given that explanation, the proposition that "the only reason why
an
> asset offers a prospect of [profit] is because it is scarce" is revealed
to
> be only part of the answer and contingent on Final Demand Inflation.>>
> ----------------------------
> If I understand this concept correctly, the concept then supports that the
> idea that the population in an economy has to continually grow. And,
> corollarily, we have the implication that the problem of poverty is
reduced
> to one of wealth distribution and charity.

Comment:

The concept of Final Demand Inflation and its identification as the "source"
of Profit in the Production Process is independent of scale.

Final Demand Inflation is short-hand for the proposition that Factor Income
generated in the Production Process cannot in principle be the "source" of
Profit - that Final Demand must be "inflated" for Aggregate Demand for Final
Output to exceed the Factor Supply Cost thereof by the amount of Profit.


> It would also appear that the growth engine could also be one of the
growing
> needs of a static population driven by technology. But, wouldn't this mean
> that output has to increase either by hours worked or by means of
> technology? And, if this is true, isn't this a dead end? As the population
> ages, consumption decreases, is this not anxiomatic?

Comment:

The concept of Final Demand Inflation grew out of my step-by-step re-tracing
of the evolution of Keynes' thought between the Treatise on Money in the
five year period leading to the Treatise on Money in 1930 and the first part
of the 1930s, leading to the General Theory in 1936.

Thus, I regard it as the final - and, previously, 'missing' - piece of the
intellectual puzzle with which Keynes was struggling between the mid-1920s
and 1936; it rounds out (by clarifying/correcting) the Keynesian analytical
apparatus for Monetary and Macroeconomic policy formulation.

As such, it does not relate directly to population and technology-related
policy issues.

> I am continually convinced that today's economics is bankrupt of ideas and
> those that make more sense have no chance of going mainstream. Keynes'
> theories was a good try. But, it seems to me that if I continue to spend
all
> the income I earn (and, it will be worse, if I borrow since debt's cost
does
> not go back to real spending) a status quo is all I can hope for, at best.
> And, especially since wealth continues to be driven towards the financial
> sector to be put in bonds and the like and since the purchasing power of
> savings continues to be eroded, real demand has to decline over the long
> term.

Comment:

In my view, the incomplete (muddled/incorrect) analytical apparatus
presented by Keynes in the General Theory is the root cause of some, and
enabler of much, that is wrong with today's economics.

For, when completed/clarified/corrected, the Keynesian analytical set-up
brings into sharp focus the ultimate futility of using Debt Creation to
sustain World Aggregate Demand - it underscores that, in the long run, Debt
Financed Consumption cannot sustain full employment in the face of
Maldistribution of Factor Income.

"The outstanding faults of the economic society in which we live are its
failure to provide for full employment and its arbitrary and inequitable
distribution of wealth and income," Keynes began Ch. 24 of the General
Theory ('Concluding Notes on the Social Philosophy towards which the General
Theory might lead').

These remain the outstanding faults of contemporary economic society.

Gunnar





> I think I read somewhere that aggregate net income due to interest is now
> greater than the aggregate net income due to manufacturing.
>
>
>
>
> ----- Original Message -----
> From: "Gunnar Tomasson" <gunnar.tomasson@xxxxxxxxxxx>
> To: <pkt@xxxxxxxxxxxxxxxx>
> Cc: "Gang8" <gang8@xxxxxxxxxxxxxxx>
> Sent: Friday, January 24, 2003 3:48 AM
> Subject: Keynes - Creditary Economist?
>
>
> John Stuart Mill's confident assertion in his Principles that "Demand for
> commodities is not demand for labour" is curiously at odds with the
> Keynesian rationale for Aggregate Demand Management - for how could two
> brilliant minds draw such radically conflicting conclusions from the facts
> of the matter?
>
> The answer to that question, it seems to me, resides in the distinction
> between Cooperative and Command-based Production Systems which I posted to
> Gang8 earlier today as follows:
>
> An Economic System is a man-made set-up whose essential features are
> designed to serve specific desired ends.
>
> The Creditary Principle reflects the 'logic' of all Cooperative (as
distinct
> from Command-based) Production Systems.
>
> That is to say:
>
> In the context of such Production Systems, Money = IOUs which (a)
> Entrepreneurs hand over to Owner/Suppliers of Factor Inputs at one end of
> the production line, and (b) Owner/Suppliers of Factor Inputs hand over to
> Entrepreneurs in exchange for Output at the production line's other end.
>
> For, while Mill's  is indisputably valid for a Cooperative Production
> System, it has no bearing whatsoever on any kind of Command-based
Production
> System - including real-world economies with which Keynes was concerned,
in
> which 'commands' are issued by and on behalf of Finance Capital.
>
> In Ch. 16 of the General Theory, Keynes stated his 'preference' for what
> Gang8 would term the Creditary View of Finance Capital as follows:
>
> "It is much preferable to speak of capital as having a yield over the
course
> of its life in excess of its original cost, than as being productive.  For
> the only reason why an asset offers a prospect of yielding during its life
> services having an aggregate value greater than its initial supply price
is
> because it is scarce; and it is kept scarce because of the competition of
> the rate of interest on money.  If capital becomes less scarce [as under a
> monetary regime reflecting Creditary Principles - insert], the excess
yield
> will diminish, without its having become less productive - at least in the
> physical sense.
>
> "I sympathise, therefore, with the pre-classical [read: before John Stuart
> Mill, Edgeworth, and Marshall - insert] doctrine that everything is
produced
>  by labour, aided by what used to be called art and is now called
technique,
> by natural resources which are free or cost a rent according to their
> scarcity or abundance, and by the results of past labour, embodied in
> assets, which also command a price according to their scarcity of
abundance.
> It is preferable to regard labour, including, of course, the personal
> services of the entrepreneur and his assistants, as the sole factor of
> production, operating in a given environment of technique, natural
> resources, capital equipment and effective demand.  This partly explains
why
> we have been able to take the unit of labour as the sole physical unit
which
> we require in our economic system, apart from units of money and of time."
> (The General Theory, Ch. 16, ii)
>
> In addressing related issues on Gang8 yesterday, I commented as follows:
>
> Keynes never gave a clear statement on why "capital [can] have a yield
over
> the course of its life in excess of its original cost" - my own concept of
> Final Demand Inflation provides the missing explanation.
>
> And, given that explanation, the proposition that "the only reason why an
> asset offers a prospect of [profit] is because it is scarce" is revealed
to
> be only part of the answer and contingent on Final Demand Inflation.
>
> Gunnar
>