Re: The Axiom of Gross Substitution

[pdavidso <pdavidso@xxxxxxx>]

>===== Original Message From Harry Veeder <eo200@xxxxxx> =====

>
>It is possible to answer No to all three and not be using Keynes's GT.
>
>Let me explain by expanding on (3). On 8/27/99 you wrote to the list:
>
>> on page 231 Keynes notes that the second essential property of money is
>> "it has an elasticity of substitution equal to, or nearly equal to,
>> zero, which means that as the exchange value of money rises there is
>> NO tendency to SUBSTITUE some other factor for it". In other words
>> there is no other thing that is manufactured that is a gross
>> substitute for money (for liquidity purposes).
>
>I believe this axiom is too restrictive because it represents the
>possibility of substitution in terms of products only. (I credit you with
>making this assumption explicit.) However, there are other things at play in
>an economy which are not the result of production. Consequently, even if all
>productive output is not a substitute for money, other things can and do
>serve as substitutes for money. e.g. land and labour are often regarded a
>substitutes for money.
\

I can not believe you are so wrong Harry.  All I said is that the gross
substitution axiom implies everything is a substitute for everything else --
whether it be in production, co9nsumption, finance, etc..  Accordingly, all
one has to do is to point to any sector where things are not gross
substitutes.

This does not mean that other things can NOT be substitutes harry -- after all
no one will deny that coffee and tea are substitutes, or bonds are substitutes
for money (and stocks) for liquidity purposes.

Come on Henry -- Read and learn about liquidity.

Paul

Paul Davidson
Editor, Journal of Post Keynesian Economics
University of Tennessee
SMC 503
Knoxville, Tennessee 37996-0550
phone # (561)369-1951; fax #(561)369-1951;
email pdavidson@xxxxxxx
http://econ.bus.utk.edu/davidsonextra/Davidson.html