Re: The Axiom of Gross Substitution

[Harry Veeder <eo200@xxxxxx>]

>>Harry:
>> Let me explain by expanding on (3). On 8/27/99 you [Paul Davidson]
>> 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).[Paul Davidson]

>>Harry:
>> 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.
> \
>Paul:
> 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.

Harry:
I agree, although I would say it differently.  The gross substitution axiom
says everything may POTENTIALLY be used as a substitute for everything else.
It does not require that everything is CURRENTLY being used as substitute
for everything else.

>Paul:
> 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.

Harry:
Sorry, I am not very good at expressing myself in words.
Let me say... even when something produced does not serve as a substitute
for money, there always other another thing, another valuable,  which is not
produced and does serve as substitute for money. e.g. land and labour are
often regarded as substitutes for money.

Does this wording make sense to you?

Harry Veeder