Re: The Axiom of Gross Substitution

[Harry Veeder <eo200@xxxxxx>]

Gunnar,

> Harry:
>
> Re. the following:
>
>> My example does not prove Samuelson is right. The example may simply mean
>> value can redistribute itself without some preceding net investment. An
>> increase  in the total value of the economy over time would still require
> a
>> net investment.
>
> Comment:
>
> Agree.
>
> The proposition that "an increase in the total value of the economy over
> time would still require a net investment" has HUGE implications for both
> monetary theory and the methodology of theoretical economics.
>
> In his 1939 paper, Samuelson professed to "believe that it is demonstrably
> wrong" (I quote this from memory) for Keynes to have supposed that "value"
> could NOT increase withouth "net factor investment" in the economy's work in
> progress - but, of course, Samuelson NEVER 'demonstrated' what he professed
> to 'believe' to be the case with respect to the point at issue.

If I may make my own position clearer, I hold that an increase in the total
value of the economy over time requires net investment AND net savings.

> This - to my mind - unprofessional approach permitted Samuelson and his
> mainstream/monetarist peers to make believe that Interest earned on
> Production Credit represented the share which Money/Laundry Tickets made to
> the "value" of the Economy's Work in Progress/Laundry at the Cleaners.

Investment requires lines of credit and savings requires interest on each
line of credit. Value, roughly defined, is Sum of all credit x Sum of all
interest income. Notice value is being represented as a two dimensional
quantity, rather than a one dimensional quantity. A two dimensional
representation of value, I think, reconciles Samuelson's and Keynes'
differences.

> The contrary view was stated by Schumpeter in Preface to the 1934 English
> translation of his 'Theory of Economic Development' - a work which Samuelson
> is certain to have read - as follows:
>
> "I have not been able to convince myself, for example, that such questions
> as the source of interest [on Production Credit - insert] are either
> unimportant or uninteresting.  They could be made so, at all events, only by
> the fault of the author."
>
> The methodological implication of Schumpeter's view - and that of Keynes
> which Samuelson attacked in his 1939 paper - is this:
>
> IF the "source of interest" is NOT an increase in "value" attributable to
> Production Credit, THEN the "marginal productivity of capital" aspect of the
> General Theory itself is incoherent.


Harry Veeder

>
> ----- Original Message -----
> From: "Harry Veeder" <eo200@xxxxxx>
> To: "post keynesian thought" <pkt@xxxxxxxxxxxxxxxx>
> Sent: Sunday, March 16, 2003 7:02 PM
> Subject: Re: The Axiom of Gross Substitution
>
>
>>
>>
>> Gunnar:
>>
>>>
>>> It is ten to one that your thesis does NOT square with Paul Davidson's
>>> understanding of the Axiom of Gross Substitution.
>>>
>>> Now let me spell out the substantive point at issue.
>>>
>>> Briefly, in his 1939 paper on "The Rate of Interest Under Ideal
> Conditions",
>>> Paul Samuelson advanced the proposition (a) that the "value" of the
>>> economy's work in progress (my shirt at the cleaners) could increase
> without
>>> Net Factor Investment therein (without my sending another shirt to the
>>> cleaners), and (b) that Keynes was a fool for suggesting otherwise - or
>>> words to that effect.
>>
>> My example does not prove Samuelson is right. The example may simply mean
>> value can redistribute itself without some preceding net investment. An
>> increase  in the total value of the economy over time would still require
> a
>> net investment.
>>
>>> IF the Axiom of Gross Substitution does NOT apply to (a) Laundry
> Tickets,
>>> and (b) the Laundry ON which such Tickets represent a claim, THEN it is
> back
>>> to Square One for Post-Keynesians who reason AS IF the General Theory
> had
>>> proved otherwise.
>>>
>>
>> It doesn't mean starting over completely. Let us keep digging at the site
> of
>> knowledge first excavated by Keynes. As we dig deeper we will change our
>> understanding of the logic-structure first revealed by Keynes.
>>
>> Harry Veeder
>>
>>
>>> ----- Original Message -----
>>> From: "Harry Veeder" <eo200@xxxxxx>
>>> To: "post keynesian thought" <pkt@xxxxxxxxxxxxxxxx>
>>> Sent: Saturday, March 15, 2003 8:12 AM
>>> Subject: Re: The Axiom of Gross Substitution
>>>
>>>
>>>>
>>>> Gunnar,
>>>>
>>>> Yes, and such a scenario could arise. For example, if you are
> unemployed
>>>> and looking for a new job, you might consider a clean and pressed as an
>>>> investment in your future.
>>>>
>>>> Harry
>>>>
>>>>
>>>>> Harry:
>>>>>
>>>>> Your point still eludes me.
>>>>>
>>>>> If "value" were "stored" in a Laundry Ticket, then the total "value"
>>>>> attaching to my shirt at the cleaners would exceed that of the same
>>> shirt in
>>>>> my closet.
>>>>>
>>>>> Gunnar