Re: The Axiom of Gross Substitution

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

Harry:

Re. the following:

> 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.

Comment:

Agree.

In the context of the "ideal conditions" involved, "net savings" and "net
factor investment" in the economy's work in progress are ONE and the SAME
thing.

That is to say, "saving" by Suppliers of Factor Services/Creditors takes the
form of "net factor investment" by Entrepreneurs/Debtors.

> 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.

Comment:

Again, in the context of "ideal conditions", the proposition that
"investment requires lines of credit" = Suppliers of Factor Services must
act as Creditors to Entrepreneurs in the amount of "net factor investment".

And, as Creditors to Entrepreneurs, Suppliers of Factor Services retain
title to the FULL "value" of such "net factor investment".

This - and this alone - is the reason why under "ideal conditions" there is
no room for a positive non-zero rate of interest on Production Credit.

Gunnar


----- Original Message -----
From: "Harry Veeder" <eo200@xxxxxx>
To: "post keynesian thought" <pkt@xxxxxxxxxxxxxxxx>
Sent: Thursday, March 20, 2003 7:09 AM
Subject: Re: The Axiom of Gross Substitution


>
> 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
>
>