Re: The Axiom of Gross Substitution

[Harry Veeder <eo200@xxxxxx>]

Gunnar,

> 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.


I agree if you are saying that the power and uniqueness of capitalism as an
economic system depends on making savings and investment into "one and the
same thing" through the issue of credit.


>> 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.
>

Another way to understand credit is to see credit as the redirection of
labour from the community to the entrepeneur in return for paid employment.
The interest rate on a line of credit is the cost incurred by the community
as labour stands idle waiting to be hired. Interest isn't bad per se. It is
bad when the interest income is not duly distributed.

Harry Veeder


> ----- 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
>>
>>
>
>