Re: The Axiom of Gross Substitution

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

Harry:

Re. the following:

> 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.

Comment:

I agree that "interest isn't bad per se" - what is "bad" is the intellectual
myopia which has prevented the vast majority of economic scholars from
recognizing, acknowledging, and acting on Schumpeter's point that interest
on Production Credit is a SOCIO-economic rather than a purely economic
phenomenon.

For so long as economic scholars fail/refuse to see the point at issue, they
don't have a leg to stand on insofar as challenging the monetary policy
prescrptions of The Washington Consensus, which holds that just as high unit
price increases supply and reduces demand for goods and services, so high
interest rates serve to increase the supply of and reduce the demand for
'saving'.

Of course, once it is conceded that, "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," advocates of The
Washington Consensus would be laughed off the world stage.

Gunnar


----- Original Message -----
From: "Harry Veeder" <eo200@xxxxxx>
To: "post keynesian thought" <pkt@xxxxxxxxxxxxxxxx>
Sent: Saturday, March 22, 2003 8:37 PM
Subject: Re: The Axiom of Gross Substitution


>
>
> 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
> >>
> >>
> >
> >
>