Re: Liquidity Preference and State Theory of Money

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

Re. the following:

I don't see why J. S. Mill's statement that the "demand for commodities
is not the demand for labour" need be thought of as an "anti-General
Theory dictum".  Certainly not an anti-Keynesian dictum, anyway.

Comment:

The statement "demand for commodities is not demand for labour" was used by
Mill as a section heading in his 'Principles'.

In the section itself, as I recall it from 25 years ago, Mill commented
substantively as follows:

"This proposition is perhaps the most difficult one to grasp in the science
of political economy.  Indeed, to understand it is to understand economics."

While the precise phrasing is mine, the substance is Mill's.

And, as a matter of logic, the proposition itself is IMPLIED by Keynes in
parts of the _General Theory_, where he reasoned [correctly from Mill's
point of view] that the "value" of the Economy's Work in Progress is
identically equal to the "value" of Net Factor Content of such Work in
Progress.

That is to say, "value" is identically equal to payments made by
Entrepreneurs to Suppliers of Factor Services - and, as and when
Entrepreneurs recover the full "value" of Work in Progress become Final
Output, they come out EVEN and, while they MAY undertake further productive
activity, mere demand for their final output does NOT in and of itself
provide any incentive for them to do so.

In the General Theory, Keynes made a tortured effort to conjure up
wiggle-room around this ZERO-PROFIT logical implication of classical "value"
theory by replacing it with the concept of entrepreneurial "expectation of
profit".

Thereby, Keynes fell into an intellectual trap against which Mill cautioned
in connection with his following statement cited (and ridiculed) by Milton
Friedman in his essay on 'The Methodology of Positive Economics':

"...happily, there is nothing in the laws of value which remains [1848] for
the present or any future writer to clear up; the theory of the subject is
complete."

Again, while the precise wording is mine, the substance of the warning is
Mill's -

"Value theory is the foundation of the science of political economy.  The
least error made therein by economic scholars will infect with like error
the whole superstructure of theory built thereon."

Keynes' concept of "expectation of profit" exemplified such error in "value"
theory.

Later, Samuelson swept the analytical issues involved under the rug with his
statement - echoed implicitly if not explicitly by PK scholars - that "It is
quite clear that in the real world net revenue [entrepreneurial profit -
insert] is not zero for all firms, nor is it tending towards zero.  This is
true under pure competition as well as impure competition.  It is clear that
this residuum must be "due" to SOMETHING, and it may be labeled by any name
we please (rent to institutional advantage, etc.)" ('Foundations of Economic
Analysis', p. 87)

A "something" variable, of course, reduces any would-be model of
entrepreneurial market economies to an absurdity.

Gunnar

----- Original Message -----
From: "Forstater, Mathew" <ForstaterM@xxxxxxxx>
To: "Gunnar Tomasson" <gunnar.tomasson@xxxxxxxxxxx>; "Harry Veeder"
<eo200@xxxxxxxxxxxxxxxxxxx>; "post keynesian thought" <pkt@xxxxxxxxxxxxxxxx>
Sent: Monday, May 05, 2003 12:09 PM
Subject: RE: Liquidity Preference and State Theory of Money


I don't see why J. S. Mill's statement that the "demand for commodities
is not the demand for labour" need be thought of as an "anti-General
Theory dictum".  Certainly not an anti-Keynesian dictum, anyway.

Keynes held technological change (and other factors) constant in the
General Theory, not because he believed these assumptions reflected the
"economic society in which we actually live" but for ease of exposition
writing in a time of great crisis. There are a number of other places
where Keynes expressed concern about technological unemployment, which
is what I take Mills dictum to be about.

Technological unemployment and Keynesian unemployment are complementary,
not opposed.  Look at Pasinetti's work, e.g.  They can even be related,
as labor-displacing technological change can result in an effective
demand shock.

As Lerner pointed out, with a full employment policy, we can welcome
technological change, instead of lamenting it because we allow
unemployment to result from technical advances.

-----Original Message-----
From: Gunnar Tomasson [mailto:gunnar.tomasson@xxxxxxxxxxx]
Sent: Sunday, May 04, 2003 1:38 PM
To: Harry Veeder; post keynesian thought
Subject: Re: Liquidity Preference and State Theory of Money

Re. the following:

> When you say this, do you have in  mind Keynes' type of saving
> (where saving = income - consumption spending)...

Yes - (where saving = income - consumption spending = Net Factor
Investment
in the Economy's Work in Progress).

> Also, if THAT TYPE of saving and investment are one and the same
thing,
then
> a boost in consumption spending does not boost that type of
investment.

Agree.

Hence John Stuart Mill's anti-General Theory dictum:

"Demand for commodities is not demand for labour."

Gunnar

----- Original Message -----
From: "Harry Veeder" <eo200@xxxxxxxxxxxxxxxxxxx>
To: "post keynesian thought" <pkt@xxxxxxxxxxxxxxxx>
Sent: Saturday, May 03, 2003 8:31 PM
Subject: Re: Liquidity Preference and State Theory of Money


> Gunnar wrote:
>
> <SNIP)
> >
> > For, by joining Ohlin et al. in debate on a NON-issue insofar as
"the
> > process of capital formation" is concerned, Keynes overlooked the
BIG
> > issue - namely, that the "equality between saving and investment:"
is
NOT a
> > function of "the level of income".
> >
> > That "saving" - 'finance' provided by suppliers of factor services -
and
> > "investment" - net factor content of the economy's work in progress
-
are
> > one and the same thing at ALL levels of income.
>
> When you say this, do you have in  mind Keynes' type of saving
> (where saving = income - consumption spending) or the alternate type
known
> as the flow funds account as described in my recent post 'NIPA and
saving'.
> If you have in mind the former, then I agree.
>
> Also, if THAT TYPE of saving and investment are one and the same
thing,
then
> a boost in consumption spending does not boost that type of
investment.
>
>
> Harry Veeder
>
>
>