Re: Finance vs. funding

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

Ted,

Re. the following:

> ....and until we rid ourselves of it, we cannot
> think correctly."

Comment:

As indicated in his article on PK methodology which Fred Lee posted the
other day - detailing how "logic" is NOT of the essence in PK economics - PK
economists are NOT concerned about "thinking correctly".

Hence my comment to the effect that the case for making PK economics part of
Economics 101 ranges from small to non-existent.

Gunnar







----- Original Message -----
From: "Ted Winslow" <egwinslow@xxxxxxxxxx>
To: <pkt@xxxxxxxxxxxxxxxx>
Sent: Wednesday, May 07, 2003 6:59 PM
Subject: Re: Finance vs. funding


>
> Paul wrote:
>
> > But Ted has conflated finance with funding - two different things.
>
> Not me Paul.
>
> All I was doing was pointing out that Keynes claimed that "there is a
> deep-seated obsession associating idle balances, not with the action of
> the banks in fixing the supply of cash or with the attitude of the
> public towards the comparative attractions of cash and other assets,
> but with some aspect of current savings", that there is a "deep
> confusion of mind between the demand and supply of money and the demand
> and supply of savings; and until we rid ourselves of it, we cannot
> think correctly."
>
> The "finance motive" was introduced primarily to provide "a bridge
> between my [Keynes's] way of talking and the way of those who discuss
> the supply of loans and credits etc.", i.e. it was primarily concerned
> with dealing with the psychological obstacle to understanding created
> by the "deep-seated obsession".
>
> Keynes explicitly claims in the letters to E.S. Shaw that it didn't
> make "any really significant change in my [Keynes's] previous theory" -
> "substantially, my [Keynes's] theory [of liquidity preference] is
> exactly what it was when I first published the book."
>
> "My recent article in the _Economic Journal_ ["The 'Ex Ante' Theory of
> the Rate of Interest"] did no more than emphasise a little more than
> formerly, in the hope of helping some of my critics, the fact that the
> finance required by the planning of activity was one of the ways, by no
> means negligible, in which changes in activity affected the demand for
> liquid resources, a factor which had always played a prominent part in
> my theory.
> Substantially, my theory [of liquidity preference] is exactly what it
> was when I first published the book."  (XXIX, pp. 280-1)
>
> "One point I do agree with.  I do not consider that the conception of
> 'finance' makes any really significant change in my previous theory.
> It is, as you [Shaw] say, no more than a type of active balance which I
> had not sufficiently emphasized in my book." (XXIX, p. 282)
>
> > The "finance motive" had primarily a rhetorical function.
> >
> >> I described it as 'the coping stone'
> >> and attached importance to it in my article mainly because it seemed
> >> to me
> >> that it provided a bridge between my way of talking and the way of
> >> those
> >> who discuss the supply of loans and credits etc.  I thought it might
> >> help
> >> to show that they were simply discussing one of the sources of demand
> >> for
> >> liquid funds arising out of an increase in activity.  But, alas, I
> >> have
> >> only driven them into more tergiversations.  I am really driving at
> >> something plain and simple which cannot possibly deserve all this
> >> exegesis."  (XXIX, p. 282)
> >
> > As Keynes himself points out here, it didn't work.  The psychological
> > reason it was unlikely to work was pointed to in "Alternative Theories
> > of the Rate of Interest" in another passage I've repeatedly quoted.
> >
> > "I emphasise these obvious matters to clear our minds of the idea that
> > the  quantity of hoards depends in any way on what people are doing
> > with their savings, or that there is any connection between idle
> > balances and the conception (meaningless on my definitions) of idle
> > savings.  But I have only a limited hope of success.  There is a
> > deep-seated obsession associating idle balances, not with the action
> > of the banks in fixing the supply of cash or with the attitude of the
> > public towards the comparative attractions of cash and other assets,
> > but with some aspect of current savings."  (XIV, p. 214)
> >
> > The members of the Committee of Statistical Experts had been guilty of
> > this confusion.
> >
> > "We have been all of us brought up, like the members of this
> > Committee, in deep confusion of mind between the demand and supply of
> > money and the demand and supply of savings; and until we rid ourselves
> > of it, we cannot think correctly." (XIV, p. 285)
>
> Ted
>