Re: RATIONAL EXPECTATIONS

["Esteban Perez" <eperez@xxxxxxxxxxxx>]

Paul Davidson´s response:
Sorry but I did not understand what you query was; nor do I understand it now.
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I think I was not very specific. I reformulate my question. My question is as follows.

Keynes stated in 1939 (CW XIV, p.283) that in the GT he had not included any discussion of the process of capital formation (defined by the Committee of Statistical Experts). Capital formation consists of three stages (p.279):

a.	Setting aside savings out of income
b.	Streams of funds becoming available for investment
c.	Actual outlay of money for the acquisition of capital goods

The first stage is the time preference decision (Money and financial markets, p. 81). The liquidity preference decision is absent. The second stage refers both to funding and finance proper as these are two sides of investment finance: (¨The entrepreneur when he decides to invest has to be satisfied on two points: ...obtain sufficient short term finance...and secondly that he can eventually fund his short term obligations by a long-term issues...It is convenient to regard the twofold process as the characteristic one¨(CW, Vol. XIV, p.217). The whole process of capital formation has to involve expectations on the part of savers, banking system and entrepreneurs. To remedy this omission he introduced finance (see previous quote). Was this perhaps also one of the reasons that led him to place the  focus on uncertainty in his General Theory of Employment (in his 1937 article pp.109-123, CW, XIV, besides of course theory of demand and supply for output as a whole)?.
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You write:

Remember the policy follows logically from the axioms!! If the axioms are fiction, then the policy is applicable only to a world of fiction.

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I agree about the importance of rejecting axioms. Isn´t rejecting axioms however a necessary but not a sufficient condition for arriving at policy conclusions that apply to the real world. Policy follows from the axioms plus assumptions made. Leaving aside NC theory, take Graziani´s circuit approach in which firms start from scratch: p.12 Graziani: The first sep in the economic process is the decision taken by firms of granting credit to firms in order to enbale them to start production.¨. Isn´t this similar to the Debreu approach of firms starting with a clean balance sheet?.

Esteban Perez