PKT message, Re: RATIONAL EXPECTATIONS

Re. the following:

> 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

Comment:

It amazes me that Keynes - an otherwise logical mind - subscribed to this
a-b-c sequence view of "the process of capital formation".

For, clearly, it does NOT apply to "the process of capital formation" which
gave rise to the "income" in (a) in the first place.

And, just as clearly, the ONLY form of "saving" which is relevant for the
latter is the provision of Factor Services to the Production Process.

"Setting aside savings out of income" has NOTHING to do with it (Proposition
1 in Creditary Economics 101!).

Gunnar

----- Original Message -----
From: "Esteban Perez" <eperez@xxxxxxxxxxxx>
To: <pdavidso@xxxxxxx>
Cc: <pkt@xxxxxxxxxxxxxxxx>
Sent: Monday, May 12, 2003 8:16 AM
Subject: Re: RATIONAL EXPECTATIONS

> Paul Davidson s response:
> Sorry but I did not understand what you query was; nor do I understand it
now.
> -----------------------------------
>
> 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)?.
> --------------------------------------------------------------------------
----------------
>
> 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.
>
> --------------------------------------------------------------------------
------------------------------
> 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
>
>
>