PKT message, Re: US Trade Deficit As 'World Engine Of Growth'?

The brief answer is Yes!

More generally, this is how Keynes put it in Ch. 16 of the General Theory:

"It is much preferable to speak of capital as having a yield over the course of its life in excess of its original cost, than as being productive. For the only reason why an asset offers a prospect of yielding during its life services having an aggregate value greater than its initial supply price is because it is scarce;...

[My insert: Here, Keynes effectively pinpoints the reason why he had such trouble with the concept of "income" - in the context of analytical economics of the kind in which Keynes was here engaged, "scarcity" (a neo-classical concept) has nothing to do with the reason "why an asset offers a prospect etc.". Instead, the only reason why capital assets [work in progress] can yield more than their "initial supply price" is because the monetary system can be used to generate what I have termed "final demand inflation" through CREDIT CREATION - witness the U.S. monetary system during the past 30 years.]

"... and it is kept scarce because of the competition of the rate of interest on money. If capital becomes less scarce, the excess yield will diminish, without its having become less productive - at least in the physical sense.

[All this is whistling in the dark - what I have called Final Demand Inflation is always and ever THE reason why Capital can yield more than "its initial supply price".]

"I sympathise, therefore, with the pre-classical doctrine that everything is produced by labour [Of course!], aided by what used to be called art and is now called technique, by natural resources which are free or cost a rent according to their scarcity or abundance, and by the results of past labour, embodied in assets, which also command a price according to their scarcity or abundance. It is preferable to regard labour, including, of course, the personal services of the entrepreneur and his assistants as the sole factor of production, operating in a given environment of technique, natural resources, capital equipment and effective demand. This partly explains why we have been able to take the unit of labour as the sole physical unit which we require in our economic system, apart from units of money and of time."

Amen!

As for those who would contend otherwise, let them attempt to make their case - and, in so doing, come to recognize that there is NO refuting Keynes' lucid conclusion.

Gunnar

----- Original Message -----

From: Robert Williams

To: Gunnar Tómasson

Sent: Friday, September 26, 2003 8:19 PM

Subject: Re: US Trade Deficit As 'World Engine Of Growth'?

I wonder if this is why Keynes measured all things in labour units with the insistence that one distribution of labour would produce one unique level of output because of the labour that went into it.
Bob Williams

It ignores the implications for monetary economics of Keynes' "conviction" that one must "commence [by] identify[ing] income with the value of output."