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

[Gunnar Tómasson <gunnar.tomasson@xxxxxxxxxxx>]

Paul:

In Ch. 16, Keynes steps back, as it were, from the conceptual scheme of the
General Theory with which you are concerned, to reflect in more general
terms on the nature of "capital" - and, in so doing, effectively abandons
the "marginal efficiency of capital" concept of which he wrote in Ch. 11 as
follows:

"I define the marginal efficiency of capital as being equal to that rate of
discount which would make the present value of the series of annuities given
by the returns expected from the capital-asset during its life just equal to
its supply price.  This gives us the marginal efficiencies of particular
types of capital-assets.  The greatest of these marginal efficiencies can
then be regarded as the marginal efficiency of capital in general."

When in the reflective mood of Ch. 16, Keynes will have none of this - for,
if "everything is produced by labour," then it follows necessarily that the
"marginal efficiency of capital" of Ch. 11 is a measure, NOT of
non-productive capital's ZERO "marginal efficiency", but of the spillover
effects of Final Demand Inflation on the "yield [of capital] over the course
of its life in excess of its original cost." (Ch. 16 language.)

Hence - after expressing his 'preference' for labor "as the sole factor of
production operating in a given environment of technique, natural resources,
capital equipment [I have reservations on this last point, but will let it
pass for now - insert GT] and effective demand," Keynes continues directly
as follows: "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."

My comments relate to ONE part - yours to ANOTHER part.

Gunnar


----- Original Message -----
From: "pdavidso" <pdavidso@xxxxxxx>
To: "Gunnar Tómasson" <gunnar.tomasson@xxxxxxxxxxx>
Cc: <pkt@xxxxxxxxxxxxxxxx>
Sent: Saturday, September 27, 2003 6:57 PM
Subject: RE: US Trade Deficit As 'World Engine Of Growth'?


> >  ----- 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.
>
> No it had nothing to do with what Gunnar isw talking about!
>
> As I explain in my book FINANCIAL MARKETS, MONEY AND THE REAL WORLD,
Keynes
> deflated all nominal values by the money wage unit in order to use
Marshall's
> scissor analogue of supply and demand -- where demand is one blde of a
scissor
> and supply is the other blade.  Marshall then noted thast if we keep one
blade
> of the scissor constant (by construction) then we can say that the other
blade
> did all the cutting.
>
> By deflating by the money wage unit, Keynes, by construction, kept his
> aggregate suuply blade fixed (i.e., changes in the money wage would not
change
> the position of shape of the aggregate supply function).  Consequently if
> because of some schock initially the point of effective demand (i.e., the
> intersection of the aggregate supply and aggregate demand functions both
> deflated by the wage unit), then one can demonstrate that ONLY an increase
in
> aggregate demand (in wage unit terms) can increase employment. In other
words,
> flexible wages WILL NOT automatically return the economy to full
employment --
> unless one can demonstrate that changes in the wage rate INCREASES the
> aggregate demande function (measured in wage units).
>
> Paul
>
> Paul Davidson
> Editor, Journal of Post Keynesian Economics
> University of Tennessee
> SMC 503
> Knoxville, Tennessee 37996-0550
> office phone #;(865)974-4221; office fax# (865)974-1686 or (865)974-4601
> home phone and fax # (865)692-0802
> email pdavidson@xxxxxxx
> http://econ.bus.utk.edu/davidsonextra/Davidson.html
>
>