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

[pdavidso <pdavidso@xxxxxxx>]

>===== Original Message From Gunnar Tómasson <gunnar.tomasson@xxxxxxxxxxx>
=====

>
>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."

This quote is the basis of my chapter on Investment in FINANCIAL MARKETS MONEY
AND THE REAL WORLD. --- namely that for profit maximizers, real investment
decisions depends on the present value of expected future quasi-rents to be
earned by installing newly produced investment goods exceeds the present cost
of producing these investment goods.

There is nothing inconsistent with this view of investgment and the maginal
efficiency of capital and the aggregate demand and supply analysis in my book.


>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.)

In my view, you are just condfused-- It hjas nothing to do with final demand
inflation -- only that the present value of a future stream of quasi-rents
associagted with a new piece of real investment exceed the present cost of
producing that piece of investment.

If only you would read my book perhaps you might understand.

>
>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."

This has to do with Keynes's worry about the homogenity of adding micro-units
to achieve a meanikngful aggregate value.  In essence Keynes argued you could
not aggregate capital that is hetergeneous such as  a shovel plus a com
munications satellite -- except via either its monetary value  or units of
imputed labor time (when labor units were made homogeneous by use of the wage
unit -- see Keynes chapter on units in the GT.


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


No my com ments relate to all parts of Keynes's consistent vision throughout
the GT.  [See Keynes's biographer, Robert Skidelsky's comment on my book.]
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