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

[Gunnar Tómasson <gunnar.tomasson@xxxxxxxxxxx>]

Paul:

Re. the following:

> >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.


Comment:

Consider first that Final Demand Inflation is short-hand for Aggregate
Demand 'inflated' beyond Aggregate Supply Cost through Credit Creation in
the amount of Entrepreneurial Profit - when integrated into Keynes' summary
statement in Ch. 6 ...

"We can then define the _income_ of the entrepreneur as being the excess of
the value of his finished output sold during the period over his prime cost
[...]  it is the entrepreneur's expectation of the excess of this quantity
over his outgoings to the other factors of production which he endeavours to
maximise when he decides how much employment to give to the other factors of
production, it is the quantity which is causally significant for
employment."

...the statement would read as follows:

"We can then define the _income_ of the entrepreneur as being the excess of
the value of his finished output sold during the period [Aggregate Demand]
over his prime cost ["his outgoings to the other factors of production"
alias Factor Supply Cost]  ... it is the entrepreneur's expectation of
[Final Demand Inflation resulting in an] excess of this quantity over his
outgoings to the other factors of production which he endeavours to maximise
when he decides how much employment to give to the other factors of
production, it is the quantity which is causally significant for
employment."


Second.  In _Foundations of Economic Analysis_, Paul A. Samuelson advanced
the proposition that the "excess of this quantity over [the entrepreneur's]
outgoings to the other factors of production" is a measure of "quasi-rents"
rather than Final Demand Inflation as follows:

"It is quite clear that in the real world net revenue is not zero for all
firms, nor is it tending towards zero.  This is true under pure competition
as well as impure competition.  It is clear that this residuum must be "due"
to SOMETHING, and it may be labeled by any name we please (rent to
institutional advantage, etc." (Atheneum, 1979, p. 87)


Third.  And what is this SOMETHING?  To the best of my knowledge, Samuelson
has NEVER answered that question - of which Schumpeter wrote as follows in
Preface to the 1934 English translation of his _Theory Of Economic
Development_:

"I have not been able to convince myself, for example, that such questions
as the source of interest [on Production Credit  alias Entrepreneurial
Profit - insert GT] are either unimportant or uninteresting.  They could be
made so, at all events, only by the fault of the author." (Oxford University
Press, 1961, p. x)


Fourth.  Whatever this SOMETHING may turn out to be, Samuelson professed to
be certain of one thing - "The existence of this residuum DOES NOT IMPLY ANY
INDETERMINACY WHATSOEVER." (Loc. cit.)


I respectfully submit,

(a)  that this "something" is Final Demand Inflation;

(b)  that, being exogenous to the Production Process, the rate of Final
Demand Inflation is INDETERMINATE;

(c)  that the "entrepreneur's expectation" with respect thereto =
"entrepreneur's expectation" of Final Demand Inflation; and

(d)  that inclusion of Entrepreneurial Net Revenue therein renders the
concept of Income INDETERMINATE.


Gunnar



----- Original Message -----
From: "pdavidso" <pdavidso@xxxxxxx>
To: "Gunnar Tómasson" <gunnar.tomasson@xxxxxxxxxxx>
Cc: <pkt@xxxxxxxxxxxxxxxx>
Sent: Sunday, September 28, 2003 10:29 AM
Subject: RE: US Trade Deficit As 'World Engine Of Growth'?


> >===== 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
>
>