Re: The Widow's Cruse

[Gunnar Tómasson <gunnar.tomasson@xxxxxxxxxxx>]

Paul:

Re. the following:

> It would appear to me that you do not recognize that in the treatise on
money
> Keynes is analyzing changes in demand with no change in employment or
output--
> namely the market period of Marshallian analysis -- so that a change in
demand
> leads to a change in the  spot (market period) price relative to the
forward
> (short-run) supply price (or cost of production).  Thus an increase in
demand
> raises spot prices relative to cost of production and leads to what Keynes
> called windfall profits on liquid consumption goods in the mmarket period.

Comment:

You are describing what I have termed Final Demand Inflation.

In this respect, you cited my following remarks on September 28 -

>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.)

- and commented thereon as follows:

"In my view, you are just confused-- It has 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."

Absent Final Demand Inflation, of course, there cannot in principle be ANY
"windfall profits on liquid consumption goods in the market period."

In the Treatise, Keynes identified Entrepreneurial Profit with NET
Investment - I take it that this is what you now refer to as "windfall
profits".

Why, then, do you find it so hard to understand the proposition that the
Widow's Cruse is "embedded" in the Y = C + I equation as in Y = C + Windfall
Profits?

Gunnar



----- Original Message -----
From: "pdavidso" <pdavidso@xxxxxxx>
To: "Gunnar Tómasson" <gunnar.tomasson@xxxxxxxxxxx>
Cc: <pkt@xxxxxxxxxxxxxxxx>
Sent: Wednesday, October 08, 2003 10:26 AM
Subject: RE: The Widow's Cruse


> >===== Original Message From Gunnar Tómasson <gunnar.tomasson@xxxxxxxxxxx>
> =====
> >On October 2, I posted the below message to PKT.
> >
> >Paul Davidson responded off-list as follows:
> >
> >Gunnar did you ever note that Keynes specifically changed his definition
in
> >the GT from that used in the TM?
> >
> >To which I replied:
> >
> >Yes.
> >
> >There, the Widow's Cruse is embedded in Y = C + I.
> >
> >****
> >
> >Paul has yet to respond.
>
>
> I have not responded because we are not communicaating -- and your
succinct
> statements are unintelligible to me. Sorry but it is not likely that any
> further discussion between us will be fruitful.
>
>
> >
> >At issue is the distinction between analytical and empirical economics as
> practiced Keynes and PKT economists, respectively.
> >
> >In one case, the precursor of the Y = C + I proposition entails a logical
> absurdity, which is disregarded in the other case.
> >
> >Isn't that so, Paul?
>
> It am not even sure what you mean  -- so I can't agree or disagree.
>
> It would appear to me that you do not recognize that in the treatise on
money
> Keynes is analyzing changes in demand with no change in employment or
output--
> namely the market period of Marshallian analysis -- so that a change in
demand
> leads to a change in the  spot (market period) price relative to the
forward
> (short-run) supply price (or cost of production).  Thus an increase in
demand
> raises spot prices relative to cost of production and leads to what Keynes
> called windfall profits on liquid consumption goods in the mmarket period.
>
> Paul
>
>