Re: A Future Economics

[Gunnar Tómasson <gunnar.tomasson@xxxxxxxxxxx>]

Re. the following:

> If an economy has a beginning then income=output cannot be true, since
> income=output implies a catch 22: no output without income; no income
> without output.

Comment:

When economic theorists circumvent this "catch-22" by distinguishing between
Comparative Statics and Dynamics, the "catch-22" aspect is transformed into
the equally intractable problem of moving in logically coherent fashion from
Static to Dynamic aspects of theoretical economics.

This is how Paul A. Samuelson (a) defined, and (b) 'resolved' the problem in
'Foundations of Economic Analysis':

"In this study I attempt to show that there do exist meaningful theorems in
diverse fields of economic affairs.  They are not deduced from thin air or
from _a priori_ propositions of universal truth and vacuous applicability.
They proceed almost wholly from two types of very general hypotheses [a.k.a.
_a priori_ propositioins of universal truth and vacuous applicability -
insert].  The first is that the conditions of equilibrium are equivalent to
the maximization (minimization) of some magnitude. [A condition which cannot
in principle apply to Supply of Money at the touch of a computer key -
insert]...

"However, when we leave single economic units, the determination of unknowns
is found to be unrelated to an extremum position.  In even the simplest
business cycle theories there is lacking symmetry in the conditions of
equilibrium [assuming the concept of "equilibrium" to be a meaningful one in
dynamics - insert] so that there is no possibility of directly reducing the
problem to that of a maximum or minimum.  Instead the dynamical properties
of the system are specified, and the hypothesis [_a priori_ proposition of
universal truth and vacuous applicability - insert] is made that the system
is in "stable" equilibrium or motion [i.e., one assumes that what one cannot
SHOW to be so, is in fact the case - insert].  By means of what I have
called the _Correspondence Principle_ between comparative statics and
dynamics, definite _operationally meaningful_ theorems can be derived by so
simple a hypothesis." (p. 5)

Samuelson's assumption become "so simple a hypothesis" is predicated on the
implicit assumption that Ergodicity is an attribute of real-world market
systems - that was the point of Samuelson's acknowledgement three or four
decades later that Ergodicity was a _sine qua non_ for Economics as Science.

In this respect, Samuelson is one step ahead of most PKT economists, who
hold real-world market systems to be Non-Ergodic but fail to recognize (or
admit) the implications thereof for their own quest for Economics as
Science.

In this respect, such PKTers follow in the footsteps of Keynes, who skirted
the LOGICAL issues involved in moving from Comparative Statics to Dynamics
in Preface to _The General Theory_ - his would-be Dynamic follow-up to 'A
Treatise on Money':

"When I began to write my _Treatise on Money_ I was still moving along the
traditional lines of regarding the influence of money as something so to
speak separate from the general theory of supply and demand.  When I
finished it, I had made some progress towards pushing monetary theory back
to becoming a theory of output as a whole.  But my lack of emancipation from
preconceived ideas showed itself in what now seems to me to be the
outstanding fault of the theoretical parts of that work (namely, Books III
and IV), that I failed to deal thoroughly with the effects of _changes_ in
the level of output.  My so-called "fundamental equations" were an
instantaneous picture taken on the assumption of a given output.  They
attempted to show how, assuming the given output, forces could develop which
involved a profit-disequilibrium, and thus required a change in the level of
output.  But the dynamic development, as distinct from the instantaneous
picture, was left incomplete and extremely confused.  This book, on the
other hand, has evolved into what is primarily a study of the forces which
determine changes in the scale of output and employment as a whole; and,
whilst it is found that money enters into the economic scheme in an
essential and peculiar manner, technical monetary detail falls into the
background.  A monetary economy, we shall find, is essentially one in which
changing views about the future is one which depends on the interaction of
supply and demand, and is in this way linked up with our fundamental theory
of value.  We are thus led to a more general theory, which includes the
classical theory with which we are familiar, as a special case."

[Translation:  This is my second attempt to integrate Comparative Statics
and Dynamics in a Unitary Conceptual Framework.  In the first (unsuccessful)
attempt in 'A Treatise on Money', the Comparative Statics aspects served as
my point of departure - here, I approach the SAME problem from the Dynamics
side of things.  There are some loose ends - with "technical monetary detail
[pushed] into the background" - but success this second time around would
ensure that the Dynamics of Supply-and-Demand interactions dovetail in
seamless fashion with the Comparative Statics approach of "our fundamental
theory of value".]

Alas, the Comparative Statics foundations of "our fundamental theory of
value" cannot in principle accommodate Profit as part of Income within a
Conceptual Framework which is at once Unitary and Logically Coherent - a
point to which I can imagine Keynes responding:

"I know that - but current world economic and political circumstances do not
afford me the luxury of being a stickler with respect to technical details,
the import of which is lost on most of my academic peers in the first
place."

Gunnar




----- Original Message -----
From: "Harry Veeder" <eo200@xxxxxxxxxxxxxxxxxxx>
To: "post keynesian thought" <pkt@xxxxxxxxxxxxxxxx>
Sent: Monday, November 03, 2003 9:41 AM
Subject: Re: A Future Economics


>
>
> Gunnar,
>
> >
> > Re. the following:
> >
> >> As a starting point I have suggested that we begin with the assumptions
> >> that income =/= output and that saving =/= investment.
> >
> > Comment:
> >
> > The proposition that income =/= output begs a Question -
> >
> > Whence Income if NOT from Supply of the Factor Content of Output?
> >
> > - which Keynes must have considered before writing in 'A Treatise on
Money':
> >
> > "Income. - We propose to mean identically the same thing by the three
> > expressions:
> >
> > (1)  the community's money income;
> >
> > (2)  the earnings of the factors of production; and
> >
> > (3)  the cost of production;
> >
> > and we reserve the term _profits_ for the difference between the cost of
> > production of the current output and its actual sale-proceeds, so that
> > profits are NOT part of the community's income as thus defined."
> > (Vol I, Ch. 9, 'Certain Definitions')
> >
> > In other words, Keynes' implicit Answer is that Income =/= Output makes
NO
> > sense.
> >
> > The contrary case is routinely asserted, implicitly or explicitly, by
PKT
> > economists -
> >
> > but, to the best of my knowledge, never actually SHOWN to be
intelligible.
> >
>
> If an economy has a beginning then income=output cannot be true, since
> income=output implies a catch 22: no output without income; no income
> without output.
>
> The assumption that income=/=output does not have to be defended by
> explaining the origins of income. It is only necessary to explain why
income
> must differ from output.
>
> Harry
>
>
> >
> > ----- Original Message -----
> > From: "Harry Veeder" <eo200@xxxxxxxxxxxxxxxxxxx>
> > To: "post keynesian thought" <pkt@xxxxxxxxxxxxxxxx>
> > Sent: Saturday, November 01, 2003 6:39 AM
> > Subject: Re: A Future Economics
> >
> >
> >>
> >>
> >>> From: Gunnar Tómasson <gunnar.tomasson@xxxxxxxxxxx>
> >>> Date: Thu, 30 Oct 2003 11:40:27 -0500
> >>> To: post keynesian thought <pkt@xxxxxxxxxxxxxxxx>
> >>> Subject: Re: A Future Economics
> >>>
> >>> Re. the following:
> >>>
> >>>> If Say's law refers to a closed (ideal) system, then isn't about time
> > to
> >>>> draft the laws of an open (real) system?
> >>>
> >>> Comment:
> >>>
> >>> Economists have tried to do just that since the 1930s - so far without
> >>> success.
> >>
> >> As a starting point I have suggested that we begin with the assumptions
> > that
> >> income =/= output and that saving =/= investment.
> >>
> >> If the current relations are given by:
> >>
> >> 1.1)    Output = Consumption + Investment
> >>
> >> 1.2)    Consumption = Output - Investment
> >>
> >> and by:
> >>
> >> 2.1)    Saving = Income - Consumption
> >>
> >> 2.2)    Consumption = Income - Saving
> >>
> >>
> >> Qualify 1.2 as consumption directed by investors (Ci) and
> >> 2.2 as consumption directed by savers (Cs).
> >>
> >> When the inflation rate is zero, consumption directed by investors is
> > equal
> >> and opposite to consumption directed by savers:
> >>
> >> Ci + Cs = 0
> >>
> >>
> >> When the inflation rate is greater than zero, consumption directed by
> >> investors is greater than the consumption directed by savers:
> >>
> >> Ci + Cs > 0
> >>
> >>
> >> When the inflation rate is less than zero, consumption directed
> >> by investors is less than the consumption directed by savers:
> >>
> >> Ci + Cs < 0
> >>
> >>
> >> Comments welcomed.
> >>
> >> Harry
>
>