PKT message, PKT and The Washington Consensus

Today, I posted the following comments to Gang8 in response to a question raised by a fellow Gang8 member:

"Credit in some form is ALWAYS required when command over "resources" is shifted from Non-Entrepreneurial Owner/Suppliers OUTSIDE the Production Process to Entrepreneurs for use WITHIN the Production Process.

"This foundational concept of Creditary Economics is rooted in elementary logic. Yet, Keynes disregarded it in The General Theory with results which have bedeviled all subsequent mainstream, monetarist, and post-Keynesian monetary economics through the identification of "saving" for "financing" Entrepreneurial Production with "saving" out of the income stream generated in the Production Process itself.

[Here is Keynes on the subject matter at the outset of Ch. 7 "So far as I know, everyone agrees in meaning by Saving the excess of income over what is spent on consumption. It would certainly be very inconvenient and misleading not to mean this. Nor is there any difference of opinion as to what is meant by expenditure on consumption. Thus the differences of usage arise either out of the definition of Investment or out of that of Income. [...] broadly speaking, new investment, as distinguished from reinvestment, means the purchase of a capital asset of any kind out of income."]

"This mis-identification of the concept of "saving" lies at the very heart of The Washington Consensus - for if "productive investment" requires "saving" out of the income stream, then the interest rate mechanism has a crucial role to play in ensuring an adequate supply of "saving".

"The nonsense aspect of this consensus view is perhaps nowhere more apparent than in the fact that, other things being equal, any non-expenditure in the market for final output of factor incomes generated in the production of such final output must entail a shortfall of the same amount in Aggregate Demand relative to Aggregate Supply Cost of such final output."

I submit that PKT economists cannot in principle take reasoned exception to The Washington Consensus view on the role of the interest rate mechanism as outlined above so long as they acquiesce in, and perpetuate, Keynes' mis-identification of the concept of "saving" in the context of Entrepreneurial Market Economies.

Gunnar