tag:blogger.com,1999:blog-6245381193993153721.post4379004115536637401..comments2024-03-17T00:23:24.896-07:00Comments on Social Democracy for the 21st Century: A Realist Alternative to the Modern Left: Keynes on the Special Properties of MoneyLord Keyneshttp://www.blogger.com/profile/06556863604205200159noreply@blogger.comBlogger58125tag:blogger.com,1999:blog-6245381193993153721.post-33890753225215552352011-07-07T06:06:02.305-07:002011-07-07T06:06:02.305-07:00I get it. Macroeconomics is tricky!I get it. Macroeconomics is tricky!ivanfoofoohttps://www.blogger.com/profile/07899286403907746852noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-15556009516857645692011-07-06T21:56:56.156-07:002011-07-06T21:56:56.156-07:00"What I'm talking about is that the resul...<i>"What I'm talking about is that the resulting relative price rise in nonproducibles vis-a-vis producibles would induce savers to increase their demand for reproducibles, not just as a store of value, but because their propensity to consume is increased due to the resulting lower prices. "</i><br /><br />Because of negatively sloping demand curves? But that's another myth: <br /><br /><i>“Economists can prove that ‘the demand curve slopes downward in price’ for a single individual and a single commodity. But in a society consisting of many different individuals with many different commodities, the ‘market demand curve’ is more probably jagged, and slopes every which way. One essential building block of the economic analysis of markets, the demand curve, therefore does not have the characteristics needed for economic theory to be internally consistent.”</i> Steve Keen, 2001. <i>Debunking Economics: The Naked Emperor of the Social Sciences</i>, Zed Books, New York and London. p. 25.Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-76538266116557495652011-07-06T11:58:14.122-07:002011-07-06T11:58:14.122-07:00I'm not talking about the case of using real c...I'm not talking about the case of using real commodities (producible goods) as a store of value, that's a different story. What I'm talking about is that the resulting relative price rise in nonproducibles vis-a-vis producibles would induce savers to increase their demand for reproducibles, not just as a store of value, but because their propensity to consume is increased due to the resulting lower prices.ivanfoofoohttps://www.blogger.com/profile/07899286403907746852noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-28542323619424208592011-07-06T08:05:05.293-07:002011-07-06T08:05:05.293-07:00"The only way in which the demand for non-pro...<i>"The only way in which the demand for non-producible assets will not prompt a diversion into producible goods and/or services is by people valuing more the possession of this assets (great uncertainty, postponing consumption because they expect further deflation, etc.) than the low prices made available by this demand. "</i><br /><br />The operative words are "any increase in demand for liquidity (that is, <b>a demand for nonproducible liquid financial assets to be held as a store of value)</b>..."<br /><br />Why would you hold producible goods as a <b>store of value</b>?<br /><br /><a href="http://books.google.com.au/books?id=AYlIEG9ULHUC&pg=PA189&dq=gross+substitution+axiom+post+keynesian&hl=en&ei=9nYUTt7bKoz3mAW48sXNCQ&sa=X&oi=book_result&ct=result&resnum=2&ved=0CC4Q6AEwAQ#v=onepage&q=gross%20substitution%20axiom%20post%20keynesian&f=false" rel="nofollow">“If the gross substitution axiom was universally applicable, however, any new savings that would increase the demand for nonproducibles would increase the price of nonproducibles (whose production supply curve is, by definition, perfectly inelastic). The resulting relative price rise in nonproducibles vis-a-vis producibles would, under the gross substitution axiom, induce savers to increase their demand for reproducible durables as a substitute for nonproducibles in their wealth holdings. Consequently nonproducibles could not be ultimate resting places for savings as they spilled over into a demand for producible goods ...<br /><br />Samuelson’s assumption that all demand curves are based on an ubiquitous gross substitution axiom implies that everything is a substitute for everything else.<br /><br />In Samuelson's foundation for economic analysis, therefore, producibles must be good gross substitutes for any existing nonproducible liquid assets (including money) when the latter are used as stores of savings ...”<br /><i> Samuelsonian economics and the twenty-first century</i>, p. 189ff.</a>Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-18345018391627555392011-07-05T13:37:02.339-07:002011-07-05T13:37:02.339-07:00Lord Keynes, can you explain why:
“The elasticity...Lord Keynes, can you explain why:<br /><br />“The elasticity of substitution between all (nonproducible) liquid assets and the producible goods and services of industry is zero. Any increase in demand for liquidity (that is, a demand for nonproducible liquid financial assets to be held as a store of value), and the resulting changes in relative prices between nonproducible liquid assets and the products of industry will not divert this increase in demand for nonproducible liquid assets into a demand for producible goods and/or services” (Davidson 2002: 44).<br /><br />is true?<br /><br />I think that the resulting changes in relative prices between nonproducible liquid assets and the products of industry CAN (though not always, it will depend on the case) divert this increase into a demand for producible goods and/or services. Is Davidson assuming anything else which is not included in his quotation? Or am I misunderstanding something?<br /><br />The only way in which the demand for non-producible assets will not prompt a diversion into producible goods and/or services is by people valuing more the possession of this assets (great uncertainty, postponing consumption because they expect further deflation, etc.) than the low prices made available by this demand. I acknowledge that this scenario, in the short run, will bring unemployment and a debt recession (which will certainly have long run effects), but this reasoning will still have to hold good.ivanfoofoohttps://www.blogger.com/profile/07899286403907746852noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-89683870997356522092011-05-23T14:12:43.642-07:002011-05-23T14:12:43.642-07:00I would like to say a few more words on the second...I would like to say a few more words on the second property of money, that of 'zero or near zero elasticity of substitution with producible commodities'.<br /><br />In current fiat economies all of the money supply is created and provided by government and banks (actually it is created by the central bank but anyway). The rest of the private agents may use this currency to perform financial transactions and maybe a neo-classical economist could argue that they only use their money in order to buy other products and services, either immediately (consumption) or in the long run (investment).<br /><br />The problem though is that the private sector also carries debt and tax obligations which it can only pay using currency. Government and banks are not buyers of products but only of currency. This is especially true in the case where the government is running a budget surplus (it is accumulating, rather destroying currency more than it is spending). This is also true for banks, which might have expenditures (wages, consumption etc) but on the long run try to earn a profit which is accumulated as capital in order for them to be able to increase their assets (loans) through their capital requirements. That is different from other companies which typically invest their retained profits in expansion of production.<br /><br />So private agents in aggregate can only acquire currency from the government or banks, which are carried as tax or debt obligations with these institutions (apart from the case of a budget deficit) but these institutions are net buyers of currency.<br /><br />In other words, the private sector might be able to perform business transactions with each other by means of product/services exchange but it cannot do the same with banks and government although it carries a large burden of obligations with these institutions. As a result, in aggregate it cannot substitute money with other commodities.Kostas Kalevrashttps://www.blogger.com/profile/12215782761139619874noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-89694724566335370802011-05-20T15:38:21.851-07:002011-05-20T15:38:21.851-07:00@Joanna Liberation
Just caught up on this discuss...@Joanna Liberation<br /><br />Just caught up on this discussion while searching for the exact quote by Keynes on money characteristics. Let me add my 2 cents in the discussion.<br /><br />In a recession prices of goods and services will fall. That's a given. In order for demand to rise people either have to have larger aggregate income than aggregate price level or use stored savings in order to take advantage of lower prices. But the deflated prices are the result of lower demand in the first place so only the second option is possible since aggregate income is decreased because of lower wages and/or higher unemployment. Income matches spending anyway.<br /><br />Let's see now if people would indeed be willing to use their increased savings. First of all, since their income is now lower than before (in aggregate) their saving potential in the next run of the business cycle is lowered by the same amount. In order for the deflationary spiral to not continue they have to forgo saving in the next business cycle run and instead use all their income for consumption plus a part of their savings (which would drive production and maybe prices back up). We are assuming at this point that companies will forgo investment until they see their inventories increasing again. For starters it is not unreasonable to assume that in such a deflationary environment with lowered production levels, income, deflated prices of goods and property and hight unemployment, people would be a bit reluctant to increase their consumption, even if it's only because they are assuming that prices will fall even more! <br /><br />Let's assume a closed economy without government sector. In such an economy ALL money is in the form of private debt. Our problem though is that the interest is sticky and CANNOT be negative. As a result we might be having a deflationary episode in goods and property values and income coinciding with an inflationary episode in real debt burden.<br /><br />Since the private sector's present income is not enough to service it's increased debt burden (since a larger part is needed to service the interest paid) and previous savings are used instead (or consumption is forgone), i don't see any reason for the private sector to increase it's demand due to price deflation. In general, unless the interest rate can move along with the deflation rate and become negative Say's law would not work.<br /><br />Comments welcome.Kostas Kalevrashttps://www.blogger.com/profile/12215782761139619874noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-34073120870649641782011-05-18T23:52:42.836-07:002011-05-18T23:52:42.836-07:00Davidson shows here how O'Driscoll and Rizzo a...Davidson shows here how O'Driscoll and Rizzo assume tacitly the classical axioms:<br /><br />Paul Davidson, “The Economics of Ignorance or Ignorance of Economics?,” Critical Review (1989) 3.3/4: 467–487<br /><br />Paul Davidson, “Austrians and Post Keynesians on Economic Reality: Rejoinder to Critics,” Critical Review 7.2/3 (1993): 423–444.Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-5581731632494612852011-05-18T23:46:01.034-07:002011-05-18T23:46:01.034-07:00I read an article by Davidson where he stated that...I read an article by Davidson where he stated that the Classicals implicitly believed in perfect information and that people act rationally (not in a Misesian sense). Contrary to Austrian rhetoric, I wonder if Austrian's assume the same thing. At some point in their argument, they seem to throw in pixie dust to clear markets. I often wonder if this is a reinsertion of Classical axioms. But how would you prove this?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-20837081127176235092011-05-12T06:19:16.306-07:002011-05-12T06:19:16.306-07:00If LK read more Axel Leijonhufvud his blog would b...If LK read more Axel Leijonhufvud his blog would be much improved.<br /><br /><br />P.S. The real (classical) liberal economists critique of unions has nothing to do with their ability to collectively bargain in a free market setting, and any economist with a hint of familiarity with the critique of unions knows that. So are you creating a straw man, or being intellectually dishonest?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-59705690548584964402011-05-11T04:45:33.149-07:002011-05-11T04:45:33.149-07:00Note again in my argument I have explicitely _not_...Note again in my argument I have explicitely _not_ used gross substitution assumption. I have also _not_ used Say's law as such (like in a sentence "this works that way because of Say's law" etc). I did start this exchange by describing a process that I think _might_ be what Say _might_ have had in mind when writing down his "law", but I don't care much about particular economist opinions and laws, even those of Say or Rothbard, if they do not make sense to me on their own merit. I merely care about plain common sense and that is is all I've been using in my argument here so directing me to posts which may or may not refute gross substitution assumption or Say's law is irrelevant.Joanna Liberationhttps://www.blogger.com/profile/03683439858840562847noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-78160072453505596062011-05-11T04:10:21.208-07:002011-05-11T04:10:21.208-07:00"Was there supposed to be some new argument t...<i>"Was there supposed to be some new argument that got accidentaly left out ..."</i><br /><br />You have already been directed to the "arguments":<br /><br />http://socialdemocracy21stcentury.blogspot.com/2011/01/f-h-hahn-in-candid-moment-on-neo.html<br /><br />http://socialdemocracy21stcentury.blogspot.com/2010/10/myth-of-says-law.htmlLord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-86429193373842750482011-05-11T03:59:13.903-07:002011-05-11T03:59:13.903-07:00Futhermore, even if all prices and wages were perf...<i>Futhermore, even if all prices and wages were perfectly flexible there would still be failures of aggregate demand and Say's law would not work.</i><br /><br />Was there supposed to be some new argument that got accidentaly left out or an invitation to a "yes it is, no it isn't" play?Joanna Liberationhttps://www.blogger.com/profile/03683439858840562847noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-19264808698540728932011-05-11T03:38:19.772-07:002011-05-11T03:38:19.772-07:00There are thus many markets where prices of commod...<i>There are thus many markets where prices of commodities are set by oligoplistic price makers/price setters, not price takers, where the prices of products are simply caused by demand/supply dynamics</i><br /><br />Okay, so there exist voluntary (free market) cartels that purposefully set prices in such a way as to _not_ sell all of their products and services in order to achieve monopoly prices. But you say competition is not to pop up with lower prices if they do so? I mean, the most powerful free-market (ie not controlled centrally under one government) cartel I know of is OPEC, but it still has not prevented the fall of gas prices to fall from $145 to $39 in the latter half of 2008. In other words, gas prices cannot really be kept above market prices even by OPEC. But you say there are more powerful free-marekt cartels than OPEC? Such as?<br /> <br /><i>And capitalism - and any logically consistent libertarianism - could not object to workers freely organising themelves in unions and engaging in collective bargaining. Don't go blaming government for that.</i><br /><br />Minimum wage laws and labor code laws have nothing to do with "workers freely organising themelves in unions and engaging in collective bargaining". Protip: laws are passed by legislative branch of government, not by "free organizations of workers".Joanna Liberationhttps://www.blogger.com/profile/03683439858840562847noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-48446056686532544222011-05-11T03:01:34.936-07:002011-05-11T03:01:34.936-07:00And capitalism - and any logically consistent libe...And capitalism - and any logically consistent libertarianism - could not object to workers freely organising themelves in unions and engaging in collective bargaining. Don't go blaming government for that.Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-67260375153211185052011-05-11T02:59:19.670-07:002011-05-11T02:59:19.670-07:00You forget the monopolies, cartels and oligoplisti...You forget the monopolies, cartels and oligoplistic nature of many corporations in many capitalist nations, as noted by John Kenneth Galbraith year ago. There are thus many markets where prices of commodities are set by oligoplistic price makers/price setters, not price takers, where the prices of products are simply caused by demand/supply dynamics. <br /><br />And it wasn't government that caused oligoplistic markets: this is the way capitalism developed since the late 19th century. If anything, governments have acted, to some extent, to break up monopolies and oligoplolies (e.g., United States antitrust law).<br /><br />Futhermore, even if all prices and wages were <i>perfectly</i> flexible there would still be failures of aggregate demand and Say's law would not work.Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-6442151594341675422011-05-11T02:42:49.469-07:002011-05-11T02:42:49.469-07:00So what exactly makes prices less flexible today t...So what exactly makes prices less flexible today than in 19th century? Fast transport and globalization? Instant communication and information flow? Millisecond trading platforms? Wow that all sounds as if prices are way more flexible than in the 19th century. Unlesss... wait, more government meddling? Minimim wage laws? Labor code laws? Is that it?Joanna Liberationhttps://www.blogger.com/profile/03683439858840562847noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-13387330426788417842011-05-11T01:54:51.037-07:002011-05-11T01:54:51.037-07:00You're talking about 19th century gold standar...You're talking about 19th century gold standard capitalism. There were indeed periods of inflation and deflation in the 19th century. That is in NO way incompatible with the assertion that wages and prices are not perfectly flexible in modern capitalism. <br /><br />Yes, wages and prices were <i>relatively</i> more flexible back then compared to today, but there were still real rigidities and processes that prevented capitalism from working in the way you and supporters of Say's law think it works.Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-71879672764259816422011-05-11T01:33:56.318-07:002011-05-11T01:33:56.318-07:00Real world capitalism is a system with stickiness ...<i>Real world capitalism is a system with stickiness of wages and prices.</i><br /><br />That "refutes" way more than my last post. That "refutes" the most basic economic law, the law of supply and demand. Without that, indeed, anything is possible, fairy tale world welcome to! And from wikipedia I see that sticky prices do "play an important role in Keynesian thought". But then you yourself refer in this very post to "deflationary depression in the 1880s". So how can there be a _deflationary_ depression if prices are so sticky?Joanna Liberationhttps://www.blogger.com/profile/03683439858840562847noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-63105699453332671522011-05-11T01:17:15.706-07:002011-05-11T01:17:15.706-07:00Refuting your entire last post:
Real world capita...Refuting your entire last post:<br /><br /><i>Real world capitalism is a system with stickiness of wages and prices.</i>Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-85444812506581209772011-05-10T23:52:38.311-07:002011-05-10T23:52:38.311-07:00LK: And even if prices adjusted perfectly, it stil...LK: <i>And even if prices adjusted perfectly, it still doesn't follow that people would significantly increase spending on commodities in depressions or recessions, owing to the myriad of factors I have listed above.</i><br /><br />Prateek Sanjay: <i>The fact that people hold on to funds even under falling prices, due to future uncertainty, has been acknowledged by Rothbard in that same treatise on money I reference above.</i><br /><br />If people don't increase their spending with falling prices _proportionately_ that means people _further_ increase their money holdings and we are back to square one, the process I've described simply works faster then. In fact, they increase their real money holdings even when they do increase their spending proportionately because the real value of their money holdings keeps increasing under price deflation too. So people will ultimately have to start spending part of their money holdings just to keep its real value intact (and still no substitution required). But even if they don't, again, that does not matter, people may increase their money holdings all they want (but always to a finite level, because money supply is finite) and they will merely make price deflation and the process of demand returning back to its original level faster. That's why I've called it _automatic_ because it is _not_ dependent on the decisions people make. In fact, the more people work against the process, the faster it will be. Self-regulating as self-regulating can be, any way I look at it. You seem to fail to draw certain conclusions from your assumptions. For example, you say that "it still doesn't follow that people would significantly increase spending". Okay, so be it, but you conveniently forget that that could only mean even _further_ price deflation. Only that (purposeful?) omission lets you to jump to your conclusion of permanently declining demand.Joanna Liberationhttps://www.blogger.com/profile/03683439858840562847noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-88356803703850213132011-05-10T23:18:17.479-07:002011-05-10T23:18:17.479-07:00I am certainly not a spokesperson of Austrian Econ...I am certainly not a spokesperson of Austrian Economics, more of a layman's common sense whose utmost care is in correct assumptions and logic. I'm not even an economist professionally, so LK you can easily discard my arguments simply on the lack of authority no problem. I basically read some Rothbard's Man, Economy, and State with Power and Market a few years ago and I don't even feel I remember much, except I have finally found the lucid clear-cut logical thinking with self-evident assumptions in economics that I always try to apply in any other area, be it philosophy, physics, computer science or even plain life (which gets me into trouble more often than not unfortunatelly). However in economics I have always had an impression that everyone's talking fairy tales. I'm all the more happy that LK calls my analysis "the fanasty world of Austrian economics", looks like I should be at least roughly on the same page with Rothbard even when I'm doing thinking largely on my own.Joanna Liberationhttps://www.blogger.com/profile/03683439858840562847noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-1616023204167569792011-05-10T22:44:14.503-07:002011-05-10T22:44:14.503-07:00Easy there, Lord Keynes.
I am not exactly pro-Aus...Easy there, Lord Keynes.<br /><br />I am not exactly pro-Austrian either, and I have found Rothbard's arguments against fractional reserve banking in "What Has Government Done With Our Money?" to be really wanting when I first read it, BUT -<br /><br />Let's cut the Austrian School some slack, because Joanna Liberation is not necessarilly a spokesperson for Austrian economics. You yourself have argued that JL has misrepresented Austrian thought in one earlier blog post.<br /><br />The fact that people hold on to funds even under falling prices, due to future uncertainty, has been acknowledged by Rothbard in that same treatise on money I reference above.Prateek Sanjaynoreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-41639737097275310642011-05-10T21:42:34.841-07:002011-05-10T21:42:34.841-07:00"And total value (purchasing power) of that m...<i>"And total value (purchasing power) of that money increases basically in exactly direct proportion to the increased money holdings thanks to price deflation,"</i><br /><br />Prices are <i>not</i> significantly flexible in modern economies.<br /><br />Even in the 19th century, there were wage and price rigidities.<br /><br />Real world capitalism is one with stickiness of wages and prices.<br /><br />Your analysis and assuptions are fit only for the fanasty world of Austrian economics.<br /><br />And even if prices adjusted perfectly, it <i>still</i> doesn't follow that people would significantly increase spending on commodities in depressions or recessions, owing to the myriad of factors I have listed above.Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-50445253058902186062011-05-10T09:56:44.465-07:002011-05-10T09:56:44.465-07:00Just because money's purchasing power has incr...<i>Just because money's purchasing power has increased by deflation does not mean people will actually start using again in sufficient quanities by purchasing commodities to restore full employment.</i><br /><br />It does mean that, precisely because you assume people increase their money holdings to a higher, but _finite_ level. From that very assumption, they _spend_ the rest of their money. And total value (purchasing power) of that money increases basically in exactly direct proportion to the increased money holdings thanks to price deflation, so demand increases back to its original level.<br /><br /><i>As I said, people/banks/businesses may still - in in these periods do - prefer to hold money as hedge against future uncertainty, and money may be diverted to non-employment inducing demand for financial assets on secondary markets.</i><br /><br />Right, those are the assumptions we share, and again, the permanent decrease in demand does _not_ follow.<br /><br /><i>That money can store purchasing power is a basic fact. None of my comments above deny that inflation/deflation or supply affect its purchasing power over time.</i><br /><br />Using the concept of "storage" is misleading here because you use it to "prove" that the purchasing power of money holdings (or deflated debt) somehow disappears into thin air. But it doesn't. Instead, it gets automatically transferred to the "busy" money via price deflation. Intuitively when "storage" gets destroyed, whatever it stores gets destroyed too, but it does _not_ work that way with money and as an economist you should know that. No value nor purchasing power whatsoever gets destroyed when money gets destroyed. You can burn half of all money out there and total purchasing power will not decrease not even by one iota.<br /><br /><i>It is non-employment inducing demand</i><br /><br />Okay, you keep repeating that even though I have already shown that unemployment has nothing to with total demand.Joanna Liberationhttps://www.blogger.com/profile/03683439858840562847noreply@blogger.com