Hang in there, fellas. It's all about distinctions.
SteveKeen:I would hope this point would be accepted here, because it then means that while the "100% Say's Law" argument is strictly wrong, maybe a "99% Say's Law" is OK.
Mr. Keen, please define what you mean by these terms.
1) 100% Say's Law
2) 99% Say's Law
SteveKeen:The distinction that a theory of value then brings is to this issue as to whether the M--C--M+ circuit is temporary or permanent, not as to whether it exists at all. The difference then becomes one of degree: entrepreneurial profit is seen essential to capitalism from an Austrian point of view, but also as temporary in duration. Marx sees the M-C-M+ circuit as essential to capitalism too, but as permanent.
Mr. Keen,
I don't follow this distinction, specifically the "permanent" aspect. What is meant by "permanent"?
It's intriguing that the quote you cites notes that Schumpeter was just 2 years younger than Mises, and that Schumpeter is not an Austrian because he rejects praxeology, which Mises instituted.
So it could be suggested that Mises and Schumpeter were rivals about how the subjectivist approach to economics should be developed, and Mises wanted to take it down the introspective, non-observational path whereas Schumpeter wanted to take it towards observation. Within the Austrian community, Mises won out, but in the rest of the economics community, versions of an empirically based philosophy won out.
My perspective on this is that Mises with praxeology took the Austrian approach down a dead end (remember that the Austrian school didn't originate with Mises--let alone Rothbard--but with Menger back in the 1870s-80s). In this sense, Marx did the same with the labour theory of value (seein Marx as the continuance of the Classical school of economics that began with Smith and even, arguably, Quesnay). But it is possible to construct an approach to economics from a subjectivist perspective that rejects praxeology, and to develop one from Marx's objectivist approach that rejects the labour theory of value.
In other words, I think that saying that because he rejects praxeology Schumpeter is not a descendant of the Austrian school is a bit like saying that because I reject the Labour theory of value I am not a descendant of the Classical School. In fact I would argue that I am, and have improved the Classical approach by rejecting part of Marx's analysis that is clearly nonsense.
Ditto Schumpeter: I see his embrace of an observational approach to economics as far superior to praxeology--though there's much more to good scientific methodology than Popper alone (I suggest you read at least Kuhn, Feyerabend and Lakatos to see how it has developed over time).
forgotten about Say's law then, eh?
Where there is no property there is no justice; a proposition as certain as any demonstration in Euclid
Fools! not to see that what they madly desire would be a calamity to them as no hands but their own could bring
I'll take a perspective from mish's excellent comment.
Assume for argument's sake that I am a miser and a misanthrope. My ambition in life is to spend less than I earn over my entire life, and therefore I will die with an accumulation of unspent money. As a misanthrope, I decide to leave my money to another miser, who will behave as I did during my life.
Since my demand will be less than my supply, at the level of the entire economy, demand will be less than supply. Therefore my existence violates Say's Law.
But Say's Law only works as an explanation of what happens at the level of the economy if it is obeyed 100%. As soon as you posit the existence of misers, Say's Law ceases to hold as a Law about the nature of the economy as a whole, and there can be insufficient aggregate demand.
SteveKeen: Assume for argument's sake that I am a miser and a misanthrope. My ambition in life is to spend less than I earn over my entire life, and therefore I will die with an accumulation of unspent money. As a misanthrope, I decide to leave my money to another miser, who will behave as I did during my life. Since my demand will be less than my supply, at the level of the entire economy, demand will be less than supply. Therefore my existence violates Say's Law.
everything that the miser does demand from the market comes from the prior production of others, 'supply'
everything that others in the market demand from the miser, come from the prior production of the miser, his supply.
SteveKeen:In other words, I think that saying that because he rejects praxeology Schumpeter is not a descendant of the Austrian school is a bit like saying that because I reject the Labour theory of value I am not a descendant of the Classical School. In fact I would argue that I am, and have improved the Classical approach by rejecting part of Marx's analysis that is clearly nonsense.
Above you argue that Mr. Schumpeter WAS an Austrian. Now you equivocate and claim that Schumpeter was merely a descendant.
You are already changing the facts of your argument and we've only just begun. For this reason and others, I can see that this conversation is going nowhere fast. Therefore I'm finished. Best of luck to you.
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NirgrahamUK,
Sorry, I should have made myself more clear. What I meant was that I do not accept free will or determinism alone but rather together. That the system at times limits the choice by which individuals can make but individuals still have the free will to choose amongst the choices they have, hence compatibilism.
I’d also be interested in further discussion on Meth Holism and Meth Ind. We’ll save it for another topic. But just briefly, like most things it seems that both sides take the extreme view on a matter when really the ‘truth’ is somewhere in the middle.
I’ll have a look at regression theorem.
As to your last point I’ll add my part when I have the time (running late atm). One point I will say is that if we look at Keynes quote we can see money being a store of value because it provides insurance for an uncertain future. The more uncertain the future seems the more likely we are to store wealth in the form of money, i.e. are liquidity preference increases.
You state that money can be a store of value in Say’s Law. But if we consider what Say said money can only by a medium, unless I have misread it, I am fairly sure he stressed that money is nothing more than a medium of exchange and nothing more… I assume that by store of value, you are referring to a deferment of present consumption for future consumption (time preference)? I don’t think this is compatible with hoarding money due to pessimistic expectations of the future. We are certainly deferring payment but it’s not due to the market time preference (natural rate of interest) but because the very system in which we are engaging in is breaking down.
---
NirgrahamUk in a reply to Keen said:
The point that Keen and I are trying to make is that there are a group of people within the capitalist system whom supply more then they demand. They wish to make the gap between their supply and demand as wide as possible so that they are not equal. So whilst I agree that people supply commodities (e.g. Labour) because they wish to consume, but this does not mean that the amount they supply is equal to the amount they wish to consume.
Say suggests that we do not wish to hold any commodity longer than we need to for fear of losing value. But I don’t agree with this. Money makes this situation even worse as it allows us to stop half way and hold it, as we can see in regards to the liquidity preference.
This whole debate comes down to whether our supply of a commodity is equal to our demand to consume other commodities (or that we defer present consumption for future consumption). What I find interest is whether in the long-run we can say that these are equal, that demand and supply are equal. My guess is no.
Austroglide: SteveKeen:In other words, I think that saying that because he rejects praxeology Schumpeter is not a descendant of the Austrian school is a bit like saying that because I reject the Labour theory of value I am not a descendant of the Classical School. In fact I would argue that I am, and have improved the Classical approach by rejecting part of Marx's analysis that is clearly nonsense. Mr. Keen, Above you argue that Mr. Schumpeter WAS an Austrian. Now you equivocate and claim that Schumpeter was merely a descendant. You are already changing the facts of your argument and we've only just begun. For this reason and others, I can see that this conversation is going nowhere fast. Therefore I'm finished. Best of luck to you.
This does not follow from what keen has said. Keen is saying that he is a classical economist but rejects LTV. He is saying that Schumpeter is an austrian but rejects praxeology etc.
I think that the Austrian school is a lot more than Mises, Hayek and Rothbard. I realise too that this particular branch seems to reject a lot of Hayek as well. There are some significant insights from the Austrian school such as from Lachmann, Shackle (i was wrong to suggest he was a Post Keynesian earlier). O'Driscoll and Rizzo. If it isn't apparent, I think the most interest aspects of the Austrian School are those that view the market as dynamic and complex system (complexity theory, spontaneous order) and there are most definitely a lot of Menger, Mises and hayek in there too! But of course they are just as guility of rejecting complexity theory as the Rothbard branch (and Bohm-Bawerk).
well, compatabilism has a definite meanign that you can look up. so if you make your own ad-hoc definition you can plan on losing arguments.
only people act, institutions dont. so thats meth ind for the win.
good, I would recommend regression theorem to anyone interested in economics.
of course any money is not merely a medium of exchange that itself has no store of value. this is impossible. it owuld not be an accepted party to an exchange if the part receiveing it did not percieve it as a transfer of value to his person. to be a good medium of exchange it must have the subjective appearance of being a value store. you fall into fallacy when you try to dictate that out. it makes no sense.
mash:the point that Keen and I are trying to make is that there are a group of people within the capitalist system whom supply more then they demand. They wish to make the gap between their supply and demand as wide as possible so that they are not equal. So whilst I agree that people supply commodities (e.g. Labour) because they wish to consume, but this does not mean that the amount they supply is equal to the amount they wish to consume.
This is because you both dont understand that law. of course, a show maker supplies way more shoes than he himself demands, he also demands way more bread htan he supplies. this is trivially true for every business i can think of. if you thought say's law said that shoemakers demand as many shoes as they supply then you are completely wrong.
says law says that the shoemaker offers shoes, so that he can demand other things, such as bread.
and the bread maker supplies bread so that he might buy things such as shoes.
now, the shoes the shoemaker supplies constitute the shoemakers demand for other goods.
the shoemakers real demand is limited by his supply of shoes.
are you beginning to understand Say's law? I hope so.
mash:I think that the Austrian school is a lot more than Mises, Hayek and Rothbard.
mash,
For a theoretically rigorous exposition of, exactly, what does and what does not legitimately constitute "Austrian" economics, I refer you to Rothbard's "The Present State of Austrian Economics".
If you wish your understandings to be clear, it is essential that you be familiar with the distinctions presented by Rothbard. Without such familiarity, your knowledge of Austrian economics will be but a haze.
Austroglide:You are already changing the facts of your argument
Not the first time he has done it in this thread.
I was hoping for more drama, but I think Mr. Keen showed us too little, too fast.
Although the miser and misanthrope as saver was another nice dig against capitalism, it rested in an argument by Steve Keen that indicates a failure to understand Say's Law.
What a glorious debate we could have if we replaced misplaced class envy with real knowledge and understanding...
mash:This does not follow from what keen has said. Keen is saying that he is a classical economist but rejects LTV. He is saying that Schumpeter is an austrian but rejects praxeology etc.
If Mr. Schumpeter is an Austrian by dint of the fact that he's a subjectivist, then so too is the entire corpus of neoclassical economists.
If, instead, Mr. Schumpeter is an Austrain by dint of the fact that he adheres to marginalism, then so too is the entire corpus of neoclassical economists.
This is absurd.
liberty student:Not the first time he has done it in this thread.
Indeed. It is impossible to hold a conversation with someone whose definitions are subject to abrupt change, and also with someone who insists upon thrusting before you a constant stream of new arguments for you to analyse in a process of infinite regress ("No, no...to understand what I REALLY meant, you should read THIS"), where the subject of conversation is constantly changing and therefore always beyond one's grasp. Exasperating and a ridiculous waste of time.
Compatiblism: The claim that people’s actions can be freely chosen and also at the same time determined by physical laws.
Which is in line with what I have been saying . Having reread what I wrote I can understand why it looks like I have created my own ad-hoc definition. Let’s move on from this point though, as it is not adding to the subject at hand.
I don’t doubt that people act. But people’s actions are influenced by the institutions which they belong.
Onto Say’s Law:
Perhaps the most famous quote from the chapter:
It is worth while to remark, that a product is no sooner created, than it, from that instant, affords a market for other products to the full extent of its own value. When the producer has put the finishing hand to his product, he is most anxious to sell it immediately, lest its value should diminish in his hands. Nor is he less anxious to dispose of the money he may get for it; for the value of money is also perishable. But the only way of getting rid of money is in the purchase of some product or other. Thus, the mere circumstance of the creation of one product immediately opens a vent for other products.
A person will produce a particular commodity because they wish to consume (I don’t deny this). There is also no desire to hold a particular commodity longer than it needs to be held “lest its value should diminish in his hands”, this is represented by the C- - M- - C’ circuit. Now if you look at the liquidity preference (which you have not directly responded too, I would certainly like to hear your thoughts on that) we see someone who wishes to hold onto money despite the risk of it losing value... This later point is an expectation of what may occur in the future. Say assumes it to be absolute.
This is also apparent in the notes on the chatper:
34. Even when money is obtained with a view to hoard or bury it, the ultimate object is always to employ it in a purchase of some kind. The heir of the lucky finder uses it in that way, if the miser do not; for money, as money, has no other use than to buy with.
Which is C- - M- - C’
of course any money is not merely a medium of exchange that itself has no store of value. this is impossible. it would not be an accepted party to an exchange if the part receiveing it did not percieve it as a transfer of value to his person. to be a good medium of exchange it must have the subjective appearance of being a value store. you fall into fallacy when you try to dictate that out. it makes no sense.
Fair enough. It seems to me that we are talking about two different concepts of ‘store of value’. I think that money is an end to itself, but as I understand you reject this. Is this correct?
Say on the matter: “money performs but a momentary function…”, “Money is the agent of the transfer of values…” finally from the quote before “’… the value of money is also perishable
This is because you both don’t understand that law. of course, a show maker supplies way more shoes than he himself demands, he also demands way more bread htan he supplies. this is trivially true for every business i can think of. if you thought say's law said that shoemakers demand as many shoes as they supply then you are completely wrong.
As the Say’s quote states: individuals have no desire to hold onto a commodity longer than they need to. Why then would someone over produce on a commodity if they do not desire to exchange it for another commodity, either in the future or the present.
I accept that a show maker will supply more than he demands and will demand more bread than he supplies. But this does not mean these are equal. Say states himself that there is no desire to hold money or to hold a commodity which you do not desire. Therefore supply and demand either have to be equal or at least close to being equal. I have given you one reason why someone would hold onto money and not consume. Which means that what the person has produced has supplied is not equal to what they demand. Which means they have put more into the system than they have taken out.
Now the M- - C - - M+ suggests that some people desire to invest money into the production of a commodity with the intention of receiving greater returns in the future. They don’t produce with the intention to consume, but to draw greater wealth. And money is a representation of wealth, it is a store of value. Which means that money can be an end to itself (the motivation which I mentioned in a previous post). A large part of the circuit IMO represents the behaviour of firms within the market more so than individuals. But of course if we assume that firms don’t make chooses but individuals then, individuals in the market have this particular desire.
I have this feeling that you are arguing elements of Walras’ Law. I’ll have to look more into this.
One important point in case I am misinterpreted. I understand that Say’s law allows for an oversupply of one commodity is possible but that a general glut is impossible. Of course I don’t accept that a glut can occur only because of violent means (exogenous shocks) but that the individual expectations are based on flimsy foundations (uncertainty of the future) and that the market is a dynamic, complex system (complexity theory).
Liberty student,
I think you will find that keen is supportive of capitalism and prefers the free market
My views are that the market is but one period of the economic system which started when trade between two individuals began. I don’t have any preference for one system over another, although I certainly believe that the market system is better than any other system we have had or that people propose. I am also a lot more supportive of the free market than you think. Of course I also think that it isn’t perfect but because I hold onto the uncertainty of the future paradigm and elements of Hayek I am also aware that it is impossible to fix the system (my perspective on the market is a lot more complicated than this but I am time constrained atm)
Now I have missed two classes because of this discussion lol. So I badly need to head off. I’ll try and find some articles on the regression theorem. If you could link some that would be great. I will also read the article linked by Austro. Of course I am skeptical of anyone who wishes to define whom is and isn’t apart of their research program. A similar attempt was made by the Post Keynesian, Paul Davidson.
I am also unsure when I will be able to get back and reply as I will be busy the next few days.
mash:Liberty student,I think you will find that keen is supportive of capitalism and prefers the free market
Where will I find this?
mash:My views are that the market is but one period of the economic system which started when trade between two individuals began.
The market is a system, not a period.
mash:I don’t have any preference for one system over another, although I certainly believe that the market system is better than any other system we have had or that people propose.
So you believe it is better, but you don't prefer it.
mash:I am also a lot more supportive of the free market than you think.
What is "supportive"? You just said you believe it is better, but you don't prefer it, but you are supportive of it.
mash: Now the M- - C - - M+ suggests that some people desire to invest money into the production of a commodity with the intention of receiving greater returns in the future. They don’t produce with the intention to consume, but to draw greater wealth. And money is a representation of wealth, it is a store of value. Which means that money can be an end to itself (the motivation which I mentioned in a previous post).
Now the M- - C - - M+ suggests that some people desire to invest money into the production of a commodity with the intention of receiving greater returns in the future. They don’t produce with the intention to consume, but to draw greater wealth. And money is a representation of wealth, it is a store of value. Which means that money can be an end to itself (the motivation which I mentioned in a previous post).
This paragraph reeks of equivocation (money and wealth). You suggest that some people desire to invest with the intent of recieving greater monetary returns. Fair enough. However, you then state that they don't produce with the intention to consume, but to stockpile wealth; you suggest that money can be an end in itself. This is where I take umbrage.
First, you realize that money is simply a representation of wealth. It is a store of value precisely because it can be used to purchase C, which is real wealth. By suggesting that some people seek M as a store of value, and at the same time as an end in itself, is a contradiction. If individuals wanted M as an end in itself, its function as a store of trade value for C would be irrelevant.
It seems to me that these very individuals that you propose invest in C to gain M+ do so in order to increase their relative return in terms of C. It's simply an example of an individual with a lower time preference.
I don't find the M-C-M or C-M-C circuits to be profound or helpful. It seems to be resulting in more confusion than clarity. I liked what was said earlier, that the M+ circuit resulting from M - C - M+ is just a part of a higher order C - M - C chain.
“Elections are Futures Markets in Stolen Property.” - H. L. Mencken
And I see Mises's approach as far superior to positivist-"empiricist" economics. See how easy that is? BTW I've read them and nothing in them really touches on any of Mises's own arguments. To say Mises took an "introspective" path is to misunderstand him, and interpret him as though he were Descartes. I suggest you read Roderick Long's book on Wittgenstein to ameliorate this misunderstanding of him.
Freedom of markets is positively correlated with the degree of evolution in any society...
zefreak:I don't find the M-C-M or C-M-C circuits to be profound or helpful. It seems to be resulting in more confusion than clarity. I liked what was said earlier, that the M+ circuit resulting from M - C - M+ is just a part of a higher order C - M - C chain.
lol, indeed! arguments by alphabetti spaghetti dont resonate with me either.
SteveKeen:Since my demand will be less than my supply, at the level of the entire economy, demand will be less than supply. Therefore my existence violates Say's Law.
First, people don't hold money in order to never spend it.
But lets assume they did, lets assume Miser #1 burns every dollar of profit he takes in. What happens? Does production cease?
No, production stays constant while prices fall. You have neglected that output is not the only variable here, output can stay constant even given a shrinking monetary base so long as prices fall.
In addition to that, since Miser is adding to the pool of goods in the market without subtracting an equal amount this means that other consumers will receive his share(again, due to the falling prices caused by less competition for consumers goods.)
But if we accept your claim that Miser #1 wants to end up the maximum amount of money possible, we know that he is spending all profits he gets. He is spending them on the purchase of capital goods, in order to gain even more profits. If you claim he is stuffing it under his mattress, then you have contradicted your own stipulation about Miser #1. Your scenario fails.
Peace
JonBostwick: In addition to that, since Miser is adding to the pool goods in the market without subtracting an equal amount this means that other consumers will receive his share(again, due to the falling prices caused by less competition for consumers goods.)
In addition to that, since Miser is adding to the pool goods in the market without subtracting an equal amount this means that other consumers will receive his share(again, due to the falling prices caused by less competition for consumers goods.)
It's really quite astonishing that I understand that but Steve Keen and many other mainstream economists do not.
put even more forcefully, what the Miser 'supplies' to the extent that he supplies it (in order to get in return, money he will never spend from buyers - "demanders"), his supply has constituted their demand.
Say's law! working 100%
and for them to have had the money to give him, they must have had a prior 'supply' of their own, to constitute his demand for a particular good , lets call the good unspendable-money (pardoning the obvious oxymoron which those that dont understand Say's law must hold to)
Says law 99%. no wait, i meant 100%.
JonBostwick: SteveKeen:Since my demand will be less than my supply, at the level of the entire economy, demand will be less than supply. Therefore my existence violates Say's Law. First, people don't hold money in order to never spend it. But lets assume they did, lets assume Miser #1 burns every dollar of profit he takes in. What happens? Does production cease? No, production stays constant while prices fall. You have neglected that output is not the only variable here, output can stay constant even given a shrinking monetary base so long as prices fall. In addition to that, since Miser is adding to the pool of goods in the market without subtracting an equal amount this means that other consumers will receive his share(again, due to the falling prices caused by less competition for consumers goods.) But if we accept your claim that Miser #1 wants to end up the maximum amount of money possible, we know that he is spending all profits he gets. He is spending them on the purchase of capital goods, in order to gain even more profits. If you claim he is stuffing it under his mattress, then you have contradicted your own stipulation about Miser #1. Your scenario fails.
How is Mr. Keen published in Economic Journals but you aren't? It blows my mind.
You are now making a numerical argument that may make it worth my while to point you in the direction of my work on credit dynamics. Issues that I was going to cover in this thread about aggregate demand always exceeding supply during a credit expansion and always being less than supply during a contraction are covered there. See Figure 16 in that paper.
For literature on the fact that an expanding economy needs aggregate demand to exceed supply, see Minsky (1963), ‘Can “It” Happen Again?’ in Carson, Dean (ed.), Banking and Monetary Studies, Richard D. Irwin, Homewood, reprinted in Minsky (1982),Inflation, Recession and Economic Policy, Wheatsheaf, Sussex, pp. 3–13, where he observes that:
If income is to grow, the financial markets, where the various plans to save and invest are reconciled, must generate an aggregate demand that, aside from brief intervals, is ever rising. For real aggregate demand to be increasing, . . . it is necessary that current spending plans, summed over all sectors, be greater than current received income and that some market technique exist by which aggregate spending in excess of aggregate anticipated income can be financed. It follows that over a period during which economic growth takes place, at least some sectors finance a part of their spending by emitting debt or selling assets. (Minsky 1963 [1982]: 6)
Similar arguments can be found in Schumpeter and Marx.
SteveKeen: For literature on the fact that an expanding economy needs aggregate demand to exceed supply, see Minsky (1963), ‘Can “It” Happen Again?’ in Carson, Dean (ed.), Banking and Monetary Studies, Richard D. Irwin, Homewood, reprinted in Minsky (1982),Inflation, Recession and Economic Policy, Wheatsheaf, Sussex, pp. 3–13, where he observes that: If income is to grow, the financial markets, where the various plans to save and invest are reconciled, must generate an aggregate demand that, aside from brief intervals, is ever rising. For real aggregate demand to be increasing, . . . it is necessary that current spending plans, summed over all sectors, be greater than current received income and that some market technique exist by which aggregate spending in excess of aggregate anticipated income can be financed. It follows that over a period during which economic growth takes place, at least some sectors finance a part of their spending by emitting debt or selling assets. (Minsky 1963 [1982]: 6) Similar arguments can be found in Schumpeter and Marx.
You're not familiar with the Austrian Business Cycle Theory?
Aggregate demand exceeding supply, a euphemism you are using to mean credit expansion, is what causes the expansion of an economic bubble.
This is not economic growth in the real sense, an expansion in the capital stock, only balance sheets are expanded.
While growth of real incomes is indeed desirable, that does nothing to prove the value of increases in nominal income which can occur with or without increases in real income.
SteveKeen:If income is to grow. . . it is necessary that current spending plans, summed over all sectors, be greater than current received income.
By the demand-driven growth process Minsky describes, the origin of economic growth is continual credit expansion. This of course requires an ever expanding money supply. That economic growth is caused in this manner is, to my mind, utterly preposterous. The only thing being increased here is nominal demand, nominal supply, and nominal income.
No, economic growth (i.e. increased living standards /increased real incomes) requires per capita productivity increases. Period. Credit creation has absolutely nothing to do with this.
Gee whiz. Read the paper Astroglide.
From the article in question Keen states the following on M-C-M’ and its implications.
With the presence of a circuit dominated by the desire to accumulate, the simple harmony of commodity production and consumption (vulnerable only to disproportionality) gives way to the potential for instability arising from speculative overproduction, excessive and insufficient expectations of profit, maldistribution of income, excessive debt, and the whole panoply of macroeconomic issues that believers in Say’s Law cannot comprehend. Say’s ‘Law’ therefore, is not a recondite insight into the nature of a market economy, but evidence of a basic failure to comprehend capitalism
Later on he states this:
Whereas a producer acting in the C-M-C' manner does ask for money ‘only for the purpose of employing that money again immediately in the purchase of another product’, a producer acting in the M-C-M+ manner asks for money for its own sake (‘exchange-value, and, in particular, the expansion of surplus-value’). While we ‘do not consume money’, people certainly do seek to ‘conceal’ (or accumulate) it. Though a capitalist will undoubtedly consume with part of the money he accumulates, it is not true that ‘he may be considered as already asking for the merchandise which he proposes to buy with this money’ since if he converts all his profit into consumables, he has failed to accumulate wealth – to be a capitalist.
As Marx puts it, capitalists are characterised not by an equality of their supplies and their demands, but by an inequality. This inequality is possible because production mediates between the commodities ‘an industrial capitalist’ purchases (the labour and material inputs to production) and the commodities he sells (the output of the manufacturing process), and production produces a physical surplus that the capitalist hopes to turn into a monetary surplus… [quote from Marx here]
He then concludes:
…There is an inherent inequality at the core of capitalist society, and the simple balance of Say’s Law collapses. In its place arises a far more complex vision of the functioning – and potential malfunctioning – of a market economy.
…
Marx also realised that in this circuit [M-C-M+] , money has an essentially new role in addition to those of medium of exchange and measure of account: it is now also a measure of accumulation. Failure in accumulation can now result in money being withdrawn from circulation, which in turn can lead to deficiencies in aggregate demand.. [Quote from Marx]… Money is more than a mere lubricant…
Edit: this part is in response to Jon. The miser does invest his money but unfortunately it is invested in speculative gains on asset markets and stock markets. Which during the boom can be one massive Ponzi scheme drive by a bubble in debt. Which is Minsky all over.
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One other important point that isn’t mentioned by Keens is that money allows the continuation of seller to buyer to be broken. It allows someone to hold onto money, rather than purchase. Now why would this occur, it could be due to low time preference but also it could be due to liquidity preference.
I’ll set out my understanding of the Post Keynesian theory for expectations and agent action.
Economic actors have uncertain knowledge of the future, there is no ‘scientific basis on which to form any calculable probability whatever. We simply do not know’. Nevertheless, the necessity for action and for decision compels us...’ to act. We manage to act by the following techniques:
1. ‘Assume that the present is a much more serviceable guide to the future...’. I.e. the past is immutable
2. That the ‘existing state of opinion as expressed in prices and the character existing output is based on correct summing up of future prospects, so that we can accept it as such unless and until something new and relevant comes into the picture’.
3. ‘knowing that our own individual judgment is worthless...’ we rely on ‘judgement of the world which is perhaps better informed...conventional judgement’.
Economic actors construct a fabricated future based on what knowledge they have obtained and their calculations. But when calculations are not possible (such as when there is a high level of uncertainty) agents actions are not guided by calculations but by their emotions; whether they feel optimistic or pessimistic about future outcomes, will direct their action. There is no room for time preference or any sort of rationality. It simply does not occur. It is impossible. Hence the reason why an agent may choose liquidity preference:
Money, it is well known, serves two purposes. By acting as a money of account it facilitates exchange without its being necessary that it should ever itself come into the picture as a substantive object. In this respect it is a convenience which is devoid of significant or real influence. In the second place, it is a store of wealth. So we are told without a smile on the face. But in the world of the classical economy, what an insane use to put it! For it is a recognised characteristic of money as a store of wealth that it is barren, whereas practically every other form of storing wealth yields some interest or profit. Why should anyone outside a lunatic asylum wish to use money as a store of wealth?
Because, partly on reasonable and partly on instinctive grounds, our desire to hold money as a store of wealth is a barometer of the degree of our distrust of our own calculations and conventions concerning the future. Even tho this feeling about money is itself conventional or instinctive, it operates, so to speak, at a deeper level of our motivation. It takes charge at the moments when the higher, more precarious conventions have weakened. The possession of actual money lulls our disquietude, and the premium which we require to make us part with money is the measure of the degree of our disquietude.
- Keynes, 1937, The General Theory, The quarterly Journal of Economics. pp 215 – 216
The continuation from seller to buyer is broken, due to a pessimistic expectation of the future. Only money makes this possible. And it presents the option for persons to keep their money idle rather than investing. This breaks C-M-C’ and M-C-M’. Which is also a direct contradiction to Say he assumes that all expectations regarding money will be that it will lose value and that an agent will want to get rid of it as soon as possible (by purchasing a commodity he desires).
The function of M-C-M’ leads the economy towards a debt induced bubble. When the circuits are broken the bubble breaks and the market experiences a debt-deflation spiral. If prices and wages are flexible and tend to decrease in this situation then the problem is made even worse, as debt becomes harder to service.
No market forces can save the economy from this situation, neither can government depending on the severity, as there is simply too much debt in the system. Either inflation has to be induced to allow for easing of debt servicing or the debt deflation cycle has to be ridden out. Which could a significant amount of time. The natural rate of interest or the equilibrating forces of the market are not there. The market is a dynamic system with multiple points of equilibrium (which the market can tend towards or move away from, but are never reached).
SteveKeen:Gee whiz. Read the paper Astroglide.
While I'm at it, why don't I read everything you've ever written, so then you won't have to post anything. But if I'm to do this, then you're required to read everything ever written by von Mises and Rothbard.
Why do you constantly place the onus upon everbody else? If your arguments are misinterpreted, one after the other, thats YOUR fault. Spell out your entire argument for once, and in a manner that's intellgible and unequivocal. Haven't seen you do this yet - your writings are, without fail, incomplete, indirect, and confusing.
Mash, just to address on the following,
"Why should anyone outside a lunatic asylum wish to use money as a store of wealth?"
Hazlitt answered that quite well,
Perhaps, with a little patience, we could have helped Keynes to understand. They wish or hope or believe that the thousand dollars they earn today will have at least as much purchasing power (whether in cash or as face value of a bond) a year from now or twenty years from now. They do not wish to have to become speculators. If "it is a recognized characteristic of money as a store of wealth that it is barren," this "recognition" is mistaken, in spite of the fact that so many economists have been guilty of it. As W. H. Hutt has pointed out, money "is as productive as all other assets, and productive in exactly the same sense." "The demand for money assets is a demand for productive resources." Failure to recognize this is the source of one of Keynes's greatest fallacies.
Austroglide, I've noticed that as well. Indeed it seems Keen is following in the steps of Keynes...where his writing contains countless inconsistencies, is very vague, shifts definitions and manipulates words. I'd like to get some straight answers, rather than "oh you obviously don't understand because you haven't read this piece of work."
You have yet to respond directly to my critique. You've merely reformulated your argument, and posted yet another paper for me to read.
Here's the essence of it, and it's based mainly upon A Marx for Post Keynesians. Your failure to directly engage this critique suggests that you are incapable of refuting it.
================================================================
(Quoted from above:)
"Capitalists, it is supposed [by Mr. Keen], purchase commodities at prices which reflect their exchange values, but in the process of production their use values are brought to bear, resulting in a final commodity of higher value than the combined factor costs. This is the hypothesized origin of surplus value and capitalist profits. But Mr. Keen fails to provide a convincing explanation as to why this is a credible representation or accurate description of the production process. His singular accomplishment here is merely to assert the relationships among exchange value, use value, and market prices. Indeed, no explicit argument is ever formulated to prove this proposition. Instead, Mr. Keen, following Mr. Marx, implicitly and silently grants its truth based upon the mere fact of capitalist profits.And here's a bit of completely non-shocking news:
The attempt to achieve an acceptable reconciliation has been a major, if not the major, intellectual focus of Marxian economics. See Desai 1988 for a recent survey; for a recent attempt to "solve" the transformation problem, see Mohun 1994. (Keen, p. 5).
In other words, no Marxist can provide a convincing account of surplus value. In other words, Mr. Keen's argument is fatally flawed. ...The problem with Mr. Keen's analysis is that it builds upon the Marxian constructs of exchange-value and use-value - and therefore conceptually is burdened with the impossible task of logically developing an irrefutable connection between exchange-value and use-value on the one hand, and how these cause market prices and capitalist profits on the other. Mr. Keen fails in this, and indeed apparently so too have generations of Marxists. Ultimately, then, Mr. Keen is unable to provide a reasonable account for capitalist profit."
Austroglide:While I'm at it, why don't I read everything you've ever written, so then you won't have to post anything.
Austroglide, that won't be good enough. You'd better read everything ever written by every civilization in every language. You never know what tricky sources that Mr. Steve Keen will resort to next!
Oh also, Mash, as far as "Either inflation has to be induced to allow for easing of debt servicing or the debt deflation cycle has to be ridden out," no, the natural adjustment of wage rates (notice, not wage'S'), can "save the economy from this situation."
Stop thinking only in aggregates: small, gradual, natural wage adjustments in specific industries, namely, the ones that experienced the most malinvestment, are the most effective way of letting this thing fix itself. A violent injection of inflation across the whole economy will not end well!
For real aggregate demand to be increasing, . . . it is necessary that current spending plans, summed over all sectors, be greater than current received income
How does spending more than you have grow income?
In case you've forgotten Astroglide,
The reason I joined this discussion in the first place was that I had seen your "critique" of my paper on Say's Law, in which you had written that "The interesting thing about Mr. Keen's argument seems to me to be how it so quickly falls apart once it is revealed that it depends logically on Marx's theory of profit, which in turn depends upon his labor theory of value".
At no point in that paper did I even refer to the labour theory of value: you simply leapt to the conclusion that, because I had quoted Marx, my argument had to depend on his theory of value.
Not only did my argument not depend on the labour theory of value, I had earlier disproven the labour theory of value using Marx's own logic. So the confusion in that instance was entirely your own--and it's no wonder that I suggested you read a bit more widely before attempting critiques in future.
Secondly I tried to engage in a discussion on this topic based solely on the points raised in the discussion here. While others on this blog arguably tried to engage with those propositions--by asserting that M--C--M+ simply collapses in to C--M--C and so on--you asked for clarification of my views about Schumpeter: " I will do my best to respond to your post, however this will take time. For now, here's my reply to your specific characterization of Joseph Schumpeter as being an Austrian school economist."
I then replied on that side issue that you asked for clarification on, and for a while it looked like a useful discussion on the development of economic thought in general and Austrian in particular was occurring: "Thanks. This is interesting, and stands in direct opposition to Rothbard's view on Schumpeter from above..."
You then cited another Austrian authority on whether Schumpeter was an Austrian: "Upon further investigation, it appears that Mr. Schumpeter clearly and unequivocably was NOT an Austrian economist."
Then you threw in a couple of questions back on the Say's Law issue ("Mr. Keen, please define what you mean by these terms. 1) 100% Say's Law; 2) 99% Say's Law"; "I don't follow this distinction, specifically the "permanent" aspect. What is meant by "permanent"?"), and I attempted to complete our discussion on Schumpeter before turning to these clarifications. In response to that comment, you wrote:
"Mr. Keen,
You are already changing the facts of your argument and we've only just begun. For this reason and others, I can see that this conversation is going nowhere fast. Therefore I'm finished. Best of luck to you."
So I thought you had terminated the conversation, and since I was finding discussion on this list somewhat less than enlightening, I wasn't particularly upset to have it terminated.
I ignored some of your subsequent comments simply because I have many better things to do with my time. As for example this one:
You and liberty student then got involved in a little critique of me that I characterise as the Gerald Ford defence: "I can't do two things at once, like walk and chew gum". You asked for clarification on my side remark on Schumpeter Astroglide, and I was simply replying to your queries. Then you suddenly decide that I am throwing in "a constant stream of new arguments for you to analyse in a process of infinite regress".
I was content to leave mash to make what I thought were excellent points here rather than spending my time doing so until I replied to Jon Bostick and zefreak's comment that appeared to open the way for an empirical argument, one I had intended to get on to prior to your decision to end the discussion. But as I now have very little respect for the intellectual depth of this site, I wasn't about to waste my time setting out the argument in great detail for you whenI had already done it for an academic audience elsewhere.
And yes, I am insisting that you read a lot more widely than you have to date. I readily concede that you have read more Austrian authors than I have; but I have read far more broadly in economics, which is why I find it fairly easy to consider Schumpeter (another critic of Say's Law) while outlining Marx's and my own critique. It's also why I don't hold Austrian economics in general in high regard, because many concepts in it have been soundly critiqued by authors from other schools (such as Sraffa) on issues that Austrians treat as far simpler than they are.
I sincerely hope that you are a young man, because to have so little breadth to your reading if you are near my age would indeed be tragic.
How do you know their oh so "sound" "critiques" have gone without answer or have any merit, at all, especially if you've not engaged much with Austrian economic literature, especially in the case of Sraffa? So far it is you whom I do not hold in very high regard...
You're right Steve, Austroglide was wrong to accuse you of throwing in "a constant stream of new arguments for you to analyse in a process of infinite regress," for you've failed to produce anything at all. I really hope when you write your critique you attempt to actually challenge the Austrian propositions head-on rather than dance around them with oblique terminology, obscure arguments and a misunderstanding of the very thing you're critiquing as Keynes loved to do. And no, ex cathedra pronouncements just won't cut it.
SteveKeen:At no point in that paper did I even refer to the labour theory of value: you simply leapt to the conclusion that, because I had quoted Marx, my argument had to depend on his theory of value.
1) To be fair, it is not wholly accurate to state that you simply "quoted Marx", as if you merely mention him here and there in your critique of Say's Law in "Nudge Nudge, Wink Wink". No, the Marxian C-M-C' and M-C-M' conceptions are the very centerpiece of your analysis, and indeed you quote heavily from Marx throughout your paper in order to make your case. What's more, nowhere do you explicate your own value theory, or offer any suggestion that you disagree with Marx in any way. For these reasons, and since it is commonly understood (correctly or not) that Marx employs a labor theory of value, it is extremely reasonable for readers of "Nudge Nudge, Wink Wink" to draw the conclusion that yours is a labor theory of value. To claim that readers ought to know better seems somewhat unreasonable. And to be astonished that readers don't know better seems highly so.
2) But this controversy readily disappears, since above it is quickly pointed out by poster mash that you, in fact, don't subscribe to a labor theory of value. Indeed, in "Use value, exchange value and the demise of Marx's Labor Theory of Value" and "A Marx for Post Keynesians", it is clear that you subscribe to a cost of production theory of value.
Therefore, upon reading these works, I immediately amended my critique of your analysis of capitalist profits to accommodate my new understanding of your value theory. You have yet to address this critique.
SteveKeen:...I don't hold Austrian economics in general in high regard, because many concepts in it have been soundly critiqued by authors from other schools (such as Sraffa) on issues that Austrians treat as far simpler than they are.
SteveKeen:...And yes, I am insisting that you read a lot more widely than you have to date. I readily concede that you have read more Austrian authors than I have; but I have read far more broadly in economics, which is why I find it fairly easy to consider Schumpeter (another critic of Say's Law) while outlining Marx's and my own critique.
SteveKeen:Yes, I know Schumpeter is an Austrian that most Austrians prefer to disown...
Goodness knows what you were planning to argue about Austrian economics were this mischaracterization of Schumpeter allowed to stand.
The important point here, however, is that these are your own words. You wrote them and posted them above. And yet now you fail to take responsibility for them. Now, instead of claiming Mr. Schumpter is actually an Austrian, you hedge and equivocate:
1) On thread page 5, you demote Schumpeter from Austrian insider (indeed, from being "the ultimate Austrian", as you say on page 3) to mere "descendant", and do so in a way which subtly implies that this has been your position all along:
SteveKeen:In other words, I think that saying that because he rejects praxeology Schumpeter is not a descendant of the Austrian school is a bit like saying that because I reject the Labour theory of value I am not a descendant of the Classical School.
2) On thread page 6, you further distance yourself by implying that your reference to Schumpeter on page 3 was made for illustrative purposes only. Again, the subtle implication is that no mention was ever made that Mr. Schumpeter was an Austrian economist:
SteveKeen:...I have read far more broadly in economics, which is why I find it fairly easy to consider Schumpeter (another critic of Say's Law) while outlining Marx's and my own critique.
I, for one, am alarmed by these things: On the one hand, through the Schumpeter example, you have proven yourself willing to argue upon rather obviously incorrect facts (as I've already discussed above, it takes no deep understanding whatever of Austrian economics to know that Mr. Schumpeter's logical positivist methodology immediately and fully disqualifies him from being considered an Austrian). On the other hand, once confronted with the fact of your incorrect characterization, you pretend you never argued such a thing about Mr. Schumpeter.
It's not clear to me which is the more condemning: The fact that you made such a careless blunder, or the fact that you wish to pretend you didn't.
What is clear, however, is that you don't know much about Austrian economics. And also that, moreover, you're either intellectually careless, or intellectually dishonest. Where, in your self-described wide reading of economics, did you learn these particular tricks?
SteveKeen:I sincerely hope that you are a young man, because to have so little breadth to your reading if you are near my age would indeed be tragic.
What's tragic is that when the dollar disintegrates to a hyperinflationary dust and the U.S. economy collapses as a result, Post Keynesians such as yourself will still be searching for the origin of so called surplus-value, and will still be crying for ever more government stimulus to increase so called aggregate demand. Lack of intellectual precision indeed comes at a very high cost.
SteveKeen:But as I now have very little respect for the intellectual depth of this site, I wasn't about to waste my time setting out the argument in great detail for you whenI had already done it for an academic audience elsewhere.
Mr. Keen. You have successfully evaded the clarification offered to you on Say's Law.
That's the real issue here. You're critiquing based on critiques, without a fundamental understanding of the very thing you are criticizing.
Sort of like watching a movie based on a book, then publishing a book review.
In light of the correct explanation of Say's Law being offered to you, perhaps you should re-examine your first premises. It seems to me that it would take an enormous coincidence to occur that you successfully critiqued Say's Law, when you did not quite understand it correctly.