SteveKeen: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".
My critique was based upon the following three papers:
1) "Nudge Nudge, Wink Wink..."
2) "Use Value, Exchange Value, and the Demise of Marx's Labor Theory of Value"
3) "A Marx for Post Keynesians"
The readings and critique have required no small effort, and the critique itself merits a considered response. Yet, in your thread page 3 response to my critique, you essentially ignore it. Instead, you reformulate your argument and refer me to an additional 120 pages of material ("Use, Value and Exchange: The Misinterpretation of Marx" and "Deregulator: Judgment Day for microeconomics").
But, what guarantee would I have that, after reading these further works, you wouldn't - yet again - conclude that I don't understand your position fully and thus refer me to still additional arguments? Based upon your page 3 response, this seems a reasonably likely outcome.
This is what I refer to when I say "a constant stream of new arguments...to analyse in a process of infinite regress". I'm not referring to the Schumpeter issue.
Fair enough Astroglide,
OK. From my perspective, I thought I had replied to your critique on page 3, but what we're suffering from here is the disconnect between our two perspectives on economics. Liberty Student is right in his last comment here in one way--I am used to debating the neoclassical versions of Say's Law, which they call (a) Say's Principle and (b) Walras' Law. It has taken me some time on this list to realise that maybe you have another conception in mind.
I'll re-read your critique of my paper, my reply, and then see if I can define Say's Law as you seem to believe it. If we get that worked out then I can address that directly. But this may have to wait until after today's lectures and a talk I'm giving this evening.
I was just rereading the original of Keen's articles.
SteveKeen: With the presence of a circuit dominated by the desire to accumulate, thesimple harmony of commodity production and consumption (vulnerable onlyto disproportionality) gives way to the potential for instability arising fromspeculative overproduction, excessive and insufficient expectations of profit,maldistribution of income, excessive debt, and the whole panoply ofmacroeconomic issues that believers in Say’s Law cannot comprehend.
How cute.
Whats so great about his position is he's attempting to create a new justification for Keynes' original conclusion; that a general over production can destroy the economy.
He, like Keynes, is an apologist for the destroyers that burn crops and kill livestock in the name of economic progress. This idea was not originated during the Depression; the Colonial Governments in America where destroying tobacco a century before the revolution.
Of course, if a "glut" of goods can occur then the reverse must be also true, a "glut" of money can occur. But surely Mr Keen realizes why gluts of money do not occur, because prices are flexible. If our current massive money creation where combined with price controls then we would see a glut of money. I wonder if Mr Keen feels that the attempts to control prices during the Depression were helpful or harmful?
Mr Keen's fails to understand why Say's Law is important. Adam Smith showed that depressions were not caused by a lack of money, and Say built on Smith to show the reverse, that depressions were not caused by a surplus of goods.
"no such guarantee exists for exchange done within the M-C-M+ circuit"
True enough, but that circuit is not sustainable unless governments exist with a printing press. If a person found a M-C-M+ circuit then a group of like minded entrepreneurs would rise up around him and destroy his M-C-M+ circuit. Say's law prevails. The only way to keep a M-C-M+ circuit in existence is to use violent coercion, in other words a government and not a market.
JonBostwick:Whats so great about his position is he's attempting to create a new justification for Keynes' original conclusion; that a general over production can destroy the economy.
This is indeed the essence of it. The bulk of the argument is spent in dressing it in Marxian garb. Appropriately.
Something I noticed in the paper , Keen mentions that:
"Euphoric expectations during a boom may lead capitalists to produce too much of everything relative to the future ability of the system to finance their sale at a profit, while excessive debt and depressed expectations during a slump may lead to a self-fulfilling spiral into depression. As Minsky argued, this perspective can be seen as Keynes’s essential argument in the General Theory."
Yes, people are deceived into expanding their operations due to a rise in prices (i.e. low interest rates, money supply expansion) that makes them think they're growing rich...increases in production occur as the capital base is being destroyed and can only continue for as long as this isn't found out. When the delusion vanishes, those whose products or services are relatively in excess (areas of malinvestment) have to lower their production or fail. Keynes may have asserted in the General Theory that no classical economist had considered this, but he was wrong (as he was in most of that god-awful piece of work). Mill (1830) noted that:
"...at all times a very large proportion [of capital may be] lying idle. The annual produce of a country is never any thing approaching in magnitude to what it might be if all the resources devoted to reproduction, if all the capital, in short, of the country, were in full employment. This perpetual non-employment of a large proportion of capital," Mill continues, "is the price we pay for the division of labor. The purchase is worth what it costs; but the price is considerable."
Keen then continues into his conclusion:
"All attempts to provide a formal expression of Say’s Law rest on the same fallacious proposition that there is neither the desire nor the possibility to accumulate wealth for its own sake in a capitalist economy."
and...
"We live in a market economy with capitalists and with the accumulation of wealth, and we will continue to live in such a society for the foreseeable future. Say’s Law is thus irrelevant to the world in which we live."
I believe that Mill, again in 1830, preempted this argument. Indeed, isn't it just the arguments of the mercantilists rehashed?
"In extreme cases, money is collected in masses, and hoarded; in the milder cases, people merely defer parting with their money, or coming under any new engagements to part with it. But the result is, that all commodities fall in price, or become unsaleable....It is, however, of the utmost importance to observe that excess of all commodities, in the only sense in which it is possible, means only a temporary fall in their value relatively to money. To suppose that the markets for all commodities could, in any other sense than this, be overstocked, involves the absurdity that commodities may fall in value relatively to themselves."
"It is true that if all the wants of all the inhabitants of a country were fully satisfied, no further capital could find useful employment; but, in that case, none would be accumulated. So long as there remain any persons not possessed, we do not say of subsistence, but of the most refined luxuries, and who would work to possess them, there is employment for capital....Nothing can be more chimerical than the fear that the accumulation of capital should produce poverty and not wealth, or that it will ever take place too fast for its own end."
Is Keen simply confused by money? If people accumulate "money" for the sake of accumulating "wealth," as Keen puts it, the price of commodities will continue to fall relative to money, therefore "deficiencies" in aggregate demand won't result...
Jayjay:Is Keen simply confused by money?
An outstanding, yes.
That was my first response in this thread, after all.
JonBostwick:In other words, this guy thinks Say's Law applies to barter economies but once money is introduced everything changes.
Not his fault, he's the successor to a lot of very smart people with very bad concepts of what money is.
Normal 0 false false false EN-US X-NONE X-NONE MicrosoftInternetExplorer4
I’ve broken this reply up into 4 parts. Sorry about the length. The first part is a reply to jayjay so if you don’t want to read it just go onto parts 2 -4.
1. My reply to JayJay
2. The two circuits.
3.C-M-C
4.M-C-M+
I realise it’s quite stupid of me to set it at this way, I do not meant to make myself seem important or anything like that, but I have written a lengthy response and hopefully these headings will assist in easier navigation. Again I’m sorry about the lengthy reply and I hope someone reads it and I am anxious to get some feedback. I have taken a risk in using Mises and Menger, as I am not fully acquainted with them yet, and I hope I don’t misrepresent their positions. I’ll let you guys decide. Nonetheless I found Mises book an interesting read and I will certainly devote more time to reading it in the future.
Reply to Jayjay.
Jayjay: 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.
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.
Thank you for the reply JayJay. I found your quote by Hazlitt intriguing. My guess is that this is from his book The failure of New economics?(after writing this I grabbed my copy of the book and had a look, and yes it is). If this is the case I will no doubt read it, as I already have it on my list of books to read. Partly because I want to see if the book lives up it its reputation and secondly I’m curious as to what interpretation he has taken of Keynes, whether it is in line with the Keynesian or Post Keynesian (despite their similar names they are different in their interpretations of Keynes). I’m also intrigued on his take on uncertainty.
On that last point, a cursory reading of the book I only found three mentions of uncertainty so I am unclear as to how Hazlitt has defined it. Perhaps someone could shed some light? On a related note I am also interested in how the Radical Subjectivists within the Austrian school are taken, as they too emphasis fundamental uncertainty. The reason why it is of interest to me is that I see it as being the most important aspect of Keynes. It links with the pragmatism of William James, the radical subjectivists, complexity theory and a whole host of ideas and theories which can be said to constitute a new paradigm, which Shackle terms the ‘Uncertainty and Expectations’, which is in contrast to the ‘General Equilibrium Theories’. I’m also surprised as to why it (uncertainty) bears little mention in Hazlitt as he is aware of Keynes The General Theory of Employment, 1937. This paper is seen as Keynes rejecting elements of The General Theory, 1936 and making it explicit how important uncertainty is to his economic theories, to the point that I don’t think he can be understood without a detailed reference to it. As Minsky states ‘to understand Keynes it is necessary to understand his sophisticated view about uncertainty, and the importance of uncertainty in his vision of the economic process. Keynes without uncertainty is something like Hamlet without the prince’. The error of omitting uncertainty from Keynes is the same made by Hicks and by extension Keynesianism.
I have to agree with Hazlitt on the matter regarding the rate of interest being a reward for lenders. I disagreed with Keynes, as I too thought the following: liquidity preference is the highest at the bottom of a recession/depression, then so too must interest rates, to try and induce individuals to lend.
-----------------------------------------
Regarding the quote and the section that it is from...
Hazlitt’s criticism in this section seems rather be directed at Keynes equating the interest rate as being a reward for lending, secondly the poor labelling of liquidity preference (Hazlitt prefers cash preference) and thirdly, the extent to which Keynes misinterprets the Classicals and . The latter point is particularly evident in regards to Keynes assertion that money is barren and of no productive use. I don’t see how the quote you provided has rejected what Keynes is describing by liquidity preference. If anything it supports it, it provides other motives as to why a person will prefer cash at a time when uncertainty and pessimism is running high.
It reinforces the point that money allows for the discontinuation of buyer and seller. It enables a person so sit idle and not consume, so that while their production has found a ‘vent’ in a market, they have not consumed (whether intentioned or not). The fact that people are holding onto money further suggests that there is a demand deficiency as people are not consuming. (I’ve discussed this further under C-M-C).
Jayjay: 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!
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!
Could you please specify which was you believe the wage rate will tend, either an increase or a decrease?
In regards to thinking in aggregates. I accept that perhaps I need to consider individual markets rather than the whole picture. One point I’d like I believe the debt bubble has increased prices across all markets. It may begin in speculative markets but I fail to see how it would be isolated there, but rather spread across the entire economy (Particularly when we consider the Australian housing market which the majority of people are tied to). One other thing is that most people during this boom would have increased their debt levels, as they had unrealistic expectations of a bubble that would never end.
Regarding debt and firms. All firms take on debt at the start of their production process. This form of debt is productive, as it is used for a productive means rather than speculation. But what tends to occur over the boom period is that they continue to accumulate debts. This affects almost all firms which borrow. That I think it’s hard to pin point specific industries in which malinvestment has occurred.
On the wage rate. If look examine at a specific industry, then a decrease in the wage rate for that market would cause those individuals to consume less, as their debts become more difficult to service. If you allow me to consider the aggregate, then this is quite disastrous.
I consider the aggregate as I believe that the debt bubble reaches into every corner of the market. Though it may be concentrated in specific markets, does not mean that it is limited to them. It spreads across every market, as individuals and firms understate risk and overstate their expectations of the future. Which gets back to my point on the Post Keynesian theory of expectations: that they are based on flimsy foundations and that because of this, violent and sudden changes will emerge.
--------------
The two circuits
Between my last reply and now I have been reading a number of books and articles, ranging from Mises Theory of money and credit, various Rothbard articles, some articles on and by G.L.S Shackle and some Post Keynesian books.
I think that Keens argument can be broken down between the two circuits. I think that the first circuit (C-M-C) is the easier of the two to accept but the second (M-C-M) is the harder. And the debate regarding it is whether it is a true representation of a group of people within society. I’ll address these two points below and hopefully clear up any misunderstanding associated with the latter circuit.
C-M-C
The C-M-C is, in my opinion, a fair representation of Say’s law. As the following quote from Say will show:
Say:I.XV.8. 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.
There are several conclusions that can be made from this quote:
1. A producer produces with the intention to consume. If he did not wish to consume, he would not produce.
2. Money facilitates the exchange between the commodity produced and the commodity demanded (C-M-C). There are other quotes within the chapter that support this view.
3. A producer does not wish to hold onto a commodity or money any longer than he need to. Hence the following: that demand equals supply. This does not assume that a producer can produce anything and it will find demand. There obviously needs to be a market in which the particular commodity is demanded. I will state here as well that Say does concede that a person may wish to hoard and save money, as stated in footnote 34:
Say: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.
The problem I see depends upon the role of money. If we accept that money has no other role than to facilitate exchange between commodities than supply and demand will be almost equal. But of course for money to be medium of exchange it has to a subject value (as pointed out by NirgrahamUK). Because money is a store of value, it enables a person to delay consumption by hedging against an uncertain future, as Mises states:
mises:...what is called storing money is a way of using wealth. The uncertainty of the future makes it seem advisable to hold a larger or smaller part of one’s possessions...in order to preserve the opportunity of being able without difficulty to satisfy urgent demands that may possibily arise in the future... (Mises, 1953p. 147)
You should notice that this is very similar to Keynes liquidity preference. The only difference between what Mises is saying here and Keynes’s ‘liquidity preference’ is that Keynes considers expectations of the future as the first cause of all agent action. Of course despite its omission in Mises (I may have missed it) I think that there is an active role played by expectations (in Mises) when we consider the uncertainty of the future.
Mises also continues and suggests that ‘the more active the life of the market becomes, the more can this stock be diminished’. By stock he is referring to ‘...holding a stock of money’. What is interesting is that this is directly reinforces the point made by Keynes, that the increase in holdings of money (liquidity preference) will occur during a down turn and a recession and will decrease during the boom.
The exact same agent behaviour is also found within Menger. I will use Meacci (2009, p. 308) here, as I could not find any books my Menger at my library. Meacci states that ‘prior to the years of the high theory, money was usually regarded in economic analysis in its familiar aspects of unit of account {numeraire) and means of payment...’. Though he concedes that Menger ‘...came to this notion [money being a store of value] first by focusing on the uncertainty resulting from our will to exchange...the goods that we offer for the goods offered by others but unknown to us in number, quality and exchangeability until we face them in the marketplace: hence the need for, and the rise of, money as the ‘ulttra-liquid good for which every other good is easily exchanged’. Furthermore, Menger ‘also focused on money as a device by which men can hedge against unforeseeable events and compensate for possible errors’. This last part is quite prophetic to what Keynes would later call ‘liquidity preference’.
Finally, let’s consider G.L.S Shackle. First I will provide a quote in which he criticises the classical theory and its assumption of Say’s law and then we will consider his concept of money.
Shackle: The classical theory assumes, in effect, that factor-owners sell their productive services in direct exchange for goods whose usefulness to themselves they know, rather than for money whose purchasing power is outside of their control. If the factor-service were in fact bought with goods, the factor-owners would have to choose those goods, and if we conceive these goods to be valued in terms of each other on a comprehensive market where equilibrium would be established before final service-contracts of the factors were signed, it is plain that the marginal disutility of service would in those contracts be set equal to the marginal utility of the good given as pay, and that by this procedure involuntary unemployment would be ruled out. In this light, what is the basic reason why it is significant that in fact productive services are paid for in money and not in goods selected by the owners of the factors? The question can be answered on two levels. On the more fundamental level, the institution of wage-payment in the form of general purchasing power rather than in the form of defined baskets of goods has the consequence that neither the earner knows what he will be able to buy nor the employer what he will be able, for a given price, to sell. By contrast, if wages and other incomes were paid in baskets of goods, all products would be automatically sold to their collaborating producers, and lack of knowledge would play no part; general overproduction (and even overproduction of particular goods) would indeed be impossible, Say’s Law would hold true.(Shackle, 1983, pp. 137 – 138).
The point I am trying to draw out from this lengthy quote is that in the real world the factors are not given, and by extension agents do not have perfect knowledge. Now I know that this assumption of perfect knowledge is only limited to the neo-classical school and that the Austrians in no way accept the idea, but I think it’s interesting to point out the relation between perfect knowledge and Say’s law and hence no money and ‘imperfect knowledge’, an invalid Say’s Law and a use for money. Shackle holds the view that Say’s law can only hold in a barter economy and where there is no lack of knowledge.
Mises has some excellent points concerning uncertainty and lack of knowledge in regards to money being the numeraire. Mises (1953 p 204) states that it is a ‘naive conception of money as stable’ and as a ‘measure of value’. But what is evident in all economic activities within the market is that money is used for this exact purpose, as Mises states ‘the valuation of goods...always based on estimates depending on more or less uncertain and unknown factors...’. Now production obviously occurs in (historical/real) time. All firms base their entire budget for production on current prices and expected prices, any change in the unit of measurement will seriously upset future costs and expected sale prices of the firm. How in this situation can Say’s Law hold?
Finally Let’s consider Shackle one last time. I wish again to use a quote by him to show his conception of money and money’s implications for the market.
Shackle: ...Money’s presence when that presence is part of the theoretical essence of a model, implies the presence also of uncertainty, which is expressly alien to the meaning of equilibrium; for money is a means of deferring decision, and decisions which are deferred cannot be known by anyone, yet are going to affect future situations and events. Money’s presence destroys Say’s Law of the identical equality of total demand and total supply of all current products taken together. In a model, therefore, where money in its full nature (not merely in its role of unit of account) plays an essential role, the equality of total demand and total supply is a condition or special circumstance which is logically capable of non-fulfilment...(Shackle, 1983 p. 94
This reinforces my point I made in an earlier post, that money breaks the link between seller (producer) and buyer. The circuit C-M-C is broken once we seriously consider money and the problem of uncertainty and its implications for agent behaviour. That agents will not spend all their income, suggests that supply can never equal demand, there will also be a demand deficiency and a producer will find it hardest not to supply but to find adequate demand for his produce.
The claim that the market will find a price at which it will clear is erroneously when we consider debt. Production occurs through time, debts are created at yesterday’s prices and to be paid off at tomorrow’s prices. Producers produce with the anticipation that there commodities will find a market tomorrow. But if the change from today to tomorrow sees a change in expectations of players in the market and therefore a higher liquidity preference then oversupply is a serious problem. Any form of deflation will have serious ramifications for any individual and firm in the economy which incurs debts. You could argue that this is limited to specific industries and that overall the various markets will balance out but I disagree. Every market is firstly linked by various feedbacks and secondly through the credit market. Each firm incurs a debt at the beginning of the production process with the expectation that sales realised will be able to pay off these debts. What is more concerning is that considering the euphoric expectations of a boom, firms become too confident and accumulate further debts as they understate the risk of a recession and the price of debt.
M-C-M+
This is the circuit I think most people had difficulty accepting as it seems to state that money is an end to itself. Even if this would not hold for any reason it does not mean that Say’s Law is true, as I believe that it still isn’t valid as I have discussed in the previous section. This circuit is a representation of a group within society whom intend to accumulate wealth. It suggests that Say only considered one market process, that of consumption and that he did not consider production within the economy. As keen states:
Keen: ...Marx rejected Say’s initial proposition that “very producer asks for money in exchange for his products, only for the purpose of employing that money again immediately in the purchase of another product” (Say 1821). Instead, Marx pointed out that this notion asserted that no-one in a market economy wished to accumulate wealth. If there was never any difference between the value of commodities someone desired to sell and buy on the market, then no-one would ever desire to accumulate wealth. But an essential feature of capitalism is the existence of a group of agents with precisely that intention. ...[F]ar from being bizarre, these agents are an essential part of a market economy. They are known as capitalists. Far from their behaviour being peculiar in a market economy, it is in fact the essence of capitalism. Whereas... Say’s law... asserts that people simply desire to consume commodities, Marx asserted that an essential aspect of capitalism is the desire to accumulate. He derided Say’s belief that the ultimate objective of every agent in a market economy was simply consumption... [As Marx states:] It must never be forgotten, that in a capitalist production what matters is not the immediate use-value but the exchange-value, and, in particular, the expansion of surplus-value. This is the driving motive of capitalist production, and it is a pretty conception that – in order to reason away the contradictions of capitalist product – abstracts from its very basis and depicts it as a production aiming at the direct satisfaction of the consumption of the producers. (Marx 1861) Capitalists are clearly fundamental to capitalism, and their behaviour directly contradicts the Walras’ and Say’s Law presumptions that every agent’s intended excess demand is zero. As Marx put it: The capitalists throws less value in the form of money into the circulation than he draws out of it… since he functions… as an industrial capitalist, his supply of commodity-value is always greater than his demand for it. If his supply and demand in this respect covered each other it would mean that his capital had not produced any surplus-value… his aim is not to equalize his supply and demand, but to make the inequality between… as great as possible (marx, 1885) Source: Keen, 2004, pp 193-194
...Marx rejected Say’s initial proposition that “very producer asks for money in exchange for his products, only for the purpose of employing that money again immediately in the purchase of another product” (Say 1821). Instead, Marx pointed out that this notion asserted that no-one in a market economy wished to accumulate wealth. If there was never any difference between the value of commodities someone desired to sell and buy on the market, then no-one would ever desire to accumulate wealth. But an essential feature of capitalism is the existence of a group of agents with precisely that intention.
...[F]ar from being bizarre, these agents are an essential part of a market economy. They are known as capitalists. Far from their behaviour being peculiar in a market economy, it is in fact the essence of capitalism. Whereas... Say’s law... asserts that people simply desire to consume commodities, Marx asserted that an essential aspect of capitalism is the desire to accumulate. He derided Say’s belief that the ultimate objective of every agent in a market economy was simply consumption... [As Marx states:]
It must never be forgotten, that in a capitalist production what matters is not the immediate use-value but the exchange-value, and, in particular, the expansion of surplus-value. This is the driving motive of capitalist production, and it is a pretty conception that – in order to reason away the contradictions of capitalist product – abstracts from its very basis and depicts it as a production aiming at the direct satisfaction of the consumption of the producers. (Marx 1861)
Capitalists are clearly fundamental to capitalism, and their behaviour directly contradicts the Walras’ and Say’s Law presumptions that every agent’s intended excess demand is zero. As Marx put it:
The capitalists throws less value in the form of money into the circulation than he draws out of it… since he functions… as an industrial capitalist, his supply of commodity-value is always greater than his demand for it. If his supply and demand in this respect covered each other it would mean that his capital had not produced any surplus-value… his aim is not to equalize his supply and demand, but to make the inequality between… as great as possible (marx, 1885)
Source: Keen, 2004, pp 193-194
Now the circuit represents the desire of capitalists to invest their money into the market with the intention of reaping further money. It does not suggest that a capitalist will hide is money under the bed. Capitalists will seek out markets in which they can get the greatest returns. This circuit describes the production and investment process within an economy. I ask you, what is the intention of an investor? To invest into a capital asset on the expectation that the price of the asset will rise and that the production generated will foresee continued profit for the capitalist. Under normal circumstances there is nothing wrong with this. What Minsky and Keen state is that capitalists will frequently be tempted to speculate on asset prices.
The speculation of asset prices is again driven by a similar expectation, that the capitalist will be able to purchase a particular capital asset at its current price and sell it at a later date for a higher price. The capitalist can only purchase an asset if they have saved enough or if they haven’t by taking out a loan(debt). Over the course of the boom, more speculators will incur greater debt on the anticipation that they are partaking in a real genuine asset price increase and not a bubble. The price of credit within the system increases, (which raises production costs across all industries that use debt) and as the price of credit increases, yet further debt is taken on as asset prices continue to rise. This is one big unsustainable Ponzi Scheme and eventually it has to collapse. Many industries will still be producing based on yesterdays forecasts. The rest is overproduction.
The rationale and expectations of the process are perfectly described by the M-C-M+ circuit. And the withdrawal from the market is again perfectly represented by the circuit, as no investor will continue economic activity if M-C-M-. They will subsequently (depending on expectations) either look for another market to invest, or turn to liquidity preference or get ‘cashed up’, as a hedge against future uncertainty.
References:
Meacci, F., 2009. Uncertainty and Expectations in Shackle’s Theory of Capital and Interest. Metroeconomica. Vol. 60, no. 2 pp 302 – 323.
Mises, L.V., 1953. Theory of Money and credit. Yale University Press. [accessed via http://www.mises.org/books/tmc.pdf]
Shackle,G.L.S. 1983? The years of the high theory.
mash:It reinforces the point that money allows for the discontinuation of buyer and seller. It enables a person so sit idle and not consume, so that while their production has found a ‘vent’ in a market, they have not consumed (whether intentioned or not). The fact that people are holding onto money further suggests that there is a demand deficiency as people are not consuming. (I’ve discussed this further under C-M-C).
You are imagining Says Law as being other than it is and cirituqing a strawman, (Keynes strawmanned Says law too, its a long tradition)
Says law does not state that when a shoemake supplies commodities to the market, he demands the same commodities back. this seems to be the delusion you are operating under, even despite there being more obvious critiques one might make of such a position than the critiques you have already offered. Thankfully Say's law is more straightforward han this, properly understand, it seems almost trivial, but it is no less important for this. consider:
Says law states that when a shoemaker supplies shoes to the buyers on the market , the buyers who purchase them from him are demanding the shoes. ("real demand'). now it should be clear that the supply of shoes that the shoe maker transfers away from himself, and the supply of shoes that the demanders bring into themselves are perfectly equal. with no loss or vent. on the other side of the transactional equation. the units of gold (money) demanded by the shoemaker from the previously mentioned buyers on the market, will necessarily match the gold that the buyers on the market transfer away from themselves to the shoemaker. (supply)
now lets look at that scenario again, but this time consider possibilities, (rather than what we did above which was look retrospectively bakcwards after a transaction).
Says law states that if a shoemaker wished to demand commodities from others on the market (other than by appeals to charity or by political force or criminality) what he can demand is strictly limited by two constraints. 1) the supply of commodities that others on the market have brought to market, i.e. the most that he might possibly hope to demand. (really this holds even if he tried force, i.e. non economic ways to demand) 2) the supply of commodities(shoes) that he has brought to market.
if he has brought no shoes, he will have no purchasing power, he will have no economic way of demanding away the supply of commodities (1). the more shoes he can sell the greater could be his own demand (in a sense because the demand of others for his shoes will have increased)
as i said before:
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.'
if you can offer a direct critique you would have a hope of critiquing Say's law. so perhaps you will try?
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
here we see more evidence of the paradoxes arising from using anything other than Austrian subjective value theory. its tragic that millions of people have been exposed to such nonsense.
nirgrahamUK: You are imagining Says Law as being other than it is and cirituqing a strawman, (Keynes strawmanned Says law too, its a long tradition) Says law does not state that when a shoemake supplies commodities to the market, he demands the same commodities back. this seems to be the delusion you are operating under, even despite there being more obvious critiques one might make of such a position than the critiques you have already offered. Thankfully Say's law is more straightforward han this, properly understand, it seems almost trivial, but it is no less important for this. consider:
NirgrahamUk,
You have not understood my position and in fact have straw manned me. I have never claimed that a producer would demand the same commodities he produces. That would be ridiculous. A producer demands a commodity other than his own. I will give the example of a shoemaker: Shoes - Money - TV.
Read what I wrote.
nirgrahamUK: Says law states that when a shoemaker supplies shoes to the buyers on the market , the buyers who purchase them from him are demanding the shoes. ("real demand'). now it should be clear that the supply of shoes that the shoe maker transfers away from himself, and the supply of shoes that the demanders bring into themselves are perfectly equal. with no loss or vent. on the other side of the transactional equation. the units of gold (money) demanded by the shoemaker from the previously mentioned buyers on the market, will necessarily match the gold that the buyers on the market transfer away from themselves to the shoemaker. (supply)
Your example of Say's Law is not even Say's Law! You state that the amount of shoes supplied by the shoemaker to the buyer is equal to the amount purchcased by the buyer? Of coruse it is.
Are you saying this:
Shoemaker has 1 pair of shoes.
Consumer demands 1 pair of shoes.
Shoemaker believes 1 pair of shoe is worth $x
consumer purchases shoe with $x
the result is, the shoemaker is left with $x and the consumer with 1 pair of shoes.
If you are saying this, then this is not Say's law. If this is what Say's law was about there would be no controversy. Look at the quote from Say in my previous post.
nirgrahamUK: now lets look at that scenario again, but this time consider possibilities, (rather than what we did above which was look retrospectively bakcwards after a transaction). Says law states that if a shoemaker wished to demand commodities from others on the market (other than by appeals to charity or by political force or criminality) what he can demand is strictly limited by two constraints. 1) the supply of commodities that others on the market have brought to market, i.e. the most that he might possibly hope to demand. (really this holds even if he tried force, i.e. non economic ways to demand) 2) the supply of commodities(shoes) that he has brought to market.
This is merely the first conclusion I drew. That when a individual wishes to consume, they first have to produce something of value e.g. shoes. I have no problem with this. I have a problem with the other aspects of the law.
I honestly appreciate your response and the fact that you went to the trouble of writing out Say's law for me but you have obviously not read what I wrote or only skimmed over it. Please consider reading it again and offering a reply. I honestly just want to have an udnerstanding of the market and how the system operates. Hence why I am here, arguing my point whilst keeping an open mind. This discussion has led to me read a number of Austrian economists as well as understand my own position and its weaknesses. and even if I am wrong I have still learnt quite a bit.
please positively state Says law.........
mash: nirgrahamUK: You are imagining Says Law as being other than it is and cirituqing a strawman, (Keynes strawmanned Says law too, its a long tradition) Says law does not state that when a shoemake supplies commodities to the market, he demands the same commodities back. this seems to be the delusion you are operating under, even despite there being more obvious critiques one might make of such a position than the critiques you have already offered. Thankfully Say's law is more straightforward han this, properly understand, it seems almost trivial, but it is no less important for this. consider: NirgrahamUk, You have not understood my position and in fact have straw manned me. I have never claimed that a producer would demand the same commodities he produces. That would be ridiculous. A producer demands a commodity other than his own. I will give the example of a shoemaker: Shoes - Money - TV. Read what I wrote.
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.
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.
to paraphrase you. "if only it were true that people supplied equal to what they wished to consume", then in that case Say's law would hold" i characterise that as a strawmnaning Say. but maybe im wrong and you didnt mean it that way...
Say's law was written as a refutation of the idea that there can be an a general overproduction within all markets. althought he did state that it could occur by 'violent means' which he stated as being government policy and natural disasters.
the following are the main propositions:
1. When someone demands something, they will produce a commodity. IF this commodity finds 'vent' on the market, they will receive money and use this money to purchase a commodity they demand.
2. Money is only a medium of exchange. It performs only a momentary function and there is no desire to hold it for longer than necessary, lest it's value decreases.
3. The previous point leads to supply being equal to demand. As a producer will want to get rid of as much of his produce and money as quickly as possible. By selling his produce and exchanging his money for a commodity his demands.
4. it also leads from the previous point, that a producer will only supply to the extent that he demands another commodity.
5. There can be a glut iof a particular commodity due to having outrun the total demand either because it has been produced excessively or production of other commodities has fallen short.
6. Scarcity of money has little to do with obstruction of its sale.
7. an identity that aggregate supply is equal to aggregate demand.
nirgrahamUK: 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. to paraphrase you. "if only it were true that people supplied equal to what they wished to consume", then in that case Say's law would hold" i characterise that as a strawmnaning Say. but maybe im wrong and you didnt mean it that way...
I did mean it the way you interpretated. I don't see it as a strawman. People produce commodities which when sold they use that money to purchase other commodities they demand and they will also save it as the quotes from Mises and Meneger state.
Now if you look at my previous point. Say states that people do not wish to hold onto their produced commodities longer than they need to, lest it lose value. So whilst I can only think that this means that a persons production and consumption will be equal or fairly close according to Say.
of course Say never made those propositions, so why call that Says law..? did Say talk of aggregate supply and demand?
anyhow if we pause discussion of Say's law and instead consider your attempt at macroeconomics i find it remarkable that you havent mentioned prices.
mash:Now if you look at my previous point. Say states that people do not wish to hold onto their produced commodities longer than they need to, lest it lose value. So whilst I can only think that this means that a persons production and consumption will be equal or fairly close according to Say.
so you think Say is saying that shoemakers production of shoes and consumption of shoes will be equal ?
or that shoemakers production of shoes and consumption of bread and stuff (not shoes)will be equal?
what are you saying that Say is saying?
nirgrahamUK: of course Say never made those propositions, so why call that Says law..? did say talk of aggregate supply and demand? anyhow if we pause discussion of Say's law and instead consider your attempt at macroeconomics i find it remarkable that you havent mentioned prices.
of course Say never made those propositions, so why call that Says law..? did say talk of aggregate supply and demand?
Of course he did! So you find objection to every single proposition there including the AD=AS proposition?
The AD=AS is from Say's Law were (are) the critics right? William Anderson.
Now it can be understood that Say made this conclusion though never stated it as:
he was writing his law as a refutation that a general glut of commodities can occur in the market. i.e. AS > AD or an aggregate demand deficiency.
Now, he stated that a glut could occur with a particular commodity, but the price mechanism would cause those commodities to fall in place and any oversupply of a particular commodity would be removed.
As Mises states in: Lord Keyne and Say's Law: Normal 0 false false false EN-US X-NONE X-NONE
Mises: What may hurt the interests of the producer of a definite commodity is his failure to anticipate correctly the state of the market. He has overrated the public's demand for his commodity and underrated its demand for other commodities. Consumers have no use for such a bungling entrepreneur; they buy his products only at prices which make him incur losses, and they force him, if he does not in time correct his mistakes, to go out of business. On the other hand, those entrepreneurs who have better succeeded in anticipating the public demand earn profits and are in a position to expand their business activities. This, says Say, is the truth behind the confused assertions of businessmen that the main difficulty is not in producing but in selling. It would be more appropriate to declare that the first and main problem of business is to produce in the best and cheapest way those commodities which will satisfy the most urgent of the not yet satisfied needs of the public.
What may hurt the interests of the producer of a definite commodity is his failure to anticipate correctly the state of the market. He has overrated the public's demand for his commodity and underrated its demand for other commodities. Consumers have no use for such a bungling entrepreneur; they buy his products only at prices which make him incur losses, and they force him, if he does not in time correct his mistakes, to go out of business. On the other hand, those entrepreneurs who have better succeeded in anticipating the public demand earn profits and are in a position to expand their business activities. This, says Say, is the truth behind the confused assertions of businessmen that the main difficulty is not in producing but in selling. It would be more appropriate to declare that the first and main problem of business is to produce in the best and cheapest way those commodities which will satisfy the most urgent of the not yet satisfied needs of the public.
Clearly we can see Mises describe the price mechanism in action. The entrepreneur has over supplied a particular commodity and will face falling profits or a loss until he corrects his mistakes.
Now to relate this back to AD=AS. Say states:
Say: Normal 0 false false false EN-US X-NONE X-NONE It is observable, moreover, that precisely at the same time that one commodity makes a loss, another commodity is making excessive profit.And, since such profits must operate as a powerful stimulus to the cultivation of that particular kind of products, there must needs be some violent means, or some extraordinary cause, a political or natural convulsion, or the avarice or ignorance of authority, to perpetuate this scarcity on the one hand, and consequent glut on the other. No sooner is the cause of this political disease removed, than the means of production feel a natural impulse towards the vacant channels, the replenishment of which restores activity to all the others. One kind of production would seldom outstrip every other, and its products be disproportionately cheapened, were production left entirely free.
Normal 0 false false false EN-US X-NONE X-NONE
It is observable, moreover, that precisely at the same time that one commodity makes a loss, another commodity is making excessive profit.And, since such profits must operate as a powerful stimulus to the cultivation of that particular kind of products, there must needs be some violent means, or some extraordinary cause, a political or natural convulsion, or the avarice or ignorance of authority, to perpetuate this scarcity on the one hand, and consequent glut on the other. No sooner is the cause of this political disease removed, than the means of production feel a natural impulse towards the vacant channels, the replenishment of which restores activity to all the others. One kind of production would seldom outstrip every other, and its products be disproportionately cheapened, were production left entirely free.
nirgrahamUK: mash:Now if you look at my previous point. Say states that people do not wish to hold onto their produced commodities longer than they need to, lest it lose value. So whilst I can only think that this means that a persons production and consumption will be equal or fairly close according to Say. so you think Say is saying that shoemakers production of shoes and consumption of shoes will be equal ? or that shoemakers production of shoes and consumption of bread and stuff (not shoes)will be equal? what are you saying that Say is saying?
No. The shoemaker does not demand shoes but other commodities. The reason he is producing shoes is so he can exchange that for money and then purhcase commodities which he demands.
I am saying that Say states that a production will want to produce the amount which he demands. Because if he produces more than he will see them lose value. if he does overproduce he will want to quickly get rid of it, again lest it lose value.
p.s so many 'says', 'saying', 'say' etc. going crazy
mash:So you find objection to every single proposition there
no, strawman.
mash:The AD=AS is from Say's Law were (are) the critics right? William Anderson.
yes, Bill wrote what you read, nad he cited Sowell, but thats not hte same as citing Say, is it?
here I cite the end of Bill's piece for you.
Say’s Law is not the cornerstone of classical economics. It is in its most simple form an identitywhich points out how more production leads to more consumption, and not the other way around. It ispart of the classical system; it is not the system itself.
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