[OPE-L:6794] Re: Re: Re: Re: Re: Paul Krugman

From: Steve Keen (s.keen@uws.edu.au)
Date: Thu Mar 21 2002 - 04:41:35 EST

The argument in that chapter was just to explain Keynes's critique of Say's 
Law Rakesh: it wasn't the basis of my entire analysis of cycles in 
capitalism! -:)

All that Keynes was trying to do in his D1/D2 analysis was counter the 
neoclassical view that if there are 2 markets and one goes down, the other 
must go up--insufficient demand in one means excess demand in the other. 
Keynes simply divided output into two markets and gave an explanation why 
if one (consumption) went down, then the other (investment) was likely to 
go down too--not up.

At 08:20 PM 21/03/2002 Thursday, you wrote:
>Steve writes in 6792
>>Thank you Rakesh: I am genuinely touched! I would also appreciate--if you 
>>don't mind!--you putting that comment on the Amazon site about the book. 
>>The more reader feedback like that, the better the chances of the book 
>>having an impact. It has already sold out in the USA, and is being 
>>reprinted now.
>great. I'll put out a comment once I have read a bit more of the book from 
>which I am sure I shall learn a great deal.
>>As for your point, in Keynes's analysis the demand for investment goods 
>>is a "derived demand"--investors only want to purchase capital goods if 
>>they believe that there will in turn be a demand for consumer goods that 
>>these capital goods will help manufacture.
> From where does the demand for investment goods derive?
>You suggest that demand for consumption goods drives demand for investment 
>Then it follows that brightening the prospects of mass consumption by, 
>say, a redistribution of income or deficit financed expansion of the 
>public sector or the social wage will induce firms to purchase capital goods?
>Of course in order to prevent leakage of this new consumption power some 
>kind of protectionist policy would be needed as well, no?
>These are the kinds of high wage solutions which have been proposed by 
>demagogues and adventurers in the midst of protracted slumps, warned John 
>Strachey long ago.
>But for Marx demand for investment goods derives from the attempt of each 
>capitalist in the face of a decline in the rate of profit to increase the 
>scale of his production and to put more machine power behind each worker 
>in order to reduce unit costs and realize an ever greater mass of profit.
>Whether the overall prospects for consumption are bright is irrelevant to 
>the entrepreneur who intends to take market share and expand the market by 
>the reduction in unit costs. Of course to the extent that capitalists are 
>so proceeding, consumption itself will tend to increase in absolute terms 
>as more workers are hired and real wages will rise too as unit values reduced.
>But for Marx investment demand does not derive from demand for consumption 
>goods. This is to make capitalism out to be exactly what it is not.
>The new net demand for consumption and investment goods both derive from 
>the accumulation of capital which is driven forward by the ability to 
>sweat surplus value from the working class.
>When as a result of a change in the composition of capital there develops 
>a scarcity of surplus labor in the production process and a consequent 
>decline in the rate of growth of the mass of profit, accumulation slows 
>down *even if final demand had been strong enough to absorb the commodity 
>output*; a scarcity of surplus labor then appears as an excess of 
>commodities on the market.
>The crisis appears in the market as insufficiency of final demand, and the 
>solution seems to be in the bolstering of final demand.
>But weren't these the very illusions that Marx attempted to dispel?
>And wasn't Keynes' own understanding of investment in terms of derived 
>demand the basis of Hayek's critique? I thought I would throw that in 
>since you are on leading a seminar on the Hayek list...
>>  If there is a decline in consumption now, capitalists can react by 
>> believing that there will be less demand for consumer goods in the 
>> future, and the fall in C is met by a fall in I, rather than the Say's 
>> Law vision of a fall in C being met by an increase in I, thus sustaining 
>> overall balance.
>But isn't the decline in consumption an effect rather than a cause of 
>slumps; moreover aren't slumps often exited with consumption recovering a 
>result of a prior recovery in investment demand?
>>As for why, it's all in line with Marx: capitalists don't want investment 
>>goods for their own sake, but to make a profit. If they don't perceive a 
>>profit, they won't buy them, and then investment demand can collapse.
>On that we are agreed.
>>I go into this in much more detail in a paper I've written for a book on 
>>Say's Law (where my chapter is one of the few critical ones). Let me know 
>>if you'd like a copy.
>I do want a copy, but not quite yet.
>All the best, Rakesh

Home Page: http://www.debunking-economics.com
Dr. Steve Keen
Associate Professor of Economics & Finance
School of Economics and Finance
Campbelltown Campus, Building 11 Room 30,
s.keen@uws.edu.au 61 2 4620-3016 Fax 61 2 4626-6683
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