[OPE-L:3465] Re: accumulation: disequilibrium dynamics

Steve Keen (s.keen@uws.edu.au)
Thu, 17 Oct 1996 23:50:37 -0700 (PDT)

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Gladly Jerry,

But there's one slight problem--it's a mess of equations, which would be
unreadable even if I tried to convert it into an "ascii" format. If
someone on the list has a program which can generate Adobe Acrobat
files, I might be able to send it that way. Any chances?

To describe it verbally, it is a model of an economy in which:

(i) there is no population growth, no technical change, no fixed capital
or stocks, where all commodities last only one period, are produced in
one period and either consumed or wasted in the next, and in which there
are banks, workers, capitalists, and input-output relations of

(ii) All economic activity is undertaken through bank accounts of

The sequence of economic activity is:

(a) Interest is paid on outstanding debts/deposits.

(b) Production is planned, based on previous periods’ output and
effective demand.

(c) The intermediate inputs needed to produce planned output are
purchased from the output of the previous period, at prices set during
the previous period.

(d) The wage is decided, based on the wage and employment in previous

(e) The workers needed to produce planned output are hired.

(f) Workers spend all their income on consumption.

(g) Bankers consume part of their income, and add the remainder to their

(h) Capitalists consume part of their income.

(i) This period’s output is produced.

Conceptually, this can be likened to an agricultural economy with
peasants, landlords and moneylenders, where the commodities being
produced require each other and labor as inputs, and where the products
are perishable.

There is no presumption that labor is the only source of surplus:
surplus arises from production (the output vector exceeds the sum of all
intermediate inputs plus the consumption goods equivalent of workers'

The model has proven too complicated to simulate using any commercial
software, for the simple reason of time dependencies: workers'
consumption in time t depends on their employment and wage in time t,
and employment in time t depends on planned output in time t. There are
therefore variables of the same time period on either side of the model,
and I need to write some software which can cope with that before I can
do the simulation.

So all I can get out of it at this stage are three conclusions:

(a) The model is necessarily nonlinear, even in the absence of nonlinear
behavioural relations. This takes it out of the realm of Sraffian-style

(b) It is almost certainly a nonequilibrium model, since a far simpler
prices-only system (with prices and markups but no quantity, finance or
wage dynamics) has an unstable equilibrium;

(c) The bankers hoard plays no role in the system, while the money
supply is effectively the net sum of capitalist bank accounts, and can
expand and contract without limit (so long as the moneylender is willing
to make the entries required in his book).

Point (c) reminds me of an observation that might be of interest in the
discussion re money. An otherwise overbearing German anthropologist made
the very good point that what makes a banker is not gold but
"collateral": an asset which, if default occurs, can be sold to finance
the default. That is the role that "gold" plays in this model: it is
presumed by all agents that the moneylender has the necessary assets to
back his extension of credit (via the entries in his loans book), and
this asset could well be gold. But unless agents demand payment via gold
bars, this commodity-asset plays no active role in the system.

That had better be all until Adobe or a similar solution can be found.


Gerald Levy wrote:
> Steve K wrote in [OPE-L:3462]:
> > Jerry's suggestion is a good one, but I'm afraid I've "jumped the gun"
> > on it to some extent, since I've constructed a Kaleckian version of
> > this:
> [Well ... who can resist an offer like this?]
> By all means, show us your disequilibrium dynamic model.
> If you would be so kind so as to explain the reasoning behind the
> assumptions, sectors, and characteristics of the model, that might make a
> good start for discussion.
> BTW, of the different variables and topics that I itemized, which ones are
> *not* included.
> [I'm always willing to learn some more ... even from a Post-Keynesian].
> In Solidarity,
> Jerry