Date: Sat Feb 12 2005 - 10:41:43 EST
------------------- Original Message ---------------------------- Subject: Aggregate demand (was profits) From: "Jurriaan Bendien" <firstname.lastname@example.org> Date: Sat, February 12, 2005 10:05 am ----------------------------------------------------------------- Jerry, I think that what Kalecki and Mandel correctly pointed out as regards the Keynesian-type theory about the relationship between aggregate demand and aggregate investment is that it fails to distinguish adequately between types of demand and types of investment. Specifically, 1. You cannot simply assume that savings are necessarily invested, even if the state intervenes, and you have to look at what they are invested in - thus, you have to distinguish between idle (liquid) funds, productive investment, unproductive investment, luxury spending and armaments spending, which have differential effects on economic growth. 2. Different social classes have a differential propensity to consume, invest and save. There really isn't a simple and tight "zero sum game" such that, in aggregate, what is not consumed is saved, what is not saved is consumed, and what is saved is (productively) invested. In this respect, I think Marx's analysis of the parameters of economic reproduction is still very insightful; an economy doesn't simply consist of consumers and investors as in the neoclassical paradigm, and we ought to distinguish between types of investment and types of consumption differentiated by social classes. Additionally, given Okun's law, an increase in labor productivity and in the size of labor force can mean that real net output grows without net unemployment rates falling (the phenomenon of "jobless growth"). Jim Devine comments that: "As a result of growing international integration and labor abundance, wages are being equalized world-wide, tending toward the lowest common denominator. The equalization is modified by inter-country productivity differences. But capital mobility tends to undermine the productivity advantage of the core countries". The US CBO commented a while ago that "Because income is either consumed or saved, and spending is either consumption or investment, the current-account balance equivalently measures the extent to which the United States saves more than it invests. Hence, another way of viewing the fall in the current-account balance since 1991 is to observe that [internal] saving in the United States fell increasingly short of the amount necessary to finance domestic investment." http://www.cbo.gov/showdoc.cfm?index=5722&sequence=0 What I am suggesting is that the real relationship of saving, consumption and investment might be a little more complex, if we look at the empirical pattern of saving & investments and imports/exports of commodities and capital more closely. My own hunch about "surplus capital" is basically that there is in reality a plethora of capital (i.e. not really a "problem of saving"), it's just that the current concentration, distribution and placement of capital does not tend to promote sustained, cumulative job-creating growth. That situation is explained more by profitability relativities, semi-automation, risk perceptions, the international mobility of capital, and the desire for guaranteed returns on capital under conditions of producer and market monopolies. Simply put, modern capitalism seems to have lost a lot of its "enterpreneurial drive" and becoming more "parasitic", i.e. overall, a lot of "innovation" revolves around techniques of speculation, luxuries and securing property rights, rather than setting up new businesses producing new products for a mass market (other than in the IT sector perhaps) - for business starts data, see for USA: https://www.dnb.com/newsview/economic.htm#bizstart ; for Europe: http://epp.eurostat.cec.eu.int/portal/page?_pageid=1073,1135281,1073_1135295&_dad=portal&_schema=PORTAL&p_product_code=KS-DV-04-001 for Japan: http://www.nli-research.co.jp/eng/resea/econo/eco040401.pdf As far as I am aware, classical Keynesian-type demand-management first came to the "crunch" in the 1970s (the phenomenon of stagflation). In the case of New Zealand, which I studied, government stimulation of aggregate demand in the 1970s had the effect simply that enterprises raised their output prices; and from about 1977 there was an "investment strike" in the wake of high inflation and falling profitability. In response, the NZ government borrowed overseas to start a whole series of major infrastructural development projects (which however did not create a lot more jobs and faced escalating costs), but by 1983 the NZ government instituted a rent freeze, a wage freeze and a price freeze. In 1984, the Keynesian program collapsed through lack of political support, giving way to an extremely rapid (and increasingly unpopular) program of market deregulation, privatisation and abolition of producer subsidies, causing large chunks of the New Zealand economy to be bought up by the multinationals. However, in the US, a vastly larger and wealthier country with a much larger state apparatus, Keynesian-type programs have lasted much longer. Jurriaan PS - as regards an historical retrospective on the growth of the world market, a useful article is: Cornelius Torp, "Weltwirtschaft vor dem Weltkrieg. Die erste Welle oekonomischer Globaliserung" [World economy before the world war; the first wave of economic globalisation] in Historische Zeitschrift, vol. 279, no. 3, December 2004. Torp refers to the research by Angus Maddison, Arthur Lewis, Paul Bairoch etc. and provides among other things a table of the value of exports as percentage of GDP for advanced capitalist countries 1870-1987, suggesting that for the advanced capitalist countries, this ratio on average more than doubled across a century. However, Torp points out that such comparisons do not really answer the question of what fraction of GDP could be internationally traded anyway at different points in time, given that e.g. in the course of a century, an increasing proportion of GDP consisted of services. I could add that export values are of course not the same as physical export volumes; the latter may grow faster than the former, if average unit output prices decline.
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