Thanks for the YouTube link, Student.
“…the important thing is that keynes pulled together many different threads to weave a coherent story of economic fluctuations that many people found convincing.”
The criterion by which the soundness of an argument is to be judged is NOT a head count of how many people believe it to be sound.
“…was keynes theory perfect? no. but if perfection is your criteria for respect, then i imagine you must be a lonely person.”
Nor is it to be found in ad hominem. (Edit: Or whatever fallacy this is…straw man? No one’s saying Keynes was imperfect, therefore unworthy of respect. More like Keynes was highly imperfect—perhaps wittingly; at least negligently—and therefore unworthy of respect.)
Yes, there is a difference between the prices of outputs and the prices of inputs. Costs will fall faster than prices when the division of labor and capital expands, brought about by a lower time preference. Prices may fall faster than costs when the division of labor and capital is constricted by monetary and inter-temporal disequilibrium. Again, prices do not adjust instantaneously, even in a free-market economy, and money is a good in itself (never neutral).
It doesn’t, and I never said that it did.
You’re putting words in my mouth, once again.
The existence of imperfect information and endogenous rigidities are not, in anyway, disputed. Keynes was famous, in part, for his arguments regarding the stickiness of prices, especially wages. He may have overemphasized such phenomena (dramatized), but they do exist, and they’re absolutely vital. Many neoclassical economists during that period were taking Walras’ general equilibrium model too literally.
Some examples:
- Firms, rather than adjusting prices, may choose to slash inventories and investment.
- Employers, rather than lowering wages, may choose to lay off workers.
- Banks, rather than elevate the interest rate, may choose to expand the supply of money in the broader sense (the degree to which they may do this depends on many factors).
- Some employers choose to pay a wage above the marginal productivity of labor in order to increase morale and productivity.
- And there are, of course, exogenous rigidities.
Uncertainty exists because information is always imperfect. Investors do not truly know the actual rate-of-return on investments, for example; they make approximations and accept and try to calculate risk (differs from uncertainty). They do not know, a priori, the most efficient ways to organize their capital, ect ect. Uncertainty definitely deserves special theoretical attention.
The criterion by which the soundness of an argument is to be judged is NOT a head count of how many people believe it to be sound
thanks for the heads up.
(1) “Yes, there is a difference between the prices of outputs and the prices of inputs. Costs will fall faster than prices when the division of labor and capital expands, brought about by a lower time preference. Prices may fall faster than costs when the division of labor and capital is constricted by monetary and inter-temporal disequilibrium.”
Surely this is true—for individual businesses. Again, however, the output of one business is the input of another—that is, the “price” fetched by the one business is the “cost” born by the other. I fail to see how the analysis holds across businesses.
(2) “You’re putting words in my mouth, once again.”
Indeed. My bad.
(3) “The existence of imperfect information and endogenous rigidities are not, in anyway, disputed.”
I certainly don’t dispute the existence of imperfect information. On the other hand, so called sticky prices and sticky wages, however, I do question in the context of a free market. Your argument for their existence is merely (a) your argument vis-a’-vis prices and costs as per the above; combined with (b) the empirical fact of sticky prices and wages (in the context of a highly regulated market economy that we see all around us—and that Keynes saw all around him).
(4) "Some examples [i.e. of endogenous rigidities]:
1. Firms, rather than adjusting prices, may choose to slash inventories and investment.
2. Employers, rather than lowering wages, may choose to lay off workers.
3. Banks, rather than elevate the interest rate, may choose to expand the supply of money in the broader sense (the degree to which they may do this depends on many factors).
4. Some employers choose to pay a wage above the marginal productivity of labor in order to increase morale and productivity."
My objection remains: Namely, that none of these phenomena occurs in isolation—meaning that prices elsewhere will adjust accordingly (in a free market economy, that is) to EACH AND EVERY ONE of these activities 1-4 on your list. Certainly, price/cost disparity is readily apparent when analyzing a single firm. However, you have merely asserted—not demonstrated—the necessity of price/cost disparity among firms (again, in a free market economy).
Keynes argues similarly, to my knowledge, though his analysis ignores inter-firm transactions by focusing on aggregate data, whereas your analysis ignores inter-firm transactions by focusing on data for a single firm only.
(5) “Wicksell’s Interest and Prices is the cornerstone of Austrian monetary and business cycle theory (later expanded upon by Mises and Hayek). Wicksell, like Keynes (until the GT), had an endogenous view of money, where he rejected the mechanical quantity theory of money, and showed that the interest rate is the indirect transmission mechanism. Keynes retreated from this position in the GT, thanks to Hayek (he treated money as an exogenously fixed policy variable).”
This is interesting. So Hayek expands upon Wicksell’s endogenous view of money, by treating money as exogenous? Could you please elaborate a bit on this seeming contradiction?
How long ago did you read the GT? I grant that Keynsianism is coherent, but the GT was not. It took a lot of cleaning up by Hicks to get models like the IS-LM. He contradicts himself on many occasisions in the GT and constantly confuses real and nominal units.
np. it’s true. just ask around.
Precisely. When the aggregate demand for final goods and services falls, total revenue falls for each stage of production, but not in a proportional manor. The higher stages of production are effected less relative to the lower stages that yield the finished product or nearly yield the finished product. But, at the same time, a reduction in the aggregate demand for finished goods must, ipso facto, mean a higher demand for future goods, i.e., saving. This lowers the interest rate and the financial system funnels real savings towards investment activities (the higher stages are more sensitive to changes in interest rates). This lengthens the structure of production and lowers marginal costs at each successive stage (see Prices and Production). In other words, an elevated savings rate facilitates the division of labor and capital.
But this only holds if the interest rate is actually reduced. If it remains elevated above the natural rate, then total revenues will fall, but the structure will remain arbitrarily constricted (relative to where it should be if it truly expressed real time preference), and marginal costs will not fall by a sufficient degree, or at all.
No. Keynes originally began with an endogenous view of money and the Wicksellian framework in his earlier works. Unfortuantely for Keynes, Hayek absolutely obliterated his Treatise on Money, and showed that Keynes fundamentally misunderstood Wicksell. Keynes, in response, retreated from many of his original positions and treated money as an exogenous policy variable in the GT.
You are describing a hampered market, one with a natural rate of interest and an artificial rate of interest. This still fails to prove your thesis (and Keynes’) that prices and costs, to use your terminology, must by necessity remain apart in a free market.
Edit: remain apart, that is, at certain points and for materially detrimental periods.
I read essays by him - most notably ‘the end of laissez-faire’ and tried to read the General Theory, but it has as muddled as they say. I’m interested in reading the consequences of the peace; apparently; that one ought to be good.