me:
>> I don't quite get the drift of what you're saying. I wasn't talking
>> about solvency but about the need to maintain the distinction between
>> "real goods & services inflation or deflation" and "asset-price
>> inflation or deflation." Market clearing does not seem to be a
>> necessary topic in that discussion.
John Vertegaal:
> I understood you to mean by: "keep[ing] real goods & services inflation
> or deflation conceptually separate from asset-price inflation or
> deflation" that there were no influential connections between the two;
> each having their independent building blocks. IOW, at least to a large
> extent, independently determined. I tried to explain why you cannot look at
> them in isolation. More about solvency later.
no. "Conceptually separate" does not mean there are no shared
characteristics or interactions between real goods & services (and
their price changes) on the one hand, and assets (and their prices) on
the other.
My body and its local environment are conceptually separate, but both
involve oxygen (and a lot of other elements). There's also a lot of
inhaling and exhaling going on (and a lot of other interactions).
"Conceptually separate" refers to the way in which we look at the
world, not to the world itself.
me:
>> If a stock magnitude can be sold, then it has a determinate price on
>> the market. As far as capitalism is concerned, that's its value.
JV:
> A determinate price means the system is in equilibrium and ready to move
> on.
Maybe the system (or more accurately, the market for that stock
magnitude) is in equilibrium, but that equilibrium might be only a
short-run equilibrium, which means that there may be endogenous
reasons for change (to attain a longer-term equilibrium). See the
reference to Minsky, below.
> I'm saying, there invariabl[y] are systematic consequences to such a
> sale that in aggregate could even bring the system down; capitalism's
> axioms are powerless to detect that capital values are indeterminate.
I think it's a big mistake to refer to capitalism as having "axioms"?
Rather, _thinkers_ have axioms in order to (try to) understand the
object of our thought (in this case, capitalism). Axioms are mental
constructs, not real phenomena. We'd like the two to be as similar as
possible, but axioms and phenomena rarely if ever coincide.
BTW, what "sale" are you referring to here? [by the way, here and
below, at least for me in the context of this discussion, "values"
refers to prices, not to the Marxian concept of values or to moral
values.]
> However, I'm interested in _your_ point of view regarding determination; not
> in capitalism's, which I reject on a level where you still seem to agree
> with it.
Capitalism's rules (or "laws of motion") apply in a capitalist
economy. I don't agree with the morality they imply. Rather, if you
want to understand what's going on in a capitalist society, it's good
to get some understanding of those rules. We don't know what
capitalism's true laws of motion are, but we have some very good
guesses.
> IOW, I'm trying to get a grip on your defense of economic theory and its
> ability to explain the economy's functioning on the one hand; while on the
> other, as a Marxian you must be convinced of deep-seated theoretical
> shortcomings that are bound to lead to its collapse. Are you playing devils
> advocate, or what is your stance here?
here, as far as I can tell, "economic theory" is nothing but supply &
demand, something that Marx never rejected. Do you reject the general
idea of supply & demand, so that I must feel compelled to defend it?
BTW, supply & demand do not explain the economy's functioning, only
the functioning of one part of it. (It also doesn't have to S&D
described in imaginative stories of perfect markets.)
More importantly, it's a big mistake to presume that you know anyone's
theoretical perspective without asking them. (It's an insult, by the
way, but I have a thick skin.) I am _not_ convinced that capitalism
is always on the edge of collapse. It has gone for long periods
without collapse, because (1) it's able to dump costs on working-class
and third-world people and (2) those people aren't organized enough to
resist that dumping and to reverse the process.
JV, earlier:
>>> Once one agrees however, that a stock without a return is valueless, and I
>>> don't think anyone can disagree with that, you at least don't seem to do so
>>> when you say "that financial assets are, strictly speaking, nothing but
>>> claims on real goods and services (now and in the future)"; there is no
>>> other way to *determine* the value of a stock but through a flow. <<<
me:
>> right, but the value of the stock is conceptually separate from the flow.
JV:
> ??? If I take "conceptually separate" to mean independently determined, this
> does not make sense to me. Additionally, we have a problem between ex ante
> and ex post; maybe this will clear itself up later...
Again, "conceptually separate" refers to something in one's mind,
i.e., one's mental concepts. That is different from being separate in
the real world.
JV, earlier:
>>> So, in order to be consistent: up until that flow has taken place, all
>>> stock magnitudes are indeterminate.
me:
>> before the flow has taken place, the value [of] all stock magnitudes are
>> based on _expected_ flows.
JV:
> Exactly, agreement already. But now the question becomes whether those
> expectations are exogenous impulses and by definition are resulting in
> indeterminate values, which is my position;
I don't see how the idea that expectations are "exogenous impulses"
automatically implies indeterminate values. In one interpretation of
Keynes, for example, the "state of long-term expectations" is
exogenously given, which in turn can determine an underemployment
equilibrium. The result is determinant, since the more pessimistic
expectations are, all else constant, the more unemployment there is in
equilibrium.
> or, whether you believe that
> endogenous rationality of its economic agents *determines* equilibrium
> magnitudes at all times, thereby ruling out the occurrence of crashes at
> any time.
Individuals determine their expectations of future flows of profit
based on their personal experience in the system and the information
they receive from others. This may or may not be "rational." An
individual may act rationally (in the economic sense of trying to
attain consistent and pre-determined goals as completely as possible).
But part of the data an individual acts on (the "fundamentals")
involves others' guesses about the future. So we might get into the
"betting on a beauty contest" process that Keynes described: for
example, people may rationally pay more attention to what others think
about the future of an equity's price instead of to the actual
dividends (etc.) that the company has reaped.
In other words, like in many or most capitalist markets, the market
for equities (the "stock market") may involve individual rationality
but collective irrationality. We can have crashes (or bull markets)
because of -- or despite -- "endogenous rationality" (whatever that
is).
> Which is it? Or perhaps, do you have some other explanation of
> _determining_ the expected flows' magnitudes? If you don't, would it not
> be sensible to concede that perhaps economic values _are_ indeterminate and
> therefore a potential cause of systematic collapse?
I do not see the admission that economic values are indeterminate as
somehow a concession. At any specific point in time when the equities
market is open, for example, there are a lot of different offer prices
and a lot of different bid prices for any specific equity. So you
might say that the price is "indeterminate." But there are
supply/demand forces pushing the offer and bid prices to converge.
(Sellers would like to sell (up to a point), while buyers want to buy
(up to a point).) I don't see why this indeterminacy automatically
implies that the market for that equity is on the verge of collapse.
Even more, even if the market for a specific equity _is_ on the edge
of collapse, that says nothing about the equities market _as a whole_.
The US stock markets, for example, have circuit breakers: if a
stock-price falls drastically, dealing in that stock is shut down.
If the entire Dow falls drastically, the entire New York Stock
Exchange can be shut down. Even if the stock market does collapse, I
don't see how this automatically causes "systematic collapse." After
all, the Federal Open Market Committee can and does act to stem the
spread of a financial crisis outside of Wall Street, as in 1987 or
2007-08.
<ellipsis>
JV:
> Only if you fall for the conventional idea of the macro being based on
> micro principles. As a Marxian, you possibly cannot see anything wrong with
> that view?
_Of course_ I reject "microfoundations of macro" reductionism. I never
proposed anything different. Don't be patronizing, please.
> A GT Keynesian would disagree and this controversy in one form or
> another has been keeping heterodox thought divided for what seems forever.
what controversy? BTW, I see no major obstacles to learning from both
Marx and the GT. Keynes fills a lot of holes in Marx's theory (and
vice-versa).
> Actually, as I will try to show later, there is no causal connection
> whatsoever. Given imperfect available information, nothing an individual
> does with his "equity" has any determinate effect on the stability of the
> system as a whole.
It's not the individual who drives the market, but the large number of
individuals as a group (a group with a lot of internal interaction). I
reject the "representative agent" nonsense so popular among mainstream
economists. (Serious neoclassicals do too.)
> It is the resolution [??] of capital values that provides this
> systematic stability; not what individuals are doing with respect to
> increasing economic "wealth". The admission that the value of a stock
> without a return is nil, and only *determinable* through flows doesn't just
> move the goalposts on the same playing field; it turns the playing field
> upside down, unless and this now becomes imperative, you can show exactly
> what determines that connection ex ante.
huh? I don't understand. I think you may be battling a straw man. I
don't accept the microfoundations of macro crap. I do not reject
Keynes.
JV, then:
>>> It is not such a big deal that all economic
>>> equity signifies an unresolved debt, for that's the meaning of a _claim_;
>>> or, at least there is no reason for it to be disconcerting to those with
>>> a social conscience.
Me:
>> in economics, "equity" refers to net worth, one's capital. It does not
>> correspond to debt. If I own stock in Microsoft, it's like I'm a
>> partner in the business. It's not that they owe me money in a
>> contractual sense, even though I may expect and hope to be paid
>> dividends and/or capital gains. My stock represents a claim on their
>> property (software, etc.) but it's different from a debt claim.
JV:
> I agree, your explanation seems to make perfect sense; but it presumes as
> you said _some_ [ex ante] connection between its value as a stock and a
> [returning] flow. So, what is a piece of owned Microsoft worth, if MS owned
> the entire world? Such a reductio ad absurdum would find MS profit earning
> income dependent on the direct spending of its own profit income earners.
> What has become the point now, of charging profits over costs in the first
> place? May as well determine shareholder share of output ex ante as a cost.
> No? So the point is, it's not any physical presence, but the power of the
> account setter on the demand side that determines.
I'll ignore the last part of this, because it does not make sense to me.
What's the point of "charging profits [prices??] over costs"? That is,
what's the point of profits? In this hypothetical case, there's a
small minority of the population (the capitalists) who would own MS.
They would want to live well, living the luxurious life to which
they've become accustomed, so they'd want to continue to exploit the
majority (the workers). They'd likely stop the public trading of the
stock in this case, BTW, so that the equity would have no price. But
they'd still own MS; the equity would still not be the same as debt.
> Capital, stock, equity, whatever you want to call it, is therefore not
> valuable in and of itself, at least not in terms of its unit of account.
right, that's what I said.
> Instead, the determinant of "generated" profits on behalf of capital
> accounts in a multi-producer environment, is in fact _others_ putting up
> advances, i.e. going into debt through providing new income and with it
> potential demand, in the realistic _expectation_ that others still, will
> reciprocate in kind. And it so happens, that in normal times, indeed they
> do; and just about every stock _seems_ to materialize returns, in the way
> conventional economic theory teaches it does.
the generation of any specific company's profits is based directly or
indirectly on the extraction of surplus-value. There does have to be
enough aggregate demand to realize the surplus-product as money
(surplus-value), but that aggregate demand does not have to be based
on debt accumulation. Debt accumulation only helps. The US economy was
very profitable during the 1950s and 1960s without either private or
government debt rising relative to GDP.
> In other words, a time involving obscure circuitous process, without a
> "savings" spatial relation, _appears_ as a common linearity, implying
> determinate values and the possibility to build up or draw down savings at
> will, every step of the way. But normal times don't preclude crashes!
did anyone say that "normal times" preclude crashes? not I. As Minsky
(another Marxo-Keynesian) pointed out, persistently "normal" times can
encourage excessive leveraging and financial fragility. Normal times
can sow the seeds of their own destruction.
> The potential for crashes occurs when the policy of powers that be, has been
> able to convince individuals to build up wealth in terms of a unit of
> account; oblivious to the fact that the value of the unit of account itself
> diminishes in that same process.
why is it that the "powers that be" have to "convince" people to use
money (the unit of account)? isn't the use of the unit of account part
of the workings of any economy not suffering from hyperinflation?
why is it that the value of money (the unit of account) diminishing?
sometimes an increase in the supply of money encourages inflation and
decreases the value of money (as nowadays), but sometimes it doesn't:
when capitalism is significantly below full employment, Keynes pointed
out that raising the money supply (or the stock of high-powered money)
can stimulate increases in real production, the realization of
profits, etc. To rule out the second case, we need to embrace Say's
"Law" (or what should be called Say's Fallacy).
> The above described overall economic
> account of debt acquisition and resolution, now becomes saddled with
> additional resolution requirements that it cannot handle; since all
> generated income in the real-goods economy is already required for the
> resolution of its own output. The crash actually occurs when it becomes
> obvious that an evolutionary resolution of this debt has indeed become
> impossible; and a substantial number of players try to "cash out" in
> uninflated terms and leave the system.
I don't understand.
> The magnitude of your above "net worth" therefore, is abstracting from the
> essential time element, during which its accounted for wealth is resolvable
> and returns standard of living _in real terms_ to its owner.
does abstracting from the "time element" mean that there is some sort
of absolute barrier between a "diachronic" moment in time (being
considered here) and the "synchronic" "essential" process over time?
no, because being conceptually distinct does not imply that the actual
parts are separate in the real world.
> Without this
> intrinsic limitation on the meaning of wealth, economics as I see it becomes
> quackery.
are you saying that, in the end, net worth has to correspond to real
assets ("capital goods" that are actually used in production)? who
could disagree? not me.
In the end, the price of equities have to be consistent with the real
production of surplus-value (or the redistribution of really-produced
surplus-value from another sector). However, in practice, the prices
of equities (stocks) can be totally fictitious, based on irrational or
unrealistic expectations, as with Keynes' story of betting on a beauty
contest. If the two (the fundamentals and the actual price) get out of
line, with the former far above the latter, there can be a steep fall
in the equity price.
> BTW, the power of satiation is a potent ally in the equitable
> distribution of wealth, when returns are limited to be those in real-terms
> only; quite possibly much more so than most Marxians realize.
huh? are you saying that rich people sometimes get so rich that they
get bored with it and give some of their wealth away? that's sometimes
true, but usually not. Usually, they give money to some tax-free
foundation which they control and use to provide jobs for useless
relatives and to provide "charitable events" where they can drink and
hang out with their friends and cronies.
> But also note
> that the above delineation does not really refer to a Marxian command
> economy, with its helicopter money;
By a "Marxian command economy," do you mean the late unlamented USSR?
they didn't use "helicopter money." None of the Soviet-bloc countries
did. I have heard rumors that Chiang Kai-shek's Chinese government
once dumped money out of airplanes, but he wasn't a Marxist.
Are you denying that the money we use is ultimately based on
government fiat? is that what the reference to "helicopter money" is
about? I would say instead that our money is currently based on state
power.
> but only to a balance-sheet regulated,
> free-market, living standard providing one. [??] Accounts in the latter are
> furthermore to be understood as notional only, since there can never be a
> universal identity at any point _in_ time; but only an ongoing process,
> potentially in dynamic equilibrium _over_ time. That is also why solvency
> kept reappearing in my argument, just like time it is a vital entity and
> cannot be abstracted from.
please explain.
> I'm snipping, at least for now, the rest of the post. Bringing in Keynesian
> identities was unhelpful to say the least; as the above goes too far beyond
> him to be able to draw easily fitting parallels. Even though they are there,
> I concede to making mistakes while trying to use them before; but if you
> deem it worthwhile, I'm also willing to retrace. I hope that herewith I
> summarized my perspective, for whatever it's worth, that you had asked for
> in the snipped part of the post. I much appreciate the opportunity of being
> able to bring this alternative and quite deep going indictment of
> capitalism's exculpating theories to the fore, but wouldn't mind at all if
> someone smarter than me were to refute its logic, so I could spend the rest
> of my life doing something else; rather than being a bothersome gnat, trying
> to convince patient and open minded economists like yourself of internal
> contradictions and/or gaping holes in their theories, that seem to defy all
> attempts at closure.
I think it would be useful if you were to explain your point of view
by starting with first principles. Are you following a specific
thinker's point of view, or is all yours?
BTW, if you're going to try to convince me (thanks for the compliment)
of the "internal contradictions and/or gaping holes" in my theory, it
would be best if you first tried to understand what I'm talking about.
--
Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own
way and let people talk.) -- Karl, paraphrasing Dante.
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