The exchange below came to the attention of Bill Ryan who asked me to post it on Social Credit.
Before anything else, I have to say that I misunderstood Gunnar's "Final Demand Inflation". Gunnar's thought had to do with Keynes' "It is much preferable to speak of capital as having a yield over the course of its life in excess of its original cost, than as being productive." (Chapter 16 of The General Theory). It had to do with an analytical question of what the "source" is of this profit. Shumpeter (Forward, The Theory of Economic Development) appears to have pondered on the same question: "I have not been able to convince myself that such questions as the source of interest are either unimportant or uninteresting." Keynes and Shumpeter neglected to analyze the problem further. Gunnar's thesis appears to be that in the real world "debt financed consumption cannot sustain full employment in the face of maldistribution of factor income." I suppose Gunnar would be the one best to carry the thought forward as I also wonder why one should not be satisfied with capital being scarce per se. I hope he is on the list. But, like I stated, I misunderstood and took the term Final Demand Inflation in the context of the question, "In the final analysis, what gives growth to aggregate demand?" The answer has seemed to me quite evident -- population growth. Without it, stagnation like Japan's is inevitable. And, this is particularly true in our age where technology has driven the pace of growth, overshadowing labor's contribution to value with maldistribution effects magnified. Technology and the demand for capital that technology entails is what gave "factor capital" its edge over labor. I append my clarificatory email to Gunnar as well as the original thread. THE EXCHANGE BETWEEN GUNNAR AND MYSELF: <And, given that explanation, the proposition that "the only reason why an asset offers a prospect of [profit] is because it is scarce" is revealed to be only part of the answer and contingent on Final Demand Inflation.> ---------------------------- >If I understand this concept correctly, the concept then supports that the idea that the population in an economy has to continually grow. And, corollarily, we have the implication that the problem of poverty is reduced to one of wealth distribution and charity.< >It would also appear that the growth engine could also be one of the growing needs of a static population driven by technology. But, wouldn't this mean that output has to increase either by hours worked or by means of technology? And, if this is true, isn't this a dead end? As the population ages, consumption decreases, is this not anxiomatic?< >I am continually convinced that today's economics is bankrupt of ideas and those that make more sense have no chance of going mainstream. Keynes' theories was a good try. But, it seems to me that if I continue to spend all the income I earn (and, it will be worse, if I borrow since debt's cost does not go back to real spending) a status quo is all I can hope for, at best. And, especially since wealth continues to be driven towards the financial sector to be put in bonds and the like and since the purchasing power of savings continues to be eroded, real demand has to decline over the long term.< >I think I read somewhere that aggregate net income due to interest is now greater than the aggregate net income due to manufacturing.< ------------------------------ MY CLARIFICATORY EMAIL TO GUNNAR: Thanks for the correction. Tell me if I now understand the concept: "It is much preferable to speak of capital as having a yield over the course of its life in excess of its original cost, than as being productive." In my mind, this is not only "preferable" as Keynes chooses to say but a necessary definition since "being productive" means the production of a value that was not there. Capital merely has a yield because it it shares in the value produced by labor. In Keynes words, "I sympathise, therefore, with the pre-classical doctrine that *everything* is produced by labour, aided by what used to be called art and is now called technique...". That capital without labor can not produce value is implied when he says, "It is preferable to regard labour, including, of course, the personal services of the entrepreneur and his assistants, as the sole factor of production, operating in a given environment of technique, natural resources, capital equipment and effective demand." (Was Keynes influenced by Marx?) Naturally, the relative distribution of value between capital and labor depends on the scarcity of either. Again for Keynes, "If capital becomes less scarce, the excess yield will diminish. . ." But, yield would also diminish if labor becomes scarcer, no? The concept of Final Demand Inflation is introduced in a special situation (I may be inadvertently inserting my thoughts here) as opposed to the above being the generalization. This is when labor's share of any value created is lessened in favor of capital when technology abruptly displaces labor and, especially, when the wages paid to labor is in the form of a debased money. Aggregate demand necessarily decreases in the long term as factor income is channeled towards capital, the holders of which are increasingly fewer in proportion to labor. Aggregate demand management (spending by an artificial person) therefore is necessary if aggregate demand is to be maintained. Demand has to be inflated, so to speak, by debt. This holds for a closed system. The system is unsustainable. It's unsustainability however has been imperceptible, it being a very slow deterioration and because (1) wages are eventually adjusted upwards with labor demanding its just share of value creation. (2) And with the resulting instantaneous increase in aggregate demand, capital spending occurs creating both supply and more demand. (3) Besides, the system was never closed as new markets were opened. This time around factor income was channeled to factor capital only on a transnational scale. But, the bust eventually comes as an open system becomes a closed system when markets are saturated and enough factor income has been transferred to factor capital. It all started with the Industrial Revolution which changed the guilds and craftsmen into laborers. > > > > > >----- Original Message ----- > >From: "Gunnar Tomasson" <[EMAIL PROTECTED]> > >To: <[EMAIL PROTECTED]> > >Cc: "Gang8" <[EMAIL PROTECTED]> > >Sent: Friday, January 24, 2003 3:48 AM > >Subject: Keynes - Creditary Economist? > > > > > >John Stuart Mill's confident assertion in his Principles that "Demand for > >commodities is not demand for labour" is curiously at odds with the > >Keynesian rationale for Aggregate Demand Management - for how could two > >brilliant minds draw such radically conflicting conclusions from the facts > >of the matter? > > > >The answer to that question, it seems to me, resides in the distinction > >between Cooperative and Command-based Production Systems which I posted to > >Gang8 earlier today as follows: > > > >An Economic System is a man-made set-up whose essential features are > >designed to serve specific desired ends. > > > >The Creditary Principle reflects the 'logic' of all Cooperative (as distinct > >from Command-based) Production Systems. > > > >That is to say: > > > >In the context of such Production Systems, Money = IOUs which (a) > >Entrepreneurs hand over to Owner/Suppliers of Factor Inputs at one end of > >the production line, and (b) Owner/Suppliers of Factor Inputs hand over to > >Entrepreneurs in exchange for Output at the production line's other end. > > > >For, while Mill's is indisputably valid for a Cooperative Production > >System, it has no bearing whatsoever on any kind of Command-based Production > >System - including real-world economies with which Keynes was concerned, in > >which 'commands' are issued by and on behalf of Finance Capital. > > > >In Ch. 16 of the General Theory, Keynes stated his 'preference' for what > >Gang8 would term the Creditary View of Finance Capital as follows: > > > >"It is much preferable to speak of capital as having a yield over the course > >of its life in excess of its original cost, than as being productive. For > >the only reason why an asset offers a prospect of yielding during its life > >services having an aggregate value greater than its initial supply price is > >because it is scarce; and it is kept scarce because of the competition of > >the rate of interest on money. If capital becomes less scarce [as under a > >monetary regime reflecting Creditary Principles - insert], the excess yield > >will diminish, without its having become less productive - at least in the > >physical sense. > > > >"I sympathise, therefore, with the pre-classical [read: before John Stuart > >Mill, Edgeworth, and Marshall - insert] doctrine that everything is produced > > by labour, aided by what used to be called art and is now called technique, > >by natural resources which are free or cost a rent according to their > >scarcity or abundance, and by the results of past labour, embodied in > >assets, which also command a price according to their scarcity of abundance. > >It is preferable to regard labour, including, of course, the personal > >services of the entrepreneur and his assistants, as the sole factor of > >production, operating in a given environment of technique, natural > >resources, capital equipment and effective demand. This partly explains why > >we have been able to take the unit of labour as the sole physical unit which > >we require in our economic system, apart from units of money and of time." > >(The General Theory, Ch. 16, ii) > > > >In addressing related issues on Gang8 yesterday, I commented as follows: > > > >Keynes never gave a clear statement on why "capital [can] have a yield over > >the course of its life in excess of its original cost" - my own concept of > >Final Demand Inflation provides the missing explanation. > > > >And, given that explanation, the proposition that "the only reason why an > >asset offers a prospect of [profit] is because it is scarce" is revealed to > >be only part of the answer and contingent on Final Demand Inflation. > > > >Gunnar > > > > > > > _____________________________________________________________ > Get 25MB, POP3, Spam Filtering with LYCOS MAIL PLUS for $19.95/year. > http://login.mail.lycos.com/brandPage.shtml?pageId=plus&ref=lmtplus ==^================================================================ This email was sent to: [email protected] EASY UNSUBSCRIBE click here: http://topica.com/u/?a84IaC.bcVIgP.YXJjaGl2 Or send an email to: [EMAIL PROTECTED] TOPICA - Start your own email discussion group. 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