The difficulty in untangling the disagreements between these two is that they agree on so much, and in a way after the point of disagreement they retain a family resemblance.
They agree: - the importance of money is to permit expression of effective demand - most money in a monetary-production economy is credit-money held as deposits in the banking system - there can be fundamental problems with effective demand in monetary-production economies under current financial institutions Here is, I think, a scenario that highlights the fundamental dispute, as near as I can see it. Consider the operation of a stable economy through a production period -- say, a quarter. There is a pool of savings, but there is NO net savings or dissavings in the quarter ... say, short term overdrafts are permitted, but they must be made good out of income, whether earned or borrowed from someone else. Now, all explicit costs of each firm are either earned income at the firm or payments to other firms. And then at these firms, they are split between earned income at THOSE firms or payments to other firms. If we get back to payments made near the beginning of the period for work performed in the previous period, these are roughly equal to work done toward the end of this period that will be paid for near the beginning of the next, so in the end, all costs can be resolved as income earned. Now, we could make the argument that part of the costs have already been received as income and spent in the previous income, but that would be a sliding window fallacy if we do not also recognise that this means that some money will be received as income this period that will not be resolved as costs of final production until the next period. If we let this economy begin growing, we will obviously be in an imbalanced position, but here the overall agreement between SC and the GT that something would be out of whack will get in the way, hence the stable economy assumption. Now, if I understand the argumnent correctly, unless there is a profit over and above this explicit cost, the producer will decline to continue production, and since incomes have been provided as costs, and prices must excess costs, then the incomes receieved will be insufficient to pay the price required for the product, unless there is recourse to new purchasing power. We have been assuming no net saving, and so lets add the assumption of no net credit. SC says that things must start winding down, and will keep on winding down. This is where I cannot see it. The profits are also income. The assumption of no net savings means that there is no net retained earnings. That means profits are distributed, and spent. So the costs plus profits provides the effective demand to pay for the price of the production, and the role of the stock of savings is just to act as a lubricant to exchange. In General Theory reasoning, this is a model of a monetary exchange economy. The reason is that in order to permit firms to use money to gain control over the means of production, there must be net credit. No net savings in the face of net credit will lead to the OPPOSITE of the SC A+B argument: more effective demand than the total price of the produce. A monetary-production economy is therefore incompatible with no net savings, and financial institutions must exist that permit income to be received but not directed to spending. The problem with effective demand, from the GT reasoning, is that once a given level of effective demand is generated from OUTSIDE the income-expenditure loop, then income will stabilise at a level that permits an equal amount to be HELD as saving. Specifically, as income is injected, it passes to a firm, where it is saving until it is disbursed, and etc. if it is disbured to another firm, while if it is disbursed as income it is saving until it is used to finance expenditure, at which point is is received at a firm ... AND SO ON AND SO ON ... until someone receives it and is able and willing to hold it as saving. Hence the argument that exogenous demand and propensity to consume determine the level of effective demand, and this may easily be at a level that does not result in the full productive capabilities of the economy being brought to work. So that is, as far as I can tell, the core of the dispute. Income = Cost Cost+Profit = Price x Quantity, ergo Income < Price x Quantity versus Cost is Income, Profit is Income Cost+Profit = Price x Quantity, ergo Income = Price x Quantity ==^================================================================ This email was sent to: archive@mail-archive.com 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. FREE! http://www.topica.com/partner/tag02/create/index2.html ==^================================================================
