Error or Lack of Clarity?  
  
  
   Steven Kates deserves our thanks for his work on Says Law and his recent  
   clarification in this thread.  
  
  
   Says Law of Markets concerns market clearing. Sadly, the debate remains  
   essentially unresolved owing to severe lack of clarity. What exactly is it  
   that  we  are  trying to grasp?  The term error is too provocative and  
   aggravating. I would prefer the term vagueness to error.  
  
  
   The search for conditions of market clearing may add some clarity and hence  
   help  us  remove some confusion. One of the first things to do in this  
   connection is to choose a set of rigorously defined variables.  I could cite  
   endless passages from Smith, Malthus, Say, Ricardo, Marx, Mill, Marshall,  
   Wicksell, Keynes and others to show that they frequently used terms vaguely  
   such that when they should have said income, they said demand or and so on.  
   This  is  an  argument in favor of rigorous use of symbols for precise  
   analysis.  
  
  
   The precision is helpful because it opens up the various distinct scenarios,  
   each  with  its own set of equilibrium conditions. For example, market  
   clearing is not a problem at all if there is no market: when the seller is  
   the buyer himself. There is a problem of double coincidence in kind if  
   barter is possible, and that problem does not exist under autarky. This  
   significantly  affects  the analysis. Most importantly, indirect trade  
   requires additional conditions of what I called multiple coincidence in  
   order to permit the creation of artificial double coincidence with money as  
   an artificial good. The whole point is that if we define the terms precisely  
   and sort out the various possible scenarios, we can learn more about market  
   clearing than if we remain vague.  
  
  
   The Keynesian articulation of market clearing in terms of broad aggregates  
   of  C+I+G+X-M has its own virtues as it permits explorations of important  
   relations among these variables, but it also carries  severely crippling  
   confusion between money and credit respectively as tools to transfer value  
   within a given current period and to store value between periods. I have  
   found  that  indirect  trade  requires a transfer of value that can be  
   accomplished with fiat money which is most certainly not a store of value,  
   because  it is acquired to be spent instantly in principle (within the  
   current  period). It has nothing to do with savings or storage of value.  
   Credit however is a separate matter that involves storing value.  Credit  
   cannot  explain  business cycle or the multiplier, because there is no  
   transmission mechanism.  All these critically depend on precise use of terms  
   for  money,  credit, savings, and spending, lending and borrowing, and  
   paying.  I have found [Gani 2003] that it is easy to separate the function  
   of the means of payment with a Wicksell Matrix of indirect exchange, and  
   then add money to create a Keynes Matrix. Comparing the matrices shows  
   clearly  what Keynes wanted to explain but could not. Showing that the  
   [savings-investment  equilibrium]  is independent of the [real balance  
   equilibrium] removes the confusion that kept Keynes open to the kinds of  
   criticism Steven Kates refers to in his reply, and in is edited book.  
  
  
  
  
   By  the  real  balance  equilibrium under indirect trade means that an  
   individual sells real output of exactly equal value that he buys back in  
   real goods, and yet he must buy money and sell all of it too. Thus John may  
   sell one dollar of real good x to Tim, and buy one dollar of real good y  
   from Paul; but he cannot do this without also buying one dollar in fiat or  
   commodity money from Tim and then selling one dollar in fiat or commodity  
   money to Paul to balance the payments in each transaction, one with Tim and  
   one with Paul. The use of money can occur only within a payment circuit in  
   which money starts its journey from a given point and must return to the  
   point  of  origin.  If the payment circuit is used, Keynes is suddenly  
   vindicated. That is, Keynes knew the correct conclusion, but did not know  
   how to reach it.  
  
  
   I hope that study of history will be rewarding with some careful rewording  
   of past masters. I fully agree with Steve that profound insights were gained  
   by past masters, but I would add that those insights cannot be grasped by  
   our  generation unless we do some work on using words and symbols with  
   precision.  
  
  
   Mohammad Gani