I am delighted to clarify for Giancarlo what appear to be his
misunderstandings of my earlier points:
Giancarlo de Vivo wrote:
> James Ahiakpor seems to think that it is wrong to maintain with Keynes
> that saving is "not spending": according to him even hoarding is
> spending. Does he mean that if I bury a hundred dollars in my mattress
> I am _spending_ the sum? This is new to me and would very much
> appreciate if he could enlarge on the point, and also give me a
> reference to passages of Ricardo where he maintains the same, as
> Ahiakpor writes.
My main point about Keynes's definition of saving as "not spending" is
that it confuses saving with cash hoarding. Thus, I explained that
*income* net of taxes is spent in three ways, (a) consumption, (b)
saving, and (c) hoarding cash. Clearly, other than borrowing (or
stealing), no one comes into the possession of cash without surrendering
or turning his or her income into cash. That is the sense in which one
spends one's income to acquire the liquidity services of cash. On the
other hand, when one spends income to purchase consumption goods or
services, it is to effect immediate enjoyment. And when one spends
income to acquire an interest- or dividend-earning (profit shares)
assets in the act of saving (correctly understood), it is to delay
immediate enjoyment (consumption) in return for some future reward,
besides the repayment of the principal thus invested. The issuers of
the IOUs that a saver purchases spends the proceeds. That is why,
following Adam Smith, Ricardo maintained that savings are spent. See
Sraffa's very useful General Index for Ricardo's /Works and
Correspondence/ (to which Giancarlo also earlier referred) on page 90,
second column. In particular, "saving is spending, II, 449, VIII, 181,
X 409." Below that is written, " [saving] cannot be a cause of
stagnation, disagreement with Malthus, II, 325, IX, 24, 26-7: see also
VII, 121."
> He also seems to identify saving with accumulation of capital. If he
> means accumulation of REAL capital, does he mean that if I buy a
> Credit Default Swap as hedge against Greece's sovereign bankruptcy I
> am adding to the stock of real capital?
The first column of page 90 of Sraffa's index also lists Ricardo's works
explaining the link between saving and capital accumulation, including
I, 131, 152 n., 166-7, II, 8-9, 383, 390-3, 402, III, 281-2, V, 438, VI,
16." In particular, Giancarlo can find Ricardo's adherence with Smith's
(/WN/, Chicago, 1976, 1: 295) distinction between circulating and fixed
capital in Works 1, 31 and other references in the second column of page
14 in the general index.
As I earlier explained, "capital" on the part of households is their
savings or loanable funds. It is "capital" employed in the sphere of
production that takes the form of fixed or circulating capital. Clearly,
purchasing a Credit Default Swap does not add to anyone's physical
capital, which I take Giancarlo's "REAL capital" to mean. No one's
homeowner's insurance premium adds to their physical possession. It is
merely a hedge against the possibility of property loss through fire,
theft, or any such hazard.
Perhaps Giancarlo (and anyone else having a problem with the classical
meaning of saving) would benefit from this extensive explanation from
J.S. Mill on the meaning of saving:
"The word saving does not imply that what is saved is not consumed, nor
even necessarily that its consumption is deferred; but only that, if
consumed immediately, it is not consumed by the person who saves it. If
merely laid by for future use, it is said to be hoarded; and while
hoarded, is not consumed at all. But if employed as capital, it is all
consumed; though not by the capitalist. Part is exchanged for tools or
machinery, which are worn out by use; part for seed or materials, which
are destroyed as such by being sown or wrought up, and destroyed
altogether by the consumption of the ultimate product. The remainder is
paid in wages to productive labourers, who consume it for their daily
wants; or if they in their turn save any part, this also is not,
generally speaking, hoarded, but (through savings banks, benefit clubs,
or some channel) re-employed as capital, and consumed." (2: 70)
James Ahiakpor
>
> Giancarlo de Vivo
>
>
> Il giorno 28/gen/2014, alle ore 19.33, James Ahiakpor ha scritto:
>
>> Ricardo understood correctly that income net of taxes is spent in
>> three ways, (a) consumption, (b) saving (purchase of interest- or
>> dividend-earning assets), and (c) hoarding in cash. Regarding
>> Malthus's fears that there may be a deficiency of demand because of
>> too much saving, Ricardo remarked: "Mr. Malthus never appears to
>> remember that to save is to spend, as surely, as what he exclusively
>> calls spending" (2: 449). Modern interpreters of the classical
>> literature who interpret saving to mean simply "not spending," as
>> Keynes incorrectly introduced into the language of economics, are apt
>> to side with Malthus in that debate. But those who understand saving
>> to mean spending one's income "reproductively" or the transfer of
>> one's income to borrowers who spend it correctly side with Ricardo.
>> Such it is that J.S. Mill pointed out that "Nothing can be more
>> chimerical than the fear that the accumulation of capital [savings]
>> should produce poverty and not wealth, or that it will ever take
>> place too fast for its own end" (1874, p. 73).
>> Furthermore, moderns who use Keynes's definition of investment to
>> mean only the purchase of producer's goods find a problem with the
>> explanation that savings always equal investment. But not those who
>> understand investment to mean the purchase of financial assets or the
>> employment of savings or loanable funds in the sphere of production,
>> as the classics and early neoclassicals such as Alfred Marshall, used
>> the term. Such understanding recognizes investment in the sphere of
>> production to take the form of fixed capital and circulating capital,
>> the latter including the wages fund and cash-on-hand. Unfortunately,
>> given the persistence of Keynes's definitions of terms, contrary to
>> those of the classicals, the confusion in understanding the classical
>> literature, including the law of markets, endures.
>> And then there are those who persist in ignoring J.S. Mill's
>> explanation regarding the law of markets that "In order to render the
>> argument for the impossibility of an excess of all commodities
>> applicable to the case in which a circulating medium is employed,
>> money must itself be considered a commodity. It must, undoubtedly,
>> be admitted that there cannot be an excess of all other commodities,
>> and an excess of money at the same time" (1874, p. 71). Also, "it is
>> sheer absurdity that all things should fall in value, and that all
>> producers should, in consequence, be insufficiently remunerated"
>> (3:572). That is why an excess demand for money translates into an
>> excess supply of other commodities such that prices fall while the
>> value of money increases.
>> The law of markets applies at all times, not only in the medium term
>> and long run.
>> James Ahiakpor
>>
>>
>> On Mon, Jan 27, 2014 at 6:00 PM, Lilia Costabile <[log in to unmask]
>> <mailto:[log in to unmask]>> wrote:
>>
>> Malthus reasoned quite well in his rejection of Say's Law. This
>> law consists of two propositions. First, supply creates an income
>> equivalent to its value. Second: all income is spent.
>>
>> Malthus accepted the first, but not the second proposition:
>> ”Effectual demand consists of two elements, the power and the
>> will to purchase…I by no means think that the power to purchase
>> necessarily involves a proportionate will to purchase; and I
>> cannot agree with Mr.Mill …that, with reference to a nation,
>> supply can never exceed demand. A nation must certainly have the
>> power of purchasing all that it produces, but I can easily
>> conceive it not to have the will”. (Malthus, letter to Ricardo,
>> September 11, 1814 , in Ricardo, The Works and Correspondence,
>> edited by P.Sraffa, vol VI,132).
>>
>> By contrast, Ricardo accepted both propositions, as his reply to
>> Malthus shows very clearly: “We all agree that effectual demand
>> consists of two elements, the power to purchase and the will to
>> purchase, but I think that the will is very seldom wanting when
>> the power exists… we all wish to add to our enjoyments or to our
>> power. Consumption adds to our enjoyment, accumulation to our
>> power, and they equally promote demand” p.133).
>>
>> Ricardo thought that income is entirely spent, for either
>> consumption or investment purposes, i.e. he conceived that
>> savings (income not spent for consumption purposes) is entirely
>> converted into investments . Consequently, he argued that "demand
>> is only limited by production" (Ricardo, The Works…, vol.1,
>> p.290). He admitted that demand may fall short of supply only on
>> individual markets (excess supply on one market would be
>> compensated by excess supply in other markets), in such a wise
>> that sectoral disproportions were possible, but not a general
>> excess of supply over demand.
>>
>> Contrary to Ricardo, Malthus saw that investment may not fill the
>> gap between income and consumption, when investment outlets are
>> lacking. See, e.g. “Where are the understocked employments which,
>> according to this doctrine [Ricardo’s theory of disproportions,
>> NdR] ought to be numerous and fully capable of absorbing all
>> redundant capital, which is confessedly glutting the markets of
>> Europe in so many different branches of trade?”(Malthus,
>> Principles of Political Economy…2nd ed.1836, p.420).
>>
>> On this difference between Malthus and Ricardo see also Keynes,
>> “Thomas Robert Malthus. The first of our Cambridge economists”
>> (in Keynes,Essays in Biography)
>>
>> Lilia Costabile
>>
>> Il giorno Jan 27, 2014, alle ore 8:45 PM, Giancarlo de Vivo
>> <[log in to unmask] <mailto:[log in to unmask]>> ha scritto:
>>
>>> I am afraid that Malthus (at least at one point) agreed with
>>> Ricardo that public spending would not create additional work
>>> (see his letter to Ricardo in vol. XI of Sraffa's edition of
>>> Ricardo's Works, p.x-xi): "I quite agree with you in thinking
>>> that the funds raised for the support of the poor (though
>>> perhaps necessary at the moment) essentially interfere with
>>> other employments". But Malthus at difference with Ricardo was
>>> eminently inconsistent (as Stigler wrote: "[Malthus] had one
>>> great weakness - he could not reason well. He could not
>>> construct a theory that was consistent with either itself or
>>> the facts of the world" (AER 1953, p. 591).
>>>
>>>
>>> Giancarlo de Vivo
>>>
>>> Il giorno 27/gen/2014, alle ore 18.41, Rosser, John Barkley -
>>> rosserjb ha scritto:
>>>
>>>> However, while Say asserted that "the law of markets" holds in
>>>> the medium to long run, he recognized that it might not in the
>>>> short run, and in fact at the moment of post-Napoleonic War
>>>> crisis, he supported public works spending to help overcome the
>>>> rise in unemployment, and in that regard sided with Malthus
>>>> over Ricardo in the policy debate of that time.
>>>> ------------------------------------------------------------------------
>>>> *From:*Societies for the History of Economics [[log in to unmask]
>>>> <mailto:[log in to unmask]>] on behalf of E.Schoorl
>>>> [[log in to unmask] <mailto:[log in to unmask]>]
>>>> *Sent:*Monday, January 27, 2014 3:01 AM
>>>> *To:*[log in to unmask] <mailto:[log in to unmask]>
>>>> *Subject:*Re: [SHOE] L’offre crée même la dema nde: Say 1814-2014
>>>>
>>>> Say's Own Law (1814)
>>>>
>>>> Mu"nchau in the FT suggests: 'It is that official economic
>>>> thinking in Paris has not progressed in 211 years.' He clearly
>>>> refers to the first edition of Say's Treatise (1803). Baumol
>>>> (Economica 1977) has plausibly argued that Say's Own Law only
>>>> appears in the second edition of 1814, stating that in the long
>>>> run, demand will be able to keep up with enormous increases in
>>>> output. This may seem a truism today, but it was a burning
>>>> question at the beginning of the Industrial Revolution.
>>>> My recent Say biography 'Revolutionary, Entrepreneur, Economist
>>>> (Routledge 2013)' corroborates Baumol's interpretation by
>>>> quoting from Say's correspondence with his relative Michel
>>>> Delaroche. Say asks his comment on the manuscript version of 'a
>>>> chapter containing very fundamental matters ... too imperfectly
>>>> discussed in my first edition.'
>>>> And in another letter: 'If such a chapter would be generally
>>>> recognised, people would know the origin of one of the causes
>>>> of the present lack of sales, and of the one threatening us.
>>>> ... What an indignation people would feel if they knew the
>>>> entire present misfortune.'
>>>> Official economic thinking or not, this dates back exactly two
>>>> centuries, not 211 years.
>>>>
>>>> Evert Schoorl
>>>
>>> ******************************
>>>
>>> Giancarlo de Vivo
>>>
>>> Dipartimento di Economia, Management, Istituzioni
>>> Università di Napoli "Federico II"
>>> via Cinthia - Monte S. Angelo
>>> 80126 Napoli
>>>
>>> tel. +39.081.675049 <tel:%2B39.081.675049>
>>>
>>>
>>>
>>
>>
>>
>>
>> --
>> James C.W. Ahiakpor, Ph.D.
>> Professor
>> Department of Economics
>> California State University, East Bay
>> Hayward, CA 94542
>> 510-885-3137
>> 510-885-7175 (Fax; Not Private)
>
> ******************************
>
> Giancarlo de Vivo
>
> Dipartimento di Economia, Management, Istituzioni
> Università di Napoli "Federico II"
> via Cinthia - Monte S. Angelo
> 80126 Napoli
>
> tel. +39.081.675049
>
>
>
--
James C.W. Ahiakpor, Ph.D.
Professor
Department of Economics
California State University, East Bay
Hayward, CA 94542
(510) 885-3137 Work
(510) 885-7175 Fax (Not Private)
|
