Greetings to all.

My explanation of the demise of the leakage-and-injections approach is that it points to Keynes's idea that S does not lead to (planned) I. This is widely regarded as economically (and perhaps politically) incorrect. By postulating that speculators interfere with the operation of loanable funds markets (to use this language purely for convenience) Keynes rejects the efficient (asset) markets approach. It also implies (or suggests or permits) that raising G leads to higher income and output and generates an equal increase in (short-run) equilibrium  S+T, another heresy in some quarters.

For decades standard textbooks have downplayed that Keynes emphasised that the weak link in Classical economics was with its posited reliable connection between saving and investment. Instead, wage and price stickiness are used to generate Keynes-like output responses to changes in MV. Axel Leijonhufvud has long complained about how the textbooks reduce Keynes to the banality that in reality prices are sticky and that changes in demand must therefore initially affect output...

Bruce Littleboy

-----Original Message-----
From: Societies for the History of Economics [mailto:[log in to unmask]] On Behalf Of Duggan, Marie
Sent: Tuesday, 25 March 2014 10:01 PM
To: [log in to unmask]
Subject: Re: [SHOE] Circular flow

Thank you all for starting an interesting discussion.  I often still teach intro to macro with a circular flow with plumbing and was interested in the two citations I have so far seen in this list regarding bathtub models.  The concept of leaks and injections is so intuitive for the students to understand: exports, government spending, and investment are the injections; net taxes, imports, and saving being the leaks. I start with the very nice circular flow in Baumol and Blinder's intro to macro text.  We often add a pipe from "rest of world" to the US banking system, and discuss the possibility that credit could make US household savings negative, and discuss the implications.  

So here's the question: given that this is such an intuitive way to learn about macroeconomics, why is a serious circular flow (with pipes and all) such a rarity in modern teaching?  My teacher Lance Taylor was often speaking of leaks and injections in the 1990s, so he must have seen something like it in his training as an economist.  Did this perspective have a rise and fall?  For what reason?

Marie Christine Duggan
Keene State College
New Hampshire
  


-----Original Message-----
From: Societies for the History of Economics on behalf of GM Ambrosi
Sent: Tue 3/25/2014 9:56 AM
To: [log in to unmask]
Subject: Re: [SHOE] Circular flow
 
If we search for the earliest mentioning of economic circular flow I suggest Heraclitus of Ephesus(fl.500 BC):

"all things are an exchange for fire and fire for all things, like goods for gold and gold for goods"

Seaford, R. _Money and the Early Greek Mind -- Homer, Philosophy, Tragedy_ Cambridge University Press, 2004, p.12.
Seaford gives some thought to the question of the means of exchange on p.237, note 43

Michael Ambrosi


2014-03-25 2:20 GMT+02:00 michael perelman <[log in to unmask]>:

>
>
> Is it too much of a stretch to attribute a crude version of the 
> circular flow to Petty's Treatise.  Nicholas T., who knows everything, 
> can tell me if I am wrong.
>
> --
>  Michael Perelman
> Economics Department
> California State University
> Chico, CA
> 95929
>
> 530 898 5321
> fax 530 898 5901
> http://michaelperelman.wordpress.com
>



--
Prof. em. Dr. Dr.h.c. G.M. Ambrosi
Jean Monnet Professor "ad personam"
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