- John Maynard Keynes, 1931
Monday, November 14, 2011
Not something you'll hear at OWS
"Unemployment, I must repeat, exists because employers have been deprived of profit. The loss of profit may be due to all sorts of causes. But, short of going over to Communism, there is no possible means of curing unemployment except by restoring employers to a proper margin of profit. There are two ways of doing this - by increasing the demand for output, which is the expansionist cure, or by decreasing the cost of output, which is the contractionist cure. Both of these try to touch the spot. Which is to be preferred?"
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We are the 99%. We will not be shutdown. From now until forever, let's occupy Kuehn's blog.
ReplyDeleteI have only read people who comment on Keynes, not Keynes in his own words, so forgive my lack of context. I have no particular fondness or aversion to his theories. With that caveat, I have issues with almost the entire statement quoted. I’ll go with two specifics:
ReplyDelete“deprived of profit”
That would imply that the profits were some how previously guaranteed, and to my ear that use of “deprived” is nonsensical. Were sail makers “deprived of profit” by the development of an efficient steam engine? Were years later boiler makers “deprived of profit” by the development of an efficient diesel engine? If I read this correctly, any advancement is predicated on deprivation of profit.
Proper Profit Margin
How can one possibly determine “proper profit margin"? Proper for a shop selling $0.20 worth of coffee for $3? Proper for the Apple Store selling iPhones? Proper for a company selling Pet Rocks? Proper for a company selling snow to Eskimos? I find the concept of “proper profit margin” as a value that can be empirically determined to be completely nonsensical.
Charles Rice,
ReplyDeleteKeynes was a pupil of Marshall's so he would have had in mind a 'normal' profit rate, consistent with stable prices and a tolerable level of unemployment. So firms are "deprived of profit" when aggregate demand is too low. Of course in 1931 his thinking about this still had some way to go; the GT was published in 1936.