tag:blogger.com,1999:blog-1740670447258719504.post1914117254858611409..comments2024-03-27T03:00:27.024-04:00Comments on Facts & other stubborn things: A little more on heterogeneous capital and laborEvanhttp://www.blogger.com/profile/12259004160963531720noreply@blogger.comBlogger5125tag:blogger.com,1999:blog-1740670447258719504.post-7142638704570376092011-09-08T00:16:10.074-04:002011-09-08T00:16:10.074-04:00Daniel,
Based on your reading then Keynes is sayi...Daniel,<br /><br />Based on your reading then Keynes is saying that unless investors have knowledge of "specific goods order(ed) in the future" then an increase in current savings may lead to a decline in both current consumption and investment spending (ie a general slowdown in economic activity). This seems to me to be taking heterogeneity too far.<br /><br />I had previously assumed that Keynes had thought that expectations by investors that future spending in aggregate would increase (ie with no precise knowledge of exactly what would be bought) would be sufficient to increase MEC and investment.<br /><br />Is that view mistaken ?Rob R.noreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-69293659613157061782011-09-07T23:28:09.513-04:002011-09-07T23:28:09.513-04:00Based on your reading it seems that Keynes believ...Based on your reading it seems that Keynes believes that if investors lack precise knowledge about future consumption spending then current economic activity may slow down as a result of increased savings. I had thought (based on the rest of the General Theory) that Keynes view might rather be that if investors think that consuming spending in the future on aggregate will be higher then that would increase current investment but perhaps I have mis-interpreted this.<br /><br /><br />It may be useful to describe what I take to be the Austrian view of how markets solve the problem that Keynes describes.<br /><br />The new savings represent a lowering of time preference. If the saver places the money with a bank that lends them out then this will result in a lowering of the rate of interest in line with the time preference rate.<br /><br />The money will then be borrowed by an investor who will use the additional and cheaper funds to invest in the most profitable area available, which if the market is in equilibrium , will of necessity be in an area that will lengthen the structure of production.<br /><br />In other words the new savings will have a direct impact on the structure of production (ie the mix of capital goods that will need to be produced to maximize consumer utility taking time preference into account). <br /><br />This will be done purely based on capitalist evaluating market trends and prices correctly with no need to have details of "specific goods order in the future". <br /><br />So even if your interpretation is correct I still think that Austrians view of heterogeneity (which directly references the structure of productivity) and the Keynesian view (which based on your quote appear to be unrealistic specific) do seem to differ.Rob R.noreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-42436301662374222512011-09-07T21:55:22.444-04:002011-09-07T21:55:22.444-04:00Rob -
Certainly he's saying there's no li...Rob - <br />Certainly he's saying there's no link - but why? What does Keynes say investment requires that simply saving money cannot guarantee (if it guaranteed it, we would have a link)? What's missing - what is not <i>implied</i> by an act of saving, is the placement of a specific goods order in the future, which Keynes says is necessary because investors won't make investments unless they have specifics. Capital is not homogenous - it is heterogeneous across products and it is heterogeneous across time frames. If it were homogenous, then nothing would prevent savings from increasing investment automatically because not consuming now would imply consuming some homogenous blob at some time in the future, which would be enough to call up homogenous capital.<br /><br />But capital isn't homogenous so it can't work that way. Keynes uses the word "specific" several times in that passage and it seems to me he's using it for a reason.Daniel Kuehnhttp://www.factsandotherstubbornthings.blogspot.comnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-16535693147529582792011-09-07T21:03:28.474-04:002011-09-07T21:03:28.474-04:00Daniel,
I'm not sure the argument in the len...Daniel,<br /><br />I'm not sure the argument in the lengthy quote from Keynes in the article you link to really depends upon the heterogeneity of capital.<br /><br />My reading is that Keynes is just saying that there is no automatic link between an act of savings and an increase in investments since the decision to invest depends upon the marginal efficiency of capital relative to the interest rate and that this may in fact decline if investors perceive the fall in current consumption (that resulted from the new savings) as likely to last into the future.<br /><br />This would be equally true (based on the logic in the quote ) even if capital were homogenous especially since the MEC would tend towards equality on all capital.<br /><br />Its the "paradox of thrift" that of course Austrians reject in any case.Rob R.noreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-88335306251531829022011-09-07T11:36:17.284-04:002011-09-07T11:36:17.284-04:00I dont think that the ideas of capital (and labor)...I dont think that the ideas of capital (and labor) heterogeneity are implicit in all economics. Marginal analysis completely ignores heterogeneity which is where i think the dwelling on aggregates comes from. I tend to think that you can aggregate heterogeneity but then I think you cant call the aggregate return to capital an "interest rate" and I think in a lot of ways that causes a lot of problem for the drastic simplification of interest rates in general.<br /><br />Capital heterogeneity was also a big deal from the other side of "heterodoxy" (and as far as I can tell better theorized than on the austrian side) Are you familiar with the "capital controversy"? Wikipedia has a good entry on it. Hopefully your history of econ thought prof will talk about it some.<br /><br /><br />Again, I'm not an ardent "heterogeneity" guy but I do think that while its not wrong it misses the point to to say that heterogeneity is "implicit" in all economics becuase what you are really saying is that "ignoring heterogeneity is an implicit assumption in 'all' economics" which has, i fell, different implications about how present the issue is.Andrew Bossiehttps://www.blogger.com/profile/00353842153288646125noreply@blogger.com