tag:blogger.com,1999:blog-1740670447258719504.post7864788909079566433..comments2024-03-27T03:00:27.024-04:00Comments on Facts & other stubborn things: The Consistent Keynesian StoryEvanhttp://www.blogger.com/profile/12259004160963531720noreply@blogger.comBlogger9125tag:blogger.com,1999:blog-1740670447258719504.post-67196143533868446932011-06-21T14:13:18.324-04:002011-06-21T14:13:18.324-04:00What's the basis for taking liquidity preferen...What's the basis for taking liquidity preference then? And how do the two co-operate to result in the interest rate?Mattheusnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-36244280980110120712011-06-21T07:14:51.212-04:002011-06-21T07:14:51.212-04:00Mattheus,
There are lots of problems with removin...Mattheus,<br /><br />There are lots of problems with removing productivity entirely from interest rate determination, which is what Rothbard tries to do. The reasonable position is to have both "productivity" (which is really demand from entrepreneurs based on expectation of later profit), and time-preference play a role. Hayek does this in a paper called "Time-Preference and Productivity: A Reconsideration". I mentioned this in my article disagreeing with Daniel on the MEC on the Cobden Centre site.<br /><br />I don't entirely agree with Keynes' theory even when augmented with time-preference. A bank account balance may pay interest, just as bonds do. A bank account may also come with services that are free to the user. In both cases there is a saver who is lending and earning interest. The difference is that the interest is paid in a different form. If it's less for the bank account than for bonds it's because of the costs to the bank, including the redemption uncertainty cost and cost of reserves needed to cover it.<br /><br />However, Daniel and Keynes are quite right that people hold balances in order to have liquidity, so saving isn't just motivated by time-preference.Currenthttp://www.cobdencentre.org/noreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-89422936171449430752011-06-21T05:45:56.052-04:002011-06-21T05:45:56.052-04:00Mattheus -
Keynes held a purely liquidity preferen...Mattheus -<br />Keynes held a purely liquidity preference theory of interest and he reiterated that in 1937.<br /><br />No Keynesian since then that I am aware of has a purely liquidity preference theory of interest. They have a Hicksian perspective, which incorporates both liquidity preference and time preference.<br /><br />So - if one likes one can feel free to dismiss Keynes, and I can feel free to praise him for charting new territory with liquidity preference. In the end, though, I doubt any Keynesian you'll ever come across is in any way hostile to time preference.Danielhttps://www.blogger.com/profile/17192667997950934790noreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-57338552481376530022011-06-21T01:28:18.168-04:002011-06-21T01:28:18.168-04:00"That no single purpose must be allowed in pe..."That no single purpose must be allowed in peace to have absolute preference over all others applies even to the one aim which everybody now agrees comes in the front rank: the conquest of unemployment. There can be no doubt that this must be the goal of our greatest endeavour; even so, it does not mean that such an aim should be allowed to dominate us to the exclusion of everything else, that, as the glib phrase runs, it must be accomplished 'at any price'. It is, in fact, in this field that the fascination of vague but popular phrases like 'full employment' may well lead to extremely short-sighted measures, and where the categorical and irresponsible 'it must be done at all cost' of the single-minded idealist is likely to do the greatest harm." - F.A. Hayek, _The Road To Serfdom_ pg. 211-212Gary Gunnelshttps://www.blogger.com/profile/14463810435943252898noreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-78095779520711148092011-06-20T20:32:09.782-04:002011-06-20T20:32:09.782-04:00"Most people agree on time preference questio..."Most people agree on time preference questions. This is not in deep dispute, despite Keynes's own decision to break the mold and present an exclusively liquidity preference formulation."<br /><br />This is my understanding of Keynesian theory. You hold a liquidity preference theory of interest, right? Where the interest rate is a price paid on the relinquishing of cash or liquidity. This makes it a "monetary" phenomenon, right - as opposed to a "real" phenomenon? In other words, the interest rate is determined solely by the interplay of cash balances and money transfers?<br /><br />"Time preference alone obviously gives the standard, mainstream, marginalist, result."<br /><br />Well, it does and it doesn't. Time preference theory explains the supply of loanable funds in the neoclassical framework, but not the demand. The demand for loanable funds is usually connected with the marginal efficiency of capital - and so the neoclassical theory of the interest rate becomes a "productivity" theory of the interest rate.<br /><br />I was asking you to imagine if the interest rate were a product of time preference on both accounts. Rothbard explains the Austrian position better than I can.<br /><br />http://mises.org/rothbard/mes/chap6c.asp#7._Myth_ImportanceMattheusnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-12301144509370110822011-06-20T13:40:56.717-04:002011-06-20T13:40:56.717-04:00Well do you mean just the time preference theory o...Well do you mean <i>just</i> the time preference theory of interest were true?<br /><br />Most people agree on time preference questions. This is not in deep dispute, despite Keynes's <i>own</i> decision to break the mold and present an exclusively liquidity preference formulation (where the loanable funds market - i.e. questions of time preference - took the interest rate as given from the market for liquidity).<br /><br />Time preference alone obviously gives the standard, mainstream, marginalist, result.<br /><br />It also makes it harder to understand what's going on now.Danielhttps://www.blogger.com/profile/17192667997950934790noreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-72623216839292934652011-06-20T13:35:32.976-04:002011-06-20T13:35:32.976-04:00Imagine the time preference theory of interest wer...Imagine the time preference theory of interest were true, what implications does that have for investment demand and employment?Mattheushttp://www.economicthought.netnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-76963901960282140942011-06-20T11:02:30.209-04:002011-06-20T11:02:30.209-04:00Here's some more talk about Keynes (and Hayek)...Here's some more talk about Keynes (and Hayek) - you have to plop down to the second quoted segment to read it (do you think the author has read _The Road To Serfdom_?*): http://reason.com/blog/2011/06/20/what-do-ann-coulter-and-slate<br /><br />*And there's old Nozick again, standing in for all things libertarian.Gary Gunnelshttps://www.blogger.com/profile/14463810435943252898noreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-58667831033098885902011-06-20T04:37:55.158-04:002011-06-20T04:37:55.158-04:00Daniel - Krugman's making a pretty standard we...Daniel - Krugman's making a pretty standard well-accepted argument. 'Chapter 12' Keynesians like Minsky and Shackle emphasise the impact of radical uncertainty and financial markets on investment expenditure. Shackle is very explicit that investment decisions are simply not sensitive enough to interest rates and that radical uncertainty dominates small changes in rates. <br /><br />Most Post-Keynesians are Chapter 12-ers and Keynes himself explicitly endorses this reading in the above-mentioned 1937 QJE article. Most models of this type are disequilibrium models - Minsky's approach being an example and Steve Keen's work being a more recent example. They are disequilibrium in the sense that the model is dynamic and equilibrium is never achieved. I'd even say that Minsky's work which incorporates financial markets into the Chapter 12 reading doesn't make sense in an equilibrium setting. The best source for this is Minsky's book 'John Maynard Keynes' which is his interpretation of the General Theory. <br /><br />As a market practitioner, I find Minsky's views persuasive and therefore to the extent that I am a Keynesian, I am a Chapter 12-er. Not saying that the Book 1-er position is right or wrong but at the very least, there are some fundamental differences between the two positions. <br /><br />P.S. Nice blog.Ashwinhttp://www.macroresilience.com/noreply@blogger.com