Sraffa’s ‘Given’ Quantities of Output and Keynes’s Principle of Effective Demand
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Transcript of Sraffa’s ‘Given’ Quantities of Output and Keynes’s Principle of Effective Demand
Sraffa’s ‘Given’ Quantities of Output and Keynes’s Principle of Effective Demand Sraffa’s ‘Given’ Quantities of Output and Keynes’s Principle of Effective Demand
Keynes SeminarPost Keynesian Study Group
Robinson College, Cambridge13 March 2012
Man-Seop Park, Korea University
• To show how the ‘given’ quantities of output in the Sraffa system can be interpreted as those being determined in accordance with Keynes’s principle of effective demand
• To provide a framework for the long-period analysis of effective demand which is compa- tible with the Classical/Sraffian perspective
2
The objective(s)
• The ‘long period position capital equipment’ /A fully-adjusted position
• ‘The long period position exists in the present’
• Three states of the economy for a long-period analysis
3
Key ideas/concepts
The long period position capital equipment
tK
1tK
*1tK
tK
time
log Klog Y *
tY
tY*tI
tI
4
warranted investment
autonomous investment
long period positioncapital equipment
The size (and composition) of the capital equipment ( ) that would have been utilised at the normal level for a given level of investment
• the autonomy of investment not necessarily
• ‘long period’:(1) ‘fully-adjusted’ to the level of output (= utilised at the normal
level)(2) regarded ‘normal’ with respect to the current state of effective
demand, thus guiding investment in the next period (‘reference point’ /‘centre of gravity’)
K
The long period position capital equipment
K K
5
The long period position capital equipment
tK
1tK
*2tK
tK
time
log Klog Y
*1tY
tY
*1tI
1tI
1tK
2tK
1tY
6
WG
‘realised’
LPP
The long period analysis: three states of the economy
tK
tK
time
log Klog Y *
tY
tY
*tI
tI
The Warranted Growth state
The state of effective demand
The long period position
The ‘realised’ state
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The long period position
‘The long period position exists in the present’:(paraphrasing Garegnani’s reply to Joan Robinson, 1979)
It is in the ‘present’ that the long period position is firmly located; because this is the state of the economy which is being regarded as ‘normal’ with respect to the state of effective demand in the present, it is also the state of the economy that present experience will lead entrepreneurs in general to take into account when they make decisions on their investment in the future.
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(The short-period analysis)
tK
time
log Klog Y
tY
tI
9
*tY
*tI
The relation between the quantities of the means of production and the quantities of output in the respective industries is such that
(1)output is produced at the normal utilisation of the means of production
(2)each type of output is produced of the quantity that is exhausted for gross investment and consumption in the economy as a whole (supply = ‘(effectual) demand’)
A fully-adjusted position
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A fully-adjusted position
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Returns to scale
•Sraffa (1925, 1926) - increasing returns: ‘division of labour’ - decreasing returns: ‘land’
The prices of production:= a ‘set of exchange-values which if adopted by the market
restores the original distribution of products and makes it possible for the processes to be repeated’ (Sraffa, 1960, p. 3)
For the relations between the means of production and output to be repeated,
(1)the means of production must be utilised at the normal level
(2)for each type of output, supply = ‘effectual demand’
A fully-adjusted position
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* * * * *[ ]ig Sx A p
A fully-adjusted position
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[ ]ig Sx Ap
(1 )i i i iJ g x a p
The Warranted Growth state
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i i ixk a
The state of effective demand
– autonomous investment decision in individual industries
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i i iJ z J
- the volume of gross investment- the capacity-generating effect: - the effective-demand-constituting effect: - the autonomy of investment: not necessarily
iJ
iz
1iz
(The recurrence relation)
Some examples:
1(1) 1t tz z
1(2) ( 1)t tz z z
1(3) 1t tz z K K 1(4) 1 1tz K K
16
(7) too complex to formalise (completely autonomous)
The Long Period Position
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The ‘realised’ state
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( )j i i ij jx g k hd
( )
1i i i i i i ir wx l x p
k p
dp
( )i i i ig J k p
i ig S k p
ii
i
x
x
The ‘realised’ state
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ii
i
x
x
Investment = Saving
-Both in the aggregate and in individual industries
-Investment generates saving in the aggregate
-Saving in the mind of savers is not industry-specific
-Saving is allocated into each industry
the financial market
The financial market
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The financial market
The Kaldor (1966) formulation:
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i i i f i i i i i ig x s rx g x a p a p a p ( 1 1)i
f hS S S
i f i ig s r g
(1) normal utilisation (aggregate) (NU)
i iJ J i i iz J J
(2) full utilisation (individual) (FU)
0 , 1max maxi i iz z z
Constraints for an EDC economy
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(3) full employment (FE)
fi ix l L f
i i i iz x l L
Constraints for an EDC economy
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(1 )(1 )
(1 )(1 )i f i
ii f i
s r
s r
where
(4) self-replacing state (SR)
0i j jix x a 0i i j j jiz x z x a
Constraints for an EDC economy
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(5) financial market (FM)
Illustration: the ‘Hicks-Spaventa’ economy C : golden ageBC : restrained golden ageCD : limping golden age (leaden golden age)AB : creeping platinum ageDE : galloping platinum age
FE NUSR
FM
LPC
A B
D
FM
E
1 max1z 1z
2z
max2z
1
O
FU2
FU1
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OA : (technique)
OE : (financial market)
F : (effective demand)
F
LP
F