sraffa’s ‘given’ quantities of output and keynes’s principle of effective demand
DESCRIPTION
Sraffa’s ‘Given’ Quantities of Output and Keynes’s Principle of Effective Demand. Man-Seop Park, Korea University. Keynes Seminar Post Keynesian Study Group Robinson College, Cambridge 13 March 2012. The objective(s). - PowerPoint PPT PresentationTRANSCRIPT
![Page 1: Sraffa’s ‘Given’ Quantities of Output and Keynes’s Principle of Effective Demand](https://reader030.vdocument.in/reader030/viewer/2022032605/56812b50550346895d8f73a6/html5/thumbnails/1.jpg)
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
![Page 2: Sraffa’s ‘Given’ Quantities of Output and Keynes’s Principle of Effective Demand](https://reader030.vdocument.in/reader030/viewer/2022032605/56812b50550346895d8f73a6/html5/thumbnails/2.jpg)
• 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)
![Page 3: Sraffa’s ‘Given’ Quantities of Output and Keynes’s Principle of Effective Demand](https://reader030.vdocument.in/reader030/viewer/2022032605/56812b50550346895d8f73a6/html5/thumbnails/3.jpg)
• 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
![Page 4: Sraffa’s ‘Given’ Quantities of Output and Keynes’s Principle of Effective Demand](https://reader030.vdocument.in/reader030/viewer/2022032605/56812b50550346895d8f73a6/html5/thumbnails/4.jpg)
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
![Page 5: Sraffa’s ‘Given’ Quantities of Output and Keynes’s Principle of Effective Demand](https://reader030.vdocument.in/reader030/viewer/2022032605/56812b50550346895d8f73a6/html5/thumbnails/5.jpg)
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
![Page 6: Sraffa’s ‘Given’ Quantities of Output and Keynes’s Principle of Effective Demand](https://reader030.vdocument.in/reader030/viewer/2022032605/56812b50550346895d8f73a6/html5/thumbnails/6.jpg)
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
![Page 7: Sraffa’s ‘Given’ Quantities of Output and Keynes’s Principle of Effective Demand](https://reader030.vdocument.in/reader030/viewer/2022032605/56812b50550346895d8f73a6/html5/thumbnails/7.jpg)
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
7
![Page 8: Sraffa’s ‘Given’ Quantities of Output and Keynes’s Principle of Effective Demand](https://reader030.vdocument.in/reader030/viewer/2022032605/56812b50550346895d8f73a6/html5/thumbnails/8.jpg)
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.
8
![Page 9: Sraffa’s ‘Given’ Quantities of Output and Keynes’s Principle of Effective Demand](https://reader030.vdocument.in/reader030/viewer/2022032605/56812b50550346895d8f73a6/html5/thumbnails/9.jpg)
(The short-period analysis)
tK
time
log Klog Y
tY
tI
9
*tY
*tI
![Page 10: Sraffa’s ‘Given’ Quantities of Output and Keynes’s Principle of Effective Demand](https://reader030.vdocument.in/reader030/viewer/2022032605/56812b50550346895d8f73a6/html5/thumbnails/10.jpg)
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
10
![Page 11: Sraffa’s ‘Given’ Quantities of Output and Keynes’s Principle of Effective Demand](https://reader030.vdocument.in/reader030/viewer/2022032605/56812b50550346895d8f73a6/html5/thumbnails/11.jpg)
A fully-adjusted position
11
Returns to scale
•Sraffa (1925, 1926) - increasing returns: ‘division of labour’ - decreasing returns: ‘land’
![Page 12: Sraffa’s ‘Given’ Quantities of Output and Keynes’s Principle of Effective Demand](https://reader030.vdocument.in/reader030/viewer/2022032605/56812b50550346895d8f73a6/html5/thumbnails/12.jpg)
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
12
![Page 13: Sraffa’s ‘Given’ Quantities of Output and Keynes’s Principle of Effective Demand](https://reader030.vdocument.in/reader030/viewer/2022032605/56812b50550346895d8f73a6/html5/thumbnails/13.jpg)
* * * * *[ ]ig Sx A p
A fully-adjusted position
13
![Page 14: Sraffa’s ‘Given’ Quantities of Output and Keynes’s Principle of Effective Demand](https://reader030.vdocument.in/reader030/viewer/2022032605/56812b50550346895d8f73a6/html5/thumbnails/14.jpg)
[ ]ig Sx Ap
(1 )i i i iJ g x a p
The Warranted Growth state
14
i i ixk a
![Page 15: Sraffa’s ‘Given’ Quantities of Output and Keynes’s Principle of Effective Demand](https://reader030.vdocument.in/reader030/viewer/2022032605/56812b50550346895d8f73a6/html5/thumbnails/15.jpg)
The state of effective demand
– autonomous investment decision in individual industries
15
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
![Page 16: Sraffa’s ‘Given’ Quantities of Output and Keynes’s Principle of Effective Demand](https://reader030.vdocument.in/reader030/viewer/2022032605/56812b50550346895d8f73a6/html5/thumbnails/16.jpg)
(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)
![Page 17: Sraffa’s ‘Given’ Quantities of Output and Keynes’s Principle of Effective Demand](https://reader030.vdocument.in/reader030/viewer/2022032605/56812b50550346895d8f73a6/html5/thumbnails/17.jpg)
The Long Period Position
17
![Page 18: Sraffa’s ‘Given’ Quantities of Output and Keynes’s Principle of Effective Demand](https://reader030.vdocument.in/reader030/viewer/2022032605/56812b50550346895d8f73a6/html5/thumbnails/18.jpg)
The ‘realised’ state
18
( )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
![Page 19: Sraffa’s ‘Given’ Quantities of Output and Keynes’s Principle of Effective Demand](https://reader030.vdocument.in/reader030/viewer/2022032605/56812b50550346895d8f73a6/html5/thumbnails/19.jpg)
The ‘realised’ state
19
ii
i
x
x
![Page 20: Sraffa’s ‘Given’ Quantities of Output and Keynes’s Principle of Effective Demand](https://reader030.vdocument.in/reader030/viewer/2022032605/56812b50550346895d8f73a6/html5/thumbnails/20.jpg)
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
20
![Page 21: Sraffa’s ‘Given’ Quantities of Output and Keynes’s Principle of Effective Demand](https://reader030.vdocument.in/reader030/viewer/2022032605/56812b50550346895d8f73a6/html5/thumbnails/21.jpg)
The financial market
The Kaldor (1966) formulation:
21
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
![Page 22: Sraffa’s ‘Given’ Quantities of Output and Keynes’s Principle of Effective Demand](https://reader030.vdocument.in/reader030/viewer/2022032605/56812b50550346895d8f73a6/html5/thumbnails/22.jpg)
(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
22
![Page 23: Sraffa’s ‘Given’ Quantities of Output and Keynes’s Principle of Effective Demand](https://reader030.vdocument.in/reader030/viewer/2022032605/56812b50550346895d8f73a6/html5/thumbnails/23.jpg)
(3) full employment (FE)
fi ix l L f
i i i iz x l L
Constraints for an EDC economy
23
(1 )(1 )
(1 )(1 )i f i
ii f i
s r
s r
where
![Page 24: Sraffa’s ‘Given’ Quantities of Output and Keynes’s Principle of Effective Demand](https://reader030.vdocument.in/reader030/viewer/2022032605/56812b50550346895d8f73a6/html5/thumbnails/24.jpg)
(4) self-replacing state (SR)
0i j jix x a 0i i j j jiz x z x a
Constraints for an EDC economy
24
(5) financial market (FM)
![Page 25: Sraffa’s ‘Given’ Quantities of Output and Keynes’s Principle of Effective Demand](https://reader030.vdocument.in/reader030/viewer/2022032605/56812b50550346895d8f73a6/html5/thumbnails/25.jpg)
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
25
OA : (technique)
OE : (financial market)
F : (effective demand)
F
LP
F