Transcript Keynes, competition and money

Competition and
money in Keynes
(and Kalecki)
Malcolm Sawyer
Introduction
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The themes of the paper : the roles of
assumptions on the structure of competition
and the nature of money in Keynes’
General Theory, implications for
subsequent macroeconomic analysis and
comparisons with Kalecki’s approach.
Introduction
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The use of (close to) perfect competition at
time when Joan Robinson was writing
Imperfect Competition
The use of (close to) exogenous money
whereas credit money analysed in Treatise
Two areas where Keynes took a different
route from that of Kalecki
Competition
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The argument is not that imperfect
competition required to provide explanation
of unemployment, though helps with
explanation of capacity underutilisation.
Kalecki used a form of perfect competition
is his initial formulations of roles of
investment and aggregate demand.
Competition
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Did Keynes use perfect competition in
order to ‘take on’ the neoclassicals ?
Imperfect competition and realism.
Competition
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Kahn pointed out in 1931 that firms under
perfect competition operate when mc rising
and mc > avc.
With fall in demand, firms either close down
or operate above capacity
Competition
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Perfect competition and price formation
Price equals marginal cost in General
Theory
Two implications
w/p = marginal product of labour
Firms satisfy demand which they face
Competition
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These are important results which are more
readily derived under imperfect competition
Firms make pricing decisions which
influence wage, (own) price relationship.
Imperfect competition interpreted as firms
set price and satisfy demand at that price.
Competition
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Households : pQdc + Sa = wLs + 
Firms :
 = pQs - wLd
(pQdc + pQdi - pQs) + (wLd - wLs ) + (Sa pQdi) = 0
If (pQdc + pQdi - pQs) = 0, then (wLs –
wLd) = (Sa - pQdi)
Competition
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Demand facing the perfectly competitive
firm represented as horizontal : difficulties
in distinguishing a price change from an
aggregate demand change.
Competition
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Is there a demand for labour function ?
Real wages over the business cycle
Real wages and the level of aggregate
demand
Structure of competition and the distribution
of income
Money
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From Treatise to General Theory
Constant stock of money or exogenous
money
Money, credit, and the financing of
investment in Kalecki and in Keynes
Movements between equilibria
Money
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Money and the Pigou effect
Stock of (endogenous) money is demand
determined : can the stock of money in ‘real
terms’ be changed ?
Money
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‘Nevertheless while a flexible wage policy
and a flexible money policy come,
analytically, to the same thing, inasmuch
as they are alternative means of changing
the quantity of money in terms of wageunits, in other respects there is, of course,
a world of difference between them’
(GT,p.267)
Money
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Endogenous credit money and the working
of liquidity preference
Concluding comments
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Structure of competition is not a cause of
unemployment: but …
Endogenous money a crucial part of the
exploring the role of effective demand