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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. Man-Seop Park, Korea University. Keynes Seminar Post Keynesian Study Group Robinson College, Cambridge 13 March 2012. The objective(s).

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Sraffa’s ‘Given’ Quantities of Output and Keynes’s Principle of Effective Demand

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  1. 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

  2. The objective(s) • 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

  3. Key ideas/concepts • 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

  4. The long period position capital equipment log K warranted investment log Y autonomous investment long period position capital equipment time

  5. The long period position capital 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’: • ‘fully-adjusted’ to the level of output (= utilised at the normal level) • regarded ‘normal’ with respect to the current state of effective demand, thus guiding investment in the next period (‘reference point’ /‘centre of gravity’)

  6. The long period position capital equipment WG log K ‘realised’ log Y LPP time

  7. The long period analysis: three states of the economy The Warranted Growth state log K log Y The state of effective demand The long period position The ‘realised’ state time

  8. 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.

  9. (The short-period analysis) log K log Y time

  10. A fully-adjusted position The relation between the quantities of the means of production and the quantities of output in the respective industries is such that • output is produced at the normal utilisation of the means of production • 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’)

  11. A fully-adjusted position • Returns to scale • Sraffa (1925, 1926) • - increasing returns: • ‘division of labour’ • - decreasing returns: • ‘land’

  12. A fully-adjusted position 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, • the means of production must be utilised at the normal level • for each type of output, supply = ‘effectual demand’

  13. A fully-adjusted position

  14. The Warranted Growth state

  15. The state of effective demand – autonomous investment decision in individual industries • the volume of gross investment • the capacity-generating effect: • the effective-demand-constituting effect: • the autonomy of investment: not necessarily

  16. (The recurrence relation) Some examples: (7) too complex to formalise (completely autonomous)

  17. The Long Period Position

  18. The ‘realised’ state

  19. The ‘realised’ state

  20. The financial market 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

  21. The financial market The Kaldor (1966) formulation:

  22. Constraints for an EDC economy • normal utilisation (aggregate) (NU) (2) full utilisation (individual) (FU)

  23. Constraints for an EDC economy (3) full employment (FE) where

  24. Constraints for an EDC economy (4) self-replacing state (SR) (5) financial market (FM)

  25. Illustration: the ‘Hicks-Spaventa’ economy C: golden age BC: restrained golden age CD: limping golden age (leaden golden age) AB: creeping platinum age DE: galloping platinum age FE NU SR FU2 LP A B LP C OA : (technique) 1 FU1 OE : (financial market) F F : (effective demand) D F FM E O 1

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