Sunday, November 4, 2018

Ann Pettifor - The indefatigable efforts of J. M. Keynes



John Maynard Keynes was a genius on par with Darwin, says, Ann Pettifor, for his revolutionary new way of looking at economics. And some of his theories are still too revolutionary today.

Resistance to the book’s content came immediately drafts began to circulate. Keynes, after all, was trying to effect “a revolution . . . in the way the world thinks about economic problems” and it is natural for the mind to mount a defence of its established contents and processes.

Keynes’s most important breakthrough was the realization that the “price” of money, or rate of interest, was determined not as the classical theory dictated, by the demand for savings, but by the demand for safe, secure or risky assets. This revolutionary theory – his Liquidity Preference Theory – is still considered too radical to be acceptable today. 

Keynes understood that those with a surplus  savings, capital gains or profits – can decide whether to store those savings short-term as cash; long-term for security; or to use them for speculative purposes. He argued that by managing the supply of safe assets (bonds or gilts) to financial markets, central bankers could meet savers’ demand for assets in which to store their savings for these three purposes: as cash, for security, or for speculation. By providing these assets at different rates of interest, central bankers could effectively manage and influence interest rates on all borrowing – across the spectrum of lending – short- or long-term, safe or risky, and in real terms. (Central bankers currently only manage the Bank Rate, which has little influence over market rates fixed by commercial bankers for loans over different terms, and at different risk rates.)

The indefatigable efforts of J. M. Keynes ANN PETTIFOR

13 comments:

AXEC / E.K-H said...

#NoFalseHeroMemorial

Keynes had NO idea of the fundamental concepts of economics ― profit and income ― and he messed up the Paradigm Shift from false microfoundations to true macrofoundations.

Macroeconomics ― dead since Keynes
http://axecorg.blogspot.de/2016/12/macroeconomics-dead-since-keynes.html

How Keynes got macro wrong and Allais got it right
https://axecorg.blogspot.de/2016/09/how-keynes-got-macro-wrong-and-allais.html

Post Keynesianism, too, is proto-scientific rubbish
http://axecorg.blogspot.de/2017/06/post-keynesianism-too-is-proto.html

Keynesians ― terminally stupid or worse?
https://axecorg.blogspot.com/2017/08/keynesians-terminally-stupid-or-worse.html

Egmont Kakarot-Handtke

Clint Ballinger said...

"By providing these assets at different rates of interest, central bankers could effectively manage and influence interest rates on all borrowing – across the spectrum of lending – short- or long-term, safe or risky, and in real terms."

The obsession with interest rates continues. They are the biggest red herring in all of economics I would venture to argue.
Natural rate is zero; tac-credits deserve no interest (and can be analysed as a commodity); bonds are not needed; market is best at setting rates in private sector.
There is no magic finance fix to the real, hard questions of how to spend and how to tax. Attention to % rates is a distraction from things that actually matter

Clint Ballinger said...

*tax-credits

Matt Franko said...

“The obsession with interest rates continues. They are the biggest red herring”

Clint the risk free rate the govt sets is used in some key financial computations ... NPV, Black-Scholes, perhaps some others...

Matt Franko said...

“ a genius on par with Darwin,”

Oh brother....

Clint Ballinger said...

Matt- those computations can't handle "0"? :)

No risk, no reward

Matt Franko said...

Clint on what planet are you talking about?

It is not earth....

Matt Franko said...

“Can’t handle zero”

Warren Buffett: “if the govt came out and said they were keeping interest rates at zero for 50 years, then the Dow Jones would go to 100,000...”

Many people could “handle” that....

Bob Roddis said...

Keynes explained the fundamental point of his book:

The theory of aggregate production, which is the point of the following book, nevertheless can be much easier adapted to the conditions of a totalitarian state than the theory of production and distribution of a given production put forth under conditions of free competition and a large degree of laissez-faire.

There is just no way for a Keynesian to weasel out of that.

And all to fix a problem that doesn't even exist without a prior unethical, artificial and unconstitutional expansion of the money supply.

Andrew Anderson said...

Natural rate is zero; Clint Ballinger

How can the natural interest rate in fiat be known when the non-bank private sector is not even allowed to use fiat except for mere physical fiat, coins and bills?

tax-credits deserve no interest ibid

Correct. Being inherently risk-free, fiat should return at most 0% with 0% being reserved for individual citizens up to a reasonable account balance so that citizens are not penalized while they acquire legitimate liquidity and initial capital for investment.

bonds are not needed; ibid

Nor are they ethical with positive (actually, non-negative given overhead costs) yields. However, NEGATIVE yielding sovereign bonds need not be ruled out ...

market is best at setting rates in private sector. ibid

Except we don't have a true free market in fiat lending since the non-bank private sector may not even use fiat except for mere coins and bills.

Also, we should remember that fiat is the property of the State which may thus properly charge (i.e. negative interest) for its use with the proviso that citizens also have an inherent right to use their Nation's fiat for free up to reasonable limits.

Andrew Anderson said...

Natural rate is zero; Clint Ballinger

Not to say that interest rates in fiat approaching 0% are not good but the means to advance that goal must be ethical, e.g. equal fiat distributions to all citizens.

AXEC / E.K-H said...

#NoFalseHeroMemorial

Keynes’ scientific incompetence can be exactly located in the GT: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (p. 63)

Keynes got macroeconomic profit wrong: “His Collected Writings show that he wrestled to solve the Profit Puzzle up till the semi-final versions of his GT but in the end he gave up and discarded the draft chapter dealing with it.” (Tómasson et al.)

Let this sink in: the economist Keynes NEVER understood the foundational concept of his subject matter. Because profit is ill-defined the complete theoretical superstructure of Keynesianism is false.

Worse, after 80+ years neither Post-Keynesians nor Anti-Keynesians nor New Keynesians nor MMTers figured out where macroeconomics went wrong.

Egmont Kakarot-Handtke

Ralph Musgrave said...

Andrew,

You ask: “How can the natural interest rate in fiat be known when the non-bank private sector is not even allowed to use fiat except for mere physical fiat, coins and bills?” That question can be answered by considering an ultra-simple barter economy where some sort of central authority introduces money for the first time – and that’s in practice how money has been introduced throughout history.
If INSUFFICIENT money is issued, the result is a recession and/or the economy reverts at least to some extent to barter. On the other hand if too much is issued, the result is inflation. Ergo there must be some optimum amount between those two extremes.

Government or the “central authority” (e.g. central bank) COULD issue too much money and then damp down demand by borrowing some it back at interest. But that is clearly pointless: it’s a waste of taxpayers’ money, plus it artificially raises the rate of interest.

Conclusion: government / central bank should aim to issue the above optimum amount of money while paying no interest on any of it.