Competition and money in Keynes (and Kalecki)

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Competition and money in Keynes (and Kalecki)

• Malcolm Sawyer

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Introduction

• 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 Kaleckis approach.

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Introduction

• 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

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Competition

• 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.

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Competition

• Did Keynes use perfect competition in order to
  take on the neoclassicals ?
• Imperfect competition and realism.

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Competition

• Kahn pointed out in 1931 that firms under perfect
  competition operate when mc rising and mc gt avc.
• With fall in demand, firms either close down or
  operate above capacity

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Competition

• 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

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Competition

• 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.

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Competition

• 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)

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Competition

• Demand facing the perfectly competitive firm
  represented as horizontal difficulties in
  distinguishing a price change from an aggregate
  demand change.

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Competition

• 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

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Money

• 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

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Money

• Money and the Pigou effect
• Stock of (endogenous) money is demand determined
  can the stock of money in real terms be
  changed ?

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Money

• 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 wage-units, in other respects there is, of
  course, a world of difference between them
  (GT,p.267)

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Money

• Endogenous credit money and the working of
  liquidity preference

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Concluding comments

• Structure of competition is not a cause of
  unemployment but
• Endogenous money a crucial part of the exploring
  the role of effective demand