Competition and money in Keynes (and Kalecki) Malcolm Sawyer

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.

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

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.

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

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

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

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

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

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)

Money Endogenous credit money and the working of liquidity preference

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