Money, Interest and Capital: A Study in the Foundations of Monetary Theory

Rogers(R) has provided an excellent general summary of the supporting analysis used in the General Theory(GT) by Keynes to analyze his theory of effective demand from a strictly monetary point of view ,based on the application of his theory of liquidity preference explanation of the rate of interest as the return or reward for not "hoarding"(holding additional cash to self insure the decision maker against the uncertainty of the future as it relates to investing in fixed amounts of capital goods).Rogers covers Keynes's analysis,then,of the money market alone,isolated from the labor market and the commodity(goods or output)market.The mathematical analysis of the money market,as it pertains to the theory of effective demand,is provided by Keynes on pp.304-306 of the GT as an addition to his mathematical modeling of the labor and commodity markets that is contained in chapter 20 of the GT.Unfortunately,R makes no use of these mathematically worked out results that Keynes used in order to construct the mathematical proof of the existence of multiple equilibria ,which would include unemployment equilibria as well as the existence of a single point of full employment called a full employment equilibrium,that Keynes would make use of in the appendix to chapter 19 of the GT in order to demonstrate that Pigou's 1933 analysis in his The Theory of Unemployment in Part II,chapters 8-10,culminating in Pigou's p.102 proof was a special case that held only if an economy was operating on the boundaries of the static(short run) and dynamic(long run)production possibilities curves that required that the mpc+mpi=1.The loanable funds theory of the rate of interest is a special case that holds iff mpc+mpi(or,more generally,the mpsp=1)=1,where the mpc is the marginal propensity to spend on consumption goods,the mpi is the marginal propensity to spend on investment goods,and mpsp is the marginal propensity to spend on all goods,including imports,exports,and public goods.Roger's discussions on pp.219-223 of his book touch on all of these topics without ever presenting the explicit mathematical summary of the theory of effective demand that Keynes presented in the form of elasticities in chapters 10,20,and21 of the GT.Keynes's overall result is that w/p=mpl/(mpc+mpi),where w/p equals the real wage and mpl equals the marginal product of labor in the aggregate.If mpc+mpi<1,then you automatically obtain an unemployment equilibrium.It is impossible for labor to cut their money wage in the aggregate as the LHS of the equation specifying the labor market optimum must increase in order to maintain the equality with the RHS.

Rogers(R) has provided an excellent general summary of the supporting analysis used in the General Theory(GT) by Keynes to analyze his theory of effective demand from a strictly monetary point of view ,based on the application of his theory of liquidity preference explanation of the rate of interest as the return or reward for not "hoarding"(holding additional cash to self insure the decision maker against the uncertainty of the future as it relates to investing in fixed amounts of capital goods).Rogers covers Keynes's analysis,then,of the money market alone,isolated from the labor market and the commodity(goods or output)market.The mathematical analysis of the money market,as it pertains to the theory of effective demand,is provided by Keynes on pp.304-306 of the GT as an addition to his mathematical modeling of the labor and commodity markets that is contained in chapter 20 of the GT.Unfortunately,R makes no use of these mathematically worked out results that Keynes used in order to construct the mathematical proof of the existence of multiple equilibria ,which would include unemployment equilibria as well as the existence of a single point of full employment called a full employment equilibrium,that Keynes would make use of in the appendix to chapter 19 of the GT in order to demonstrate that Pigou's 1933 analysis in his The Theory of Unemployment in Part II,chapters 8-10,culminating in Pigou's p.102 proof was a special case that held only if an economy was operating on the boundaries of the static(short run) and dynamic(long run)production possibilities curves that required that the mpc+mpi=1.The loanable funds theory of the rate of interest is a special case that holds iff mpc+mpi(or,more generally,the mpsp=1)=1,where the mpc is the marginal propensity to spend on consumption goods,the mpi is the marginal propensity to spend on investment goods,and mpsp is the marginal propensity to spend on all goods,including imports,exports,and public goods.Roger's discussions on pp.219-223 of his book touch on all of these topics without ever presenting the explicit mathematical summary of the theory of effective demand that Keynes presented in the form of elasticities in chapters 10,20,and21 of the GT.Keynes's overall result is that w/p=mpl/(mpc+mpi),where w/p equals the real wage and mpl equals the marginal product of labor in the aggregate.If mpc+mpi<1,then you automatically obtain an unemployment equilibrium.It is impossible for labor to cut their money wage in the aggregate as the LHS of the equation specifying the labor market optimum must increase in order to maintain the equality with the RHS.