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The traverses of a post-Keynesian model of a corn-credit economy

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Richardson, CL (2003) The traverses of a post-Keynesian model of a corn-credit economy. PhD thesis, University of Tasmania.

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Abstract

In this thesis, five dynamic Post-Keynesian corn-credit models are constructed as testbeds for numerical analysis experiments that generate traverse paths through historical time using computer simulation. The "corn-credit economy" is a synthesis of theoretical insights gleaned chiefly from the writings of Joan Robinson, Knut Wicksell, Michal Kalecki, John Maynard Keynes, Gunnar Myrdal, and Adolph Lowe.

The first Model A has a fixed corn price, money wage and interest rate. Each such constant is replaced by equations to become a variable in Models B, C and D, respectively, e.g. money expenditure directed at a given supply of foodcorn determines its price. The final Model E uses a conventional demand function for the same purpose.

Each 31st December, capitalist-farmers decide the flow of seedcorn invested, then store the balance of that year's harvest as foodcorn. On 1st January, this lagged seedcorn flow becomes the opening stock of seedcorn, which is sown by workers employed to raise the next crop. Likewise, the lagged foodcorn flow becomes the opening stock of foodcorn available for sale to consumers while the new crop is being tended.

The workers' fortnightly money wages, together with all profit and interest incomes, are partly saved but mainly spent on foodcorn released weekly from the granaries. The structural-form equation (common to all models) that determines the volume of seedcorn invested is crucial, since the reduced forms show that investment decisions drive the evolution of all other economic variables.

In turn, seedcorn invested is itself driven by a time-series of "profitability gaps" between the realised and required rates of return on capital stock, in a process of circular and cumulative causation. A constant "reaction coefficient" determines the rate of capital accumulation as a fraction of the profitability gap. Such positive feedback or path dependence is so pronounced in the complex structural form of Model E that no reduced form can be derived.

All models are solved numerically for a 100-year equilibrium stationary state, then a smooth exponential growth path is generated for all but Model E. These stationary and steady states are used as reference time paths or "basecases", from which specimen traverse paths are made to depart by perturbing the model's parameters.

A sensitivity matrix is constructed for Model E by initiating numerous convergent traverses connecting its initial with a final stationary state. This matrix shows the long-period effect of a change in each parameter upon every endogenous variable. By tracing "chains of causation" made visible by the matrix, these cause-effect elasticities confirm that Keynes's paradox of thrift and Rowthorn's paradox of costs operate in Model E. The most powerful parameters are the foodcorn demand elasticities, indicating a strong influence of sovereign consumers on the price, profitability and production of corn.

Certain key variable-pairs are scatter-plotted to see whether some conventional relationships used for comparative static analysis hold over the range of reaction coefficient values defining a viable corn-credit economy. Instead of the familiar curves, these scatter-plots reveal a sequence of well-defined patterns, resembling the evolution of a spiral galaxy such as our own Milky Way.

Due to the observed traverse behaviour of Model E being quite violent, a public sector is added and the modified Model E* is used to discover a policy mix that tames the laisser faire instability of a demographic shift from zero to positive workforce growth. This policy-constrained or "instrumental traverse", as defined by Adolph Lowe, successfully guides the economy onto a tranquil steady-state growth path with near-full employment.

Item Type: Thesis (PhD)
Keywords: Economics
Copyright Information:

Copyright 2002 the author

Additional Information:

Thesis (PhD)--University of Tasmania, 2003. Includes bibliographical references

Date Deposited: 03 Feb 2015 03:16
Last Modified: 02 Aug 2017 23:31
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