Henry,
First, I am in agreement with what you have said. I picture the dollar to be
backed by the lakes and mountains of New England, on all of its natural
resources and as claims on the productive machinery and labor of the United
States.
But, I would think that, in a real world sense, it is a matter of true or
false and we must demand from it a logic that goes beyond the theoretical.
We must ask the question whether spending more government fiat will result
in a recovery in aggregate demand in a self-sustaining manner. Will the
economic returns sufficient to cover the economic costs? Or, will continuous
infusion of national equity (more fiat spending) be required indefinitely?
The money that is on the table, so to speak, is being spent with the vision
that the private sector eventually takes over. That is what we are talking
about, is it not?
I have no problem understanding that "wise" government spending can lift a
sinking boat. My problem is in the specifics, i.e. after the principle is
accepted, to be tried in practice, exactly what sort of plans and spending
programs will be sent to Congress for budgetary allocation. Rebuild bombed
out factories? Restore farm productivity on farmer abandoned land? We are
not in 1945, no sarcasm intended. The situation is far removed from the
ravages of a World War.
Each country has a desperate need to regain domestic employment where ever
"domestic" is. We have steel mills highly competitive in one country that
force other countries to abandon local industrialization. The poultry and
swine industries outside the US are being brought to marginal profitability,
if not worse, because the US has the cheapest corn. Low paid jobs in
developing countries only mirror the loss of higher paying jobs of developed
country labor.
If proposals of restructuring international trade and those akin to Vickery
(moderate 10% inflation with 1% unemployment) attract attention and
increasing support, I fear it is because it is more of a lack of
alternatives than their inherent logic. We are not in 1936. There is just
too much debt and, without specifics or some road map, we might find
ourselves even more lost and desperate. Maybe spending only for 10%
inflation only gives unemployment a 1% decline. I'm sure Vickery exactness
was only said to make a point. Today's technology for efficiency, after all,
requires less labor both in absolute number and unit cost. If anything, the
proposal, whatever form it takes, must address income distribution above all
else. Money as credit is just part of a brand new General Theory.
Gary
----- Original Message -----
From: "Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx>
To: <a-list@xxxxxxxxxxxxxxxxxxx>
Cc: "EGroup PKT" <pkt@xxxxxxxxxxxxxxxx>; "EGroup TheNewForum"
<TheNewForum@xxxxxxxxxxxxxxx>; "Arno Mong Daastoel" <arno@xxxxxxxxxxx>
Sent: Saturday, July 12, 2003 12:47 PM
Subject: [TNF] Re: [A-List] FW: znet/weisbrot on deflation - critique?
You need to understand that fiat money is not funny money. It is backed
by the asset of the issuing nation. Prudence in this case will be
measured by the size of the economy, not some grandmother admonishment.
The fact that government issued money is government credit does not mean
that government can spend without limits. The limits is the national
wealth. If the national wealth is monetized at x units of money, that is
the limit of how much money the government can issue. If the government
issues x+ units of money, then the national wealth will be
re-monetized at x+ units. If government credit is spent only on
productive enterprises, meaning those enterprises that lead to economic
growth, then there is no limit to how much money the government can
issue, as long as the rate of money increase tracks the rate of growth.
Also, issuing money is not the same thing as spending money. Money not
spent is merely pieces of paper.
That is what a liquidity trap is alll about. Sometimes the government
can try to increase the money supply, but broad money amount will not
increase because loans are not being made. Merely issuing more money
can end up as pushing on a credit string. This is why monetary policy
alone cannot solve all economic problems.
This is not a matter of true or false. It is a matter of logical
consistency evolving around a particular but useful view of money.
Others can hold different views, but those views are less useful, if
full employment and growth are the objectives.
Henry C.K. Liu
Gary Santos wrote:
Henry,
The debate on whether money is a credit or debt is not as interesting as
its
follow through ("there is no need for capital formation, because state
credit can be issued to finance them") if money is a credit. But, it
gives
license to spend well beyond levels what common opinion considers
prudent.
We are, after all, dealing with "fiat" whose value can be subject to a
downward change value much greater than real assets when hyperinflation
sets
in.
If, indeed, money is credit and this credit can be freely spend, I fail
to
see any assurances that the economic return on these patrimonial
investments
will turn out higher than its economic cost, the creation of more claims
on
fiat assets. Put another way, if we were to translate the concept of
money
as credit into a 5 year Medium Term Plan for a developing economy, what
would it look like? Surely, the decision to spend is easier than
deciding
what should be spent on. Investment in education with lousy teachers is
exactly like a badly made bridge built leading to nowhere. Both are
total
wastes of money.
Gary
----- Original Message -----
From: "Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx>
To: <a-list@xxxxxxxxxxxxxxxxxxx>
Sent: Saturday, July 12, 2003 8:18 AM
Subject: Re: [A-List] FW: znet/weisbrot on deflation - critique?
Ann,
There is plenty of time for us for duel when our common enemy,
neo-liberalism, is defeated.
But a few comments below:
Anyutka wrote:
Sorry, Jim, but your analysis is based not on a critique of capitalism,
but
on one of central banking. Only in a monetarily, centrally-planned
economy
(which central banking creates) in which the medium of exchange is
declared
to be such by a government with a printing press and is bereft of
commodity
backing and therefore enters the economy as debt, is deflation a
threat.
Under free market capitalism (which by definition requires
commodity-backed
money, which is based on an asset, not debt) deflation is a boon - it
clears
out malinvestments, thereby freeing capital for productive pursuits
beneficial to all.
It is true that if money acquires a fixed intrinsic value, it becomes
more clear that holding it is an asset, not a debt. When government
issues money, with or without backing by valuable commodities, it is
issuing a credit instrument of government asset. Since all that is not
yet assigned to the private sector is government asset, the government
issued money has intrinsic value, more solid than gold, until the
government falls or owes more foreign debt than its asset (national
wealth) can afford. Through taxation, the government claim legitimately
a portion of the privat sector. Now for all "productive pursuits",
meaning all activities beneficial to the common goods, since avtivities
beneficial to the private good cannot logically be defined as
productive, although at times it is possible to have activities that are
beneficial to both public and private good, which is why a private
sector is permissible. Now for all productive pursuits, there is no
need for capital formation, because state credit can be issued to
finance them. Only non-productive private pursuits need private capital
formation, being that a person enjoys the right to squander his own
assets and resources, but only to a certain limit, because when we own,
we do not command full authority over an asset, we only control the
right to use it and pass it on to our designated heirs.
As prices fall due to increased productivity and
efficient capital allocation, the value of money grows. (As a
consequence,
so do domestic savings - the only investment capital of which any
nation
can
truly be assured.) This is especially important for the working class,
who
pay the greatest price in a fiat system which can only work -
temporarily
and inefficiently - under a regime of perpetual inflation, i.e. theft.
Funny how nobody gets this right - people cheer when the value of their
homes rise, but are supposed to be threatened when the value of their
money
does the same? The only ones truly under the gun from deflation are
the
govt and their bankster allies - all scam artists, villains, and rogues
living well off the labor of others. -A.
When your house increases in price, you enjoy a monetised increase in
value. When prices fall, the value of money in private hands increases
but the value of money as state credit do not necessarily increase. The
same face value of state credit in the form of money now command more
tangible assets to redeem. In other words, the seller of the house get
less money (state Credi) with which to do other things with.
Deflation is neither good or bad except for two factors. It creates
unemployment and its shrinks the economy. Those factors are bad for
people who need to work to make a living and for a nation which needs a
growth economy.
Valuable money is not good for those who have to do or sell things to
get moeny, which is most people.
Henry C.K. Liu
----- Original Message -----
From: "Craven, Jim" <jcraven@xxxxxxxxx>
To: <a-list@xxxxxxxxxxxxxxxxxxx>
Sent: Friday, July 11, 2003 2:50 PM
Subject: [A-List] FW: znet/weisbrot on deflation - critique?
There are several reasons why deflation, especially sustained, may
cause
some problems for capitalism that monetary policies or indeed fiscal
policies cannot fix. First of all deflation, or sustained decreases in
the
general price level (as opposed to disinflation or decreases in a
positive
rate of inflation) can produce dislocations in the following ways:
A) Because some business costs are relatively fixed and locked-in in
the
short-run (e.g. interest rates fixed for terms of loan agreements,
rents
fixed for terms of rental agreements, wage rates fixed for terms of
empoyment agreements) sustained deflation can cause a profits squeeze
leading to cumulative and self-reinforcing downward effects: e.g.
Deflation
leads to disinvestment or putting off planned investment, leading to
more
layoffs, leading to falling real incomes leading to falling aggregate
demand
leading to more deflation and falling aggregate supply (partially
cushioning
the fall in the general price level) and even further rising
unemployment...
B) Deflation can lead to expectations effects on the demand side (when
people expect lower prices or lower future incomes they decrease
present
demand in anticipation of the future low incomes and/or future even
lower
prices thus creating feedback and self-fulfilling/reinforcing effects
on
the
demand side leading to the same on the supply side);
C) Everybody wants to go to heaven but nobody wants to die. Everbody
wants
the prices of what they sell to go up while the prices of what they
buy
to
go down but deflation doesn't work that way often. When the general
price
level is falling, or better the weighted-average price level (itself a
highly suspect construct), it does not mean that every and all prices
are
falling. Often businesses may find that prices of what they sell are
falling
while input prices are not falling as fast, not falling and/or even
rising
causing profits squeezes and or on the worker side even more dramatic
decreases in real wages thus feeding into the cumulative and
self-reinforcing spiral downward;
D) Falling general prices might stimulate some sales (in the
conventional
models, a falling general price level stimulates increases in
Aggregate
Quantities Demanded leading to increases in real GDP and employment,
leading
to increases in employment and real incomes, leading to increases in
aggregate demand, profits, investment and ultimately short-run
aggregate
supply--the anti-Keynesians start out with supply-led growth)
depending
upon
the overall domestic and global contexts operating. For example, with
widening income/wealth inequalities (U.S. is number one out of 22
industrialized nations in wealth/incomes inqualities), with masses of
people
maxed-out on their credit cards, with real tax burdens being
increasingly
dumped on the so-called middle-class and below, with increasing
uncertainty
about the future (employment, real incomes, prices, interest rates,
costs
of
education, globalization effects, downsizing, outsourcing etc) among
the
general mass-demand-producing segments of the population, tax cuts,
expansionary monetary policies leading to even lower interest rates
etc
may
not and will likely not have the usual intended effects of stimulating
employment, output, investment, savings, moderate/necessary increases
in
prices, increases in aggregate demand and short-run aggregate supply
etc.
For example, with the last supposed "tax cuts" and rebates, only about
17%
of those who got them spent them; the rest went into drawing down debt
not
into spending as predicted.
E) Often deflation is portrayed as having some positive effects on
international trade side and making prices of exports more competitive
globally and making imports relatively more expensive and less
competitive;
this is supposed to simulate net exports and even reverse some slides
in
the
general exchange rate of the dollar. This assumes that prices and
relative
prices are the only or even significant basis for global demand for
exports
and imports. In the context of global recessions and widening global
inequaltiies in wealth/incomes, no matter how far prices fall, they
may
well
not have any stimulative effects on net exports--especially in the
context
of nations, like U.S. citizens, maxed-out with their own credit cards;
F) Deflation can have effects on preventing future investment,
business
start-ups, etc; plus, deflation is usually associated with the most
extreme
troughs of a typical business cycle (in most recessions at most we
find
disinflation but actual deflation is rare since the Great Depression)
thus
having negative effects on both investor and consumer--and
saver--expectations and psychology; Further, even those deflation,
especially unexpected, favors lenders at the expense of borrowers (at
least
in theory), and helps to lower real interest rates, the bottom line is
the
bottom line and now matter how much taxes are cut, no matter how low
real
interest rates go, this will not likely simulate significant
investment
in
real plant and equipment, output and jobs in the context of global and
domestic masses suffering falling real incomes and increassing debt
and
unable/unwilling to demand any real output that could be produced (who
will
start up a business, no matter how cheap the borrowed money with
little
prospects of effective demand); this will but stimulate more
wealth/income
inequalities and the increased hegemony of financial capital over
industrial
and agricultural capital--more paper chasing and short-run
speculation.
I could go on, and notice I am looking only from the standpoint of
contradictions in bourgeois economic theory, when we bring in a
full-blown
Marxist analysis, departing from the linear and unidirectional "chains
of
causality" and ultimate "independent/dependent" variables of bullshit
neoclassicism, it gets even worse--or better from the standpoint of
destabilizing the whole system.
Got to run, more later, this is just for openers.
Jim C.
TNF has two guidelines designed to maintain a positive tone.
(1) If you take offense at another member's message, write to that person
privately; if you think the moderators should be informed, CC your private
message to thenewforum-owner@xxxxxxxxxxxxxxxx
(2) Avoid on-list meta-discussions or co-moderation; address such matters
to the individuals involved and/or to the moderators.
Address to unsubscribe: TheNewForum-unsubscribe@xxxxxxxxxxxxxxx
Your use of Yahoo! Groups is subject to http://docs.yahoo.com/info/terms/
------------------------ Yahoo! Groups Sponsor ---------------------~-->
Free shipping on all inkjet cartridge & refill kit orders to US & Canada. Low prices up to 80% off. We have your brand: HP, Epson, Lexmark & more.
http://www.c1tracking.com/l.asp?cid=5510
http://us.click.yahoo.com/GHXcIA/n.WGAA/ySSFAA/qkHolB/TM
---------------------------------------------------------------------~->
TNF has two guidelines designed to maintain a positive tone.
(1) If you take offense at another member's message, write to that person privately; if you think the moderators should be informed, CC your private message to thenewforum-owner@xxxxxxxxxxxxxxxx
(2) Avoid on-list meta-discussions or co-moderation; address such matters to the individuals involved and/or to the moderators.
Address to unsubscribe: TheNewForum-unsubscribe@xxxxxxxxxxxxxxx
Your use of Yahoo! Groups is subject to http://docs.yahoo.com/info/terms/