Re: Velocity of money

[ejnell@xxxxxxx]

Post-Keynesians should be skeptical of 'the velocity of circulation'.  In
"The Quantity Theory and the Mark-up Equation", ECONOMIE APPLIQUEE, 1991, (a
slightly revised version appears as Ch. 14 in Ingrid Rima, ed., THE JOAN
ROBINSON LEGACY, ME Sharpe, 1991,) I showed that if the money supply is
endogenous, and in particular, is proportional to the wage bill (as
suggested, eg. by Moore), then the Quantity Equation and the aggregate
Mark-up Equation are equivalent.  Velocity will then equal or be proportional
to the mark-up factor.  The same article shows how the aggregate mark-up
equation is related to the underlying Sraffa equations. This also allows us
to see why 'velocity' will rise with interest rates, independently of any
'economizing' on balances.  The point of the article is that what has been
taken as a 'demand for money' (based on income) is a misinterpretation of an
aspect of distribution.

Some subsequent empirical work, carried out at the New School,  has suggested
that a good part of the famous 'missing money' can be accounted for by the
changes in the aggregate mark-up that occurred during the inflation following
the 'oil shocks' of the 1970s.

I would be glad to correspond further with anyone interested.

(A portion of this letter may have been sent accidently while it was being
composed.)

Edward Nell
Graduate Faculty, New School
65 Fifth Ave
NY NY 10003

PO Box 1058
Woodstock, NY, 12498