Balanced Budgets and Loan Financing

[Paul Davidson <PB108928%UTKVM1.BITNET@xxxxxxxxxxxxxxxxx>]

FROM:  Paul Davidson
"      Holly Chair of Excellence in Political Economy
"      University of Tennessee, Knoxville, Tn. 37996-0550
Lonnie Stevens asked if balanced bydget meant a perfectly inelastic supply curv
e for governent securities. The answer is No -- because of P.H. Wicksteed's
addition to Marshall's market period (perfectly inelastic) supply curve.
Wicksteed introduced the notion of reservation demand, i.e., the marginal willi
ngness of present holders of the inelastic supply to resell the durable
item. In this case, the Fed --as a large holder of existing government
debt can control the market price by its reservation demand.  Another name
is a buffer stock policy by market maker. (See Davidson and Davidson,
ECONOMICS FOR A CIVILIZED SOCIETY (1988) on "buffers and tips".

Have a good day! Paul
email address: PB108928@xxxxxxxxxxxxxx
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