Prices

[Hyman Blumenstock <hystock@xxxxxxxxx>]

Why ignore what should be an obvious fact?  Dr. Greenspan controls prices
directly to whatever level he chooses.  If he wants us to have "inflation,"
he raises interest rates.  Conversely, to counter his "inflation," he reduces
interest rates.  What effect could taxes have upon prices with such direct
control exercised by Dr. Greenspan?

How about considering what would happen to prices were a truly free market
allowed to exist and Supply Met Demand, at least in our neck of the woods,
as it has for a century already (and the Demanders were allowed access
via a sufficient Money supply, up to when prices fall to zero). In such a case,
money's value would approach infinity, as zero money could then buy anything.
What can be more basic?

Gregoire de Nowell (ci-devant) wrote:
>
> I'm still floundering around in some basic issues, although, thanks
> to Warren's exemplary patience in off-pkt discussions, I am much clearer
> on some important points.
>
> It may be that I'm just never going to like the taxes-as-a-source-of-value
> for money thing.  I'm surprised no one else has expressed any opinion on it.
>
> But I would like to try to take the position as a given.
>
> 1.  As taxes approach 100% of aggregate income, the value of money gets
> extremely high.
>
> 2.  As taxes approach 0% of aggregate income, the value of money gets extremely
> low.  (I dispute both assumptions; but let's us pass on.)
>
> Scenario No. 1 would be deflation.
> Scenario No. 2 would be inflation.
>
> Yes? No?
>
> Now, let us assume a constant level of expenditure by the govt, of say, $1
> trillion.
>
> Are we really willing to say that if we deficit spend $999 billion dollars
> and tax only one, that it would not be inflationary?
>
> Are we really willing to say that if we tax $999 billion and deficit spend
> only one, it would not be deflationary?
>
> And, taking the two extreme positions, why is it not the case that the
> intermediate points might not also be inflationary or deflationary,
> depnding on which pole of the extreme we approach?
>
> I understand that *part* of this picture is the total level of govt expenditure
> relative to aggregate income.  BUT, what I am trying to argue about here is
> the whole value-of-money thing.  If it is posited to rest in taxation, then it
> seems to me, that as the level of effective taxation declines due to deficit
> expenditure, than there might be a problem with the relative value of the
> nominal currency unit relative to other things.
>
> I am hoping to hear from more than one person on this.  I would like
> to emphasize that in off-pkt discussions Warren has been perhaps more of a
> gentleman than I merited; and that he has been diligent to a fault (if
> that is possible) in responding to my queries.
>
> Greg  Nowell
>
> p.s.  I suppose I should emphasize that I am not here trying to make the
> argument that all deficit spending is inflationary.  I am trying to "get",
> under the stated terms that taxation rests the marginal determinant of
> money value, why the above correlations would or would not follow.  I
> personally think that part of the answer as to why all deficits might *not*
> be ihnflationary is that, in fact, transaction demand is a more important
> determinant of currency value.  But that would appear to be a minority
> view, and if it is an ignorant one, then I could use some instruction.
>
> g.n.