More money or better distribution?

["John B. O'Donnell" <jackodonnell@xxxxxxxx>]

On numerous occasions I have posted here my position that dQ/dM=0 at all
times is true. Most [all?] on this list seem to accept that it is true
"in the long run" but believe it is not true "in the short run."
Whenever I have questioned this assertion and asked for proof of this
belief I have not received anything more than an occasional reference to
some statistical correlation or a muted suggestion that I don't
understand because I have not adequately studied the issue. Most [Again,
all?] accept that statistical correlation does not identify cause but
then go on to call their claim proven by such correlations.

As an aide to understanding their position I have tried a little thought
experiment that I'd like to hear refuted if it can be done. The task is
to try to separate the consequences of increasing the money supply from
the usually requisite change in distribution of wealth that comes with
that increase. The purpose is to see if a determination can be made of
which of these factors contribute to the appearance of a short run
effect on economic growth.

In order to separate the effects let us examine the probable
consequences of three possible actions:
(1) Create and distribute previously non existent money [PNEM] to a
group of people with an above average propensity to consume. [Assumed to
also be predominantly those with less than average wealth.]
(2) Distribute the same amount of PNEM to a group of people with an
above average propensity to save. [Assumed to be predominantly those
with more than the average amount of wealth.]
(3) Distribute the same amount of PNEM in proportion to each person's
holdings of wealth.

Given these conditions, if it is true that increasing the money supply
contributes to economic growth independent of any associated change in
the distribution of wealth then there would be no difference in the
effect of each of these choices. However, if the outcome is determined
IAW Keynes propensity arguments and not by the increase in money
quantity then case (1) would produce an economic improvement; case (2)
would produce a degradation; and case (3) would have no effect. Also,
there appears to be no need to resort to separation of the actions in
the time domain of long and short term.

I suggest that it is the action of redistribution of wealth usually
associated with increases in money supply and not the increase itself
that that gives the appearance of increase in economic activity
sometimes associated increases in economic activity. Further, this
mental experiment also explains the occurrence of "stagflation" that
sometimes accompanies an increase in money supply.

Any of the proponents of increasing the money supply as a method of
"stimulating" an economy willing to address / refute this little
experiment?

			-- jbod

		Tax Privilege, Not People
___________________________________________________
Come visit and see a new economic perspective --
       http://www.geocities.com/CapitolHill/1067
           Comments/arguments welcome.
..