Re: More money or better distribution?

[Chas Anderson <chasna@xxxxxxxxxxx>]

John, you need to get beyond dQ/dM and explain where dM is coming from.
You're begging the "needs of trade" argument from a group that is steep in
real bills theory. What you really need is a model. I read a couple of
pages from the "web" you are always recommending and I found it loaded with
so many
misrepresentations about economics and economists that it is no wonder
you're frustrated with economist. I would be too if I didn't understand the
methodology of economics. I suggest a place to begin on "real bills" is
Adam Smith's "The Wealth of Nations." As Mints states, 'this is probably
the most complete source,' at least from the  pre-1797 era. Next, read
'Paper Credit' by Thornton and then Mints and Viner and you'll be ready for
Davidson.

Chas


At 07:55 PM 8/16/98 -0500, you wrote:
>At 03:19 PM 8/16/98 -0700, you wrote:
>>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
>
>
>
>The trouble with your illustration is that it attempts to be a "when did
>you stop beating your wife" question.  Even worse, however, since you
>ASSUME PNEQ --then you are dropping this money into the economy from a
>helicopter, i.e., an exogenous money supply whichhas no effect on either
>interest rates of the marginal efficiency of capital.  Inhj fact you are
>implicitly assuming all spending is consumption and is strictly a function
>of wealth
>
>W \hen you understand the concpet of an endogeneous oney expanding to meet
>the increased needs of trade you will understand why dQ/dN does not equal
>trade -- and why if the banking system does not expand to meet the
>increased neds of trade , that is if dM=0, then DQ will be constrained to
>zero.
>
>Case closed.
>
>Paul Davidson
>Holly Chair of Excellence in Political Economy
>Economics Department -- 523 SMC
>University of Tennessee
>Knoxville, Tennesseee 37996-0550
>email: Pdavidson@xxxxxxx;   phone: (423)974-4221;    fax: (423) 974-1686
>