Re: More money or better distribution?

["John M. Legge" <jlegge@xxxxxxxxxxxxx>]

jbod's assertion is that dQ/dM is zero.  This is formally meaningless as
mathematics, but I take it as an assertion that the availability of money is
not correlated with the physical volume of economic output.

In the particular case of full employment of labour and capital, under
circumstances in which Say's Law holds, then an increase in the quantity of
money would pass more or less directly through to prices without affecting
physical output.  THIS SITUATION DOES NOT CURRENTLY HOLD IN INDONESIA OR AS
FAR AS I KNOW, ANYWHERE ELSE, if it ever has.

Keynes dealt specifically with a situation of unemployed labour and idle
physical capital, and showed that this could be the result of insufficient
money or a decline in credit.  I believe that there are practically no
economists of any school for whom this assertion, in this weak form, is
contentious, and it must hold in any circumstances where there are some
costs fixed nominally: lease payments on equipment, interest on debt,
forward orders for materials and monetary aggregates decline or grow too
slowly.

BTW you don't have to read the whole of The Accidental Theorist to find
Krugman's opinion on this matter. Try:
http://www.slate.com/Dismal/98-08-13/Dismal.asp

The IMF, by demanding the closing of numerous banks in Indonesia, has
stripped numerous firms of their source of credit.  Restrictive capital
adequacy ratios, also demanded by the IMF, mean that the remaining "sound"
banks, if any, can't extend credit, even to sound customers of failed banks.
Firms with fixed costs and no working capital must fail -- and are doing so
in heaps.  Result: depression.

jml