Re: More money or better distribution?

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

John M. Legge wrote:
>
> 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.

Close but no cigar. It means that a change in the quantity of money does
not cause a change in the volume of output of an economy. To some it may
be a subtle difference, but it is the essence of understanding that one
must look elsewhere for means to cause greater production and a more
equitable distribution of that production.

> 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.

This assertion assumes, among other things, that there is some knowable
relationship of some specific measurement of the quantity of money
needed to maintain a constant value of money relative to the volume of
goods and services available for trade. Some problems with this
assumption are: (1) an inability to define either "money" or "volume of
goods and services" in a way to meaningfully measure the relevant
quantities; (2) an unrealistic assumption that there is a constant
relationship between the available supply of money and the available
supply of goods and services that can be exchanged for money; (3) no
exchange of goods and services can happen without the use of this money;
and, (4) there is a situation where the total capacity to produce is in
use and there are no possible ways of improving the ability to produce.
There are, of course, many other assumptions inherent in the above
conclusion presentation of which would only belabor the point.

The simple fact of the relationships asserted by me is that a change in
the quantity of available money and credit can be made in response to
observed changes in money value such that the dimension of value is
maintained within a respectable range of values and that such changes in
the quantity of money have no effect on the quantity of goods and / or
services produced or available for trade. The rest are just an
accumulation of assumptions believed by others to be inherent in my
assertion. If these assumptions are based on rational argument I'd
appreciate hearing those arguments.

> 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.

It can be so lonely being a school of one. [Of course, I do not believe
I am that alone, I'm just not aquatinted with all those who recognize
truth when they see it.]

Note the use of "could be" not "is" in the above proposition. Also,
Keynes argued quite extensively that any issue of money be such that it
not cause inflation. He even went to the extreme of suggesting that
"cans of money" be buried by government hired employees to be then dug
up by the available but unemployed labor. All in all, not an irrelevant
solution _IF_ the value of the currency is otherwise maintained.

> 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

I gave it a try. The response was -- "The link you have chosen is
available only to Slate subscribers." -- and I'm not a subscriber. Could
you send a copy by e-mail without violating copyrights?

> 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.

I won't argue for an inappropriate process from wherever it may come.
Since I don't know the details I'll accept that the IMF may have done a
poor job [I suspect they _DID_ a poor job, but that's just my suspicion
without any knowledge to back it up.] of trying to fix the Indonesian
economy. However, that does not mean I accept that what they have done
is the only, or even a contributing, factor of the Indonesian troubles.

			-- jbod

		Tax Privilege, Not People
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