Re: Argentina and currency boards

["William B. Ryan" <william_b_ryan@xxxxxxxxxxx>]

1. Esteban Perez asked: http://csf.colorado.edu/mail/pkt/dec98/0046.html

>>>...Are you talking about effective demand (the point of intersection
between aggregate demand and aggregate supply) or about aggregate
demand?<<<

If I am forced to answer this either-or question, I will write down
"point of intersection."  This answer might give me a passing grade on
the exam, but I don't find it very satisfactory.

AD and AS are static curves where time has been taken out of the
equation.  Superimposing one on top of the other on the same chart tells
us nothing about the dynamic nature of mass production and consumption.

It is more meaningful to plot individually the costs of production
(equivalent to AS) and _aggregate_ demand as functions of time on the
same chart, with time the horizontal axis.  The _aggregate_ demand curve
will have the same slope as the costs of production curve, but will lag
in time--the lag being proportional to the rate of growth.  That is to
say, the rate of *increase* in _aggregate_ demand will equal the rate of
increase to the costs of production.  From any point along the time
axis, draw a vertical line that intersects both curves.
*Simultaneously* measured EFFECTIVE demand (in reflux from salaries,
wages and dividends) is less than the costs of production.

This concept--formally known as the A + B theorem in contradistinction
to Say's law--cannot be reconciled to an alleged "point of intersection"
between supply and demand, and excludes the possibility of "equilibrium"
in the absence of conscious intervention.

2.  With John Gelles permission, I am forwarding the following:

>From John Gelles:

NOTE TO PER:

"This is definitely not Per's proposal. He is in favor of traditional
debt finance through bond sales." -- Bill Ryan

Per,

Bill refers to your high national debt and its ratio to the GDP. We have
been discussing it in connection with the "printing money" thread on
PKT. I referred to it as a functional finance application. The following
is my reply to his off-list message at the bottom. -- John

MESSAGE TO BILL:

o Per and I worked together for almost a year.

o Our proposals were intended to be logical and doable.

o We agreed that the logical problem is the buying power of money.
Interest payments that define bond based bank notes are not logically
required.

o But if they are abandoned, and national debt is paid down with
non-interest "money", the risk of inflation may be higher. - It is a
matter of trial and error: In a small nation trial, capital flight might
be triggered. - In a larger trial, flight from money to barter or
"force" (private armies and civil war) may be the result.

o My IEA proposals avoid radical money printing as their step-one.
Rather, they focus on production and saving to keep money's buying power
up for as long as there is human work to do. - Without it, we must
persuade everyone WE are RIGHT. - With it, people persuade themselves to
GO for the money!

o You and Per and I (and all on this list but the non- Keynesians) are
in basic agreement -- our problem is pride of authorship and related
bullshit.

o Keynes, we are told, later embraced Lerner's version of the heart of
Keynesianism. But, like our own discussions, the actual need,
empirically, to bargain with representatives of military power, (who
also worship economic power), meant that matters like interest, real and
personal property, taxes, and wages, all have to be on the table for
compromise. - No one person has the guns and firepower to implement his
own ideas -- be they social credit or tax free individual estate
accounts. John

P.S. I've copied this off-list exchange to Per. He may be too busy to
comment. I presume we are off list because of the damn quota.

From: William B. Ryan
Subject: Re: Print Money (off list)
Date: Monday, November 30, 1998 4:06 PM

>>>Under my IEA proposals, there is no necessary national debt or
interest. The debt can be paid down to zero with fiat (printed)
money.<<<

This is definitely not Per's proposal. He is in favor of traditional
debt finance through bond sales. Abba Lerner, the originator of the
"functional finance" concept, was accused and derided (by Keynes
himself) as being not a "true" Keynesian. His ideas, and possibly yours,
were much closer to social credit.

---------------in reply------------------

>>>...the logical problem is the buying power of money.  Interest
payments that define bond based bank notes are not logically required.
But if they are abandoned, and the national debt is paid down with
non-interest "money," the risk of inflation may be higher...<<<

Why?

>>>...In a small nation trial, capital flight might be triggered...<<<

Why?

>>>In a larger trial, flight from money to barter or "force" (private
armies and civil war) may be the result...<<<

Please, come on.  This must surely be a ridiculous exaggeration.  But
again the question: Why?

If you do sincerely believe that there is even a small but reasonable
chance that a conservative attempt at monetary reform might result in a
"flight from money to barter" and armed "civil war," perhaps you should
become a card-carrying member of the Cato Society.  I know that I would,
if I so believed.  We would be conscience bound to prevent such a
catastrophe, at any cost.  Such an event must result in the death of
millions of people.

That you can make such a statement seems to indicate to me that you do
not even begin to grasp the essence of Keynesianism, or similarly minded
competing theories, despite the fact that you frequently insert the word
"Keynesian" into your expositions.

>>>...My IEA proposals...focus on production and saving to keep money's
buying power up for as long as there is human work to do...<<<

There is always human "work" to do. The problem is the real and
financial capability to absorb ever increasing production.

C. H. Douglas' first published essay, "The Delusion of
Super-Production," included as an appendix in some editions of _Economic
Democracy_, comments on this apparent paradox.  Producing more does not
equate to consuming more in any meaningful sense that relates to "human"
self-actualization.  Certainly not in a sustainable world.
Super-production quickly degenerates into a never-ending spiral: we
produce more so we can get the money to consume more so we can produce
more, etc.

3.  Alan Isaac wrote: http://csf.colorado.edu/mail/pkt/nov98/0203.html

>>>...Historical experience has shown that we can have any level of
inflation at any level of unemployment, and that we can never have
large, sustained inflations without large sustained increases in the
nominal money supply--including large sustained increases in base money,
which are in principle controllable by the monetary authority.  The
evidence on this is overwhelming and requires no sophisticated analysis.
See, for example, [from the Federal Reserve Bank of Minneapolis]
http://research.mpls.frb.fed.us/research/qr/qr1931.pdf <<<

This appears to be a mangled paraphrase of the cited paper, with the
term "level of employment" inserted to create the illusion that it is
"Post Keynesian" and supported by the evidence.  The term nor even the
word "employment" can be found in the paper, which is strictly
monetarist.

>From the paper:

>>>"...(1) Growth rates of the money supply and the general price level
are highly correlated...

"(2) The growth rates of money and real output are not correlated...

"(3)  The rate of inflation and the growth rate of real output are
essentially uncorrelated...

"The evidence...seems to support the quantity equation."<<<

So I say welcome to our good friend Alan Isaac, monetarist.

Bill Ryan: http://www.geocities.com/CapitolHill/Senate/7018














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