Re: Inflation (was: Visions of Sugar Plums)

[Paul Davidson <pdavidson@xxxxxxx>]

At 05:56 AM 12/31/1998 -1000, you wrote:
>At 01:45 PM 12/31/98 PST, William B. Ryan wrote:
>>A simple model of economic growth may be expressed in one sentence: The
>>*process* of entrepreneurial spending, accommodated ultimately by the
>>creation of credit broadly defined, distributes increasing purchasing
>>power to final consumers, enabling them to purchase an increasing volume
>>of goods and services as they become available.
>
>So you are saying that entrepreneurial borrowing produces both the goods,
>and the means to buy the goods via the distribution of the borrowed money
>in the process of creating the goods.
>
>Very neat.
>

This is the old "real bills doctrine".  See my Post Keynesian Macroeconomic
Theory book for the difference between . real bills vs. inflation bills.

>>Since not every entrepreneurial decision is ratified by consumers in
>>free markets, a measure of inflation is to be expected within even the
>>most rationally constructed financial system.
>
>And here, that a failed decision produces inflation, because the money
>borrowed is not reabsorbed by the goods produced, but rather enters the
>economy as a permanent increase in the money supply, as contrasted with the
>temporary increase produced by a repaid debt.
>
Not true since the borrowing of entrepreneurs from the banking system must
be repaid -- and unless new entrepreneurial loans are taken out --
repayment reduces the money supply.

>But isn't there some sort of mechanism that will soak up that excess, say
>the increase in value produced by all the successful decisions?

This is all devleoped in Keynes's finance motive -- see my PKMT book.

Paul Davidson
Holly Chair of Excellence in Political Economy
University of Tennessee
SMC523
Knoxville, Tennessee 37996-0550
office phone# (423)974-4221
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email: pdavidson@xxxxxxx
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