Re: General Theory Seminar--Moore

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

Basil Moore wrote:
>
> John I am confused by several passages. I will reply in CAPS
>
> At 07:58 AM 2/24/00 -0800, you wrote:

<<SNIP>>

> >Banks do not create "money" except by a very misleading
> >definition of money.

> BANKS IN MY VIEW CREATE MONEY WHENEVER THEY MAKE A LOAN, AND ISSUE THEIR
> OWN LIABILITY (DEPOSITS, WHICH ARE A MEANS OF PAYMENT AND SO MONEY) IN
> EXCHANGE FOR THE BORROWERS' LIABILITY (IOU) WHICH IS NOT GENERALLY ACCEPTED
> IN EXCHANGE. I AM DEFINING MONEY AS MEANS OF PAYMENT, THE THING THAT IS
> GENERALLY ACCEPTED IN EXCHANGE AND AS SETTLEMENT OF LEGAL DEBT OBLIGATIONS.

That [I AM DEFINING MONEY AS MEANS OF PAYMENT, THE THING THAT IS
GENERALLY ACCEPTED IN EXCHANGE AND AS SETTLEMENT OF LEGAL DEBT
OBLIGATIONS.] is the definition I prefer, but it is not the
definition that calls deposits part of the money supply.

"Deposits" are not the article of settlement for debts owed.
Debts are settled by the transfer of money [either fiat or
substance] at the direction of the depositor. If the recipient
of a loan chooses to deposit his proceeds immediately upon
receipt of the bank's obligation that is his choice. It does not
change the deposit into "money" except in the misleading
definition used in compiling monetary aggregates.

It is the failure to make the distinction between money itself
and its many substitutes, most prominent of which is
intermediated credit, that obfuscates most discussions of money
and monetary policy.

> >They only intermediate the creation of credit. Credit can be
> >created by anyone at any time without license from government
> >and without the availability of money.

> NO. YOU AND I CAN LEND, BUT CANNOT CREATE MONEY IN THE PROCESS, AND SO
> CANNOT INCREASE AD. I CAN ONLY LEND TO YOU MY SAVINGS, INCOME THAT I DO NOT
> CONSUME MYSELF.

True, individuals do not create "money" any more than bank's do
and I didn't say they do. They create money substitutes [credit]
just as banks do. The transferability of a money substitute
depends entirely on the reputation of the issuer of the promise
and/or any intermediator who may add his guarantee to that of
the original issuer.

A bank's greater ability to swallow defaults on obligations to
it gives the bank's promise of payment greater acceptability but
it is just as subject to the condition of actually making the
transfer of money as are private promises. Giving a "Pay to the
order of ____" instruction to a bank does not release a debt.
Only the successful transfer of the underlying asset [money]
does so.

The perspective that an increase in money and/or money
substitutes will cause, or is needed to cause, an increase in AD
is just one of the many false conclusions drawn from the
perception of this false definition of money.

I have presented this query to many and still have not received
a rational answer, undoubtedly because of cognizant dissonance
and the fact it is a tautological certainty.

That is -- place a rational set of dimensions on any form of the
AD or AS plots you want and the ultimate truth is that because
the dimension of AD and AS can only be an aggregate of the total
demand and or supply dimensioned by prices or a derivative of
those prices the relationship of a dollar's worth of aggregate
for a dollar, or whatever derivative of this relationship you
use to obfuscate that simple but certain truth, will forever
remain true.

Perhaps you would like to identify rational dimensions for any
of the assorted AD/AS plots you use to identify the relationship
of aggregate supply and or demand and whatever coordinate you
choose to believe makes a convincing plot?

For an expanded explanation of the obvious problem of AS/AD
analysis see _Supply and Demand, Again_ at:
http://www.geocities.com/CapitolHill/1067/chap13r3.html

> >The only distinction
> >between individually created credit and bank created credit is
> >the transferability and redemption conditions of the credits.
> >TRUE. BUT THIS IS A MAJOR DISTINCTION WITH PROFOUND IMPLICATIONS FOR AD

Not for AD [See above.] but for the quantity of true money that
is required to maintain the value of the currency. [i.e. -- It's
an error related to the same one that lead Friedman to propose a
"solution" that is tautologically impossible given the certainty
that dQ/dM = 0 while at the same time proclaiming it to be true.
It is the error of accepting statistical correlations as "proof"
while at the same time proclaiming the truth that they can not
distinguish cause from effect from coincidence.]

> >Neither private nor bank credit is money in the sense of being
> >the stuff used to pay taxes and settle court enforced
> >obligations.
> >THIS I DO NOT UNDERSTAND???? WHAT ARE YOU GETTING AT HERE??? I THOUGHT I
> PAID MY TAXES AND SETTLED MY DEBTS BY SENDING THE GOVERNMENT OR CREDITOR A
> CHECK, ie BY TRANSFERING MY BANK DEPOSITS?

No, you make these payments by directing your bank to make the
payments. Read the wording on your check. It says "PAY TO THE
ORDER OF ______", or some such. The debt is not settled by you
making the order, it is only settled when the bank makes a
payment of true money.

<<SNIP>>

--
			-- jbod

		Tax Privilege, Not People
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