Re: General Theory Seminar--Moore

[Warren Mosler <mosler@xxxxxxxx>]

mike sproul wrote:

> Here is a view of money that clarifies many of the problems raised by
> John and Basil:
>

(snip)

>
> My suggestion is to refer to green dollars as BASE dollars, and to bank
> deposits as DERIVATIVE dollars. Then see how far you can push the
> analogy to base GM stock and derivative GM stock.

This is also detailed in 'A Framework for the General Analysis of
Currencies and Commodities' at http://www.warrenmosler.com

Briefly, what you call 'green money' takes the form of cash, clearing
balances (reserves). or Tsy securities for all practical purposes.
And these sum to the 'national debt' in the hands of the private sector.

The analogy I like to use is commodities, particularly those that
trade on a futures exchange.  With beans, for example, you have
the real beans and you have what is called 'open interest' on the
futures exchanges and forward contracts in the cash markets.
Bank deposit money is best thought of as part of the 'open interest'
of that currency.  It is sometimes called 'inside money' as loans (short
positions in the currency) create deposits (longs) and the whole thing always nets
to 0 (operating factors aside), just like the longs and shorts always net to 0 on
futures exchanges.

(snip)

>
> So, back to money: When a banker issues a checking account (a derivative
> dollar) has he increased the supply of money?
> Yes; he has increased the supply of the stuff used to make payments, but
> he has not increased the supply of green dollars.

Yes, open interest has increased.

>
> Since the banker increased the supply of "money", did he cause
> inflation?
> No; The number of green dollars is unaffected, and these are the only
> kind of dollars recognized as the Federal Reserve's liability.

?  Just like buying of bean futures can raise both the spot and
forward price of beans borrowing to make purchases can drive
up prices.

Ultimately the price level is a function of prices paid by govt (the
issuer of the currency) so price level increases due to increasing
leverage will be reversed unless govt steps up and pays the higher
prices, thereby redefining its currency.

w

(is this the same Mike Sproul who sent me a paper on money years ago?)