Re: General Theory Seminar--Moore (reply to Mosler)

[Warren Mosler <mosler@xxxxxxxx>]

Basil Moore wrote:

> Warren
>
> I'm not so sure about your "two price" story.  "Own price" I understand,
> although for financial assets it is usually expressed as "own rate".

Yes, the interest rate- payment in kind.

>
>
> Since money is generally acceptable in exchange for all other goods and
> services, the other price might be
> the value of money in exchange for goods, i.e. the real value of money in
> exchange  or 1/p. This seems to be your interpretation??
>

Yes.  Exchange for something other than 'kind.'

>
> But I am not happy with the story that the price level p is a function of
> the quantity of money in the economy.

Nor am I.  Any more than the price of corn is a function of the open
interest in corn futures.

> In my vision the supply of money is
> passive, and does not directly explain p or pdot.

I couldn't agree more.

> The price level as a
> function of the amount of money in the sytem is after all the monetarist story.
>

ok.

>
> I view the price level and the core inflation rate as being determined
> primarily by wages, and by the rate of change of money wages relative to
> the rate of average labour productivity growth.
>
> Now in your story I think the gov. can set the wage rate as the residual
> purcheser of labor, or ELR?
>

Yes.  If it wants to.  Actually 'a' wage rate rather than 'the' wage
rate, and, in the elr case, a minimum wage.

>
> Thatwould of course be a neat way of closing the system. But I don't think
> anyone, even you, would argue that that is a good description of how the
> wage rate is deternined at present?
>
> Do we have a disagreement?
>

Given all that, with a flexible exchange rate for the $US, I would say
the 'price level' is still a function of prices paid by government (the issuer)
when it spends or collateral demanded when it lends.

As an extreme example, assume the government decided to buy the same
things this year that it bought last year, but not pay a penny more.  (and
no transfer payments, etc.)  Then
assume that (somehow) the price level increased by at least a penny for
all items purchased by government.  This would cut government spending
to 0, and, I submit, force prices down until the private sector *obtained*
at least enough $ from the government to meet its tax liabilities.

Let's look at this from your clearing point of view.  A tax liability debits
bank reserves (clearing balances at the Fed).  Technically this operating
factor can be offset by the govt (Fed or Tsy) buying something from its
account at the Fed.  It can lend/buy securities or buy goods and services.
When it lends it demands collateral of 'value' as determined by the govt.
So the govt. is price setter for the clearing balances it supplies to cover the
debit/'overdraft.'

So yes, in theory, the govt. could lend enough to cover the tax liability,
demanding what it wants in collateral as well as setting the interest rate.
But when the non government sector has tax liabilities, it has the choice
between collateralized borrowing from the government or offering things for sale to
the government in return for the needed reserves.  So for whatever terms
the Fed is willing to lend at there will be corresponding prices that the
non government sector will be willing to sell at.  Note, too, that today, with
the non government sector reducing its net nominal wealth as the govt runs
a surplus, private sector 'leverage' can be said to be increasing?

And, at the end of the day, with a floating exchange rate, how can
nominal prices be anything but exogenous and determined one way
or another by the issuer/government?

And, lastly, in a 'market economy' in theory it is only necessary to
set one nominal price, and all else drifts to an expression of
relative value?  That one nominal price was gold at one time.  I have
suggested that given our goals as a nation (full employment and
price stability) we can accomplish that directly and immediately
by using labor as a bufferstock via most any elr type of program.

But your question is the way the wage rate is set at present.
I would say that at present government pays market prices and wages
within a budget constraint.  This budget constraint sets deflationary
forces in motion.  Currently the deficit spending of the household
sector has been more than offsetting this effect so the expansion has
continued, though it seems to me this is not sustainable.

Best,

Warren

>
> Best Basil
>
> At 05:35 PM 3/2/00 -0500, you wrote:
> >
> >
> >Basil Moore wrote:
> >
> >> John
> >> In this context the "price" of money that the Fed sets is the interest
> >> rate. This is the price of credit, which the CB is supplying.
> >> Basil Moore
> >>
> >> At 10:18 AM 3/1/00 -0800, you wrote:
> >> >Warren Mosler wrote:
> >> >
> >> ><<SNIP>>
> >> >
> >> >> The issuer of the currency (government) is the single supplier of that
> >which
> >> >> it demands for payment of taxes and other debts to the government.
> Single
> >> >> suppliers are 'price setters.'
> >
> >Basil,
> >
> >The single supplier of any commodity/currency is price setter of
> >'two prices.'  The first is how that commodity exchanges for
> >more of that commodity, called the 'own rate' by Marshall, I believe.
> >With a currency the interest rate set by the CB is the own rate.
> >
> >The second 'price' is how that commodity exchanges for other
> >goods and/or services.  For example, since the private sector
> >needs units of the govt's currency to meet its tax liabilities,
> >and the govt is the only supplier (monopoly supplier of reserves,
> >as you put it in your 1988 book) of said units, it is clearly 'price
> >setter' when it spends or lends (re: collateral demanded).
> >
> >The driving force with a flex exchange rate is the non govt sector
> >needing the govt's spending or lending to meet its tax obligations.
> >
> >Best,
> >
> >Warren
> >
> >> >
> >> >It may only be a matter of email semantics, but the above leaves
> >> >an erroneous impression. The supplier of goods or services can
> >> >not concurrently set both the price and quantity. In the case of
> >> >money "price" is the quantity of goods and services money buys.
> >> >It is not the rental rate or interest charged for temporary use.
> >> >
> >