Re: General Theory Seminar--Inflation

[Basil Moore <bmoore@xxxxxxxxxxxxxxxxx>]

William
Even though credit money finances the wage bill and so the two (Money
supply and the Wage bill)will tend to move together over time, there is a
big difference in this story from monetarism.

The monetarist story assumes the money supply changes exogenously, i.e. is
controlled by the CB,
Inflation is caused by the existence of excess money balances, money supply
growing more rapidly than real income i.e. inflation is demand inflation.

The Post Keynesian story assumes the money supply is endogenously
determined by the demand for bank credit, primarily business demand for
working capital to finance increases in their wage bill.
Inflation is caused by money wages growing more rapidly than average labor
productivity growth, i.e. inflation is cost inflation.

Basil Moore

At 10:08 PM 3/6/00 -0600, you wrote:
>1. Referencing http://csf.colorado.edu/forums/pkt/2000/msg00763.html
>
>[Basil Moore]
>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.
>----------
>
>This differs little from monetarism, I must respectfully submit.
>
>In a pure system of endogenous credit, where money comes into
>existence exclusively through loans of one form or another backed by
>debt, it is not possible for actual factor income (the bulk being
>wages) to remain proportional to increasing productivity indefinitely.
>
>Case 1) If the monetary authorities are successful in keeping the rate
>of increase to the quantity of money proportional to increasing
>productivity, or even constantly increasing from year to year
>regardless of productivity so long as that rate of increase is no
>greater than the rate of increase to productivity, then increasing
>factor income must *decelerate* as compared to productivity, which
>will be reflected in a generally degrading standard of living.
>
>Case 2) If, on the other hand, organized labor, for example, is
>successful in their attempt at keeping wages increasing at least
>proportionally to increasing productivity, then the increase to the
>quantity of money must *accelerate* compared to productivity, which
>will be reflected in price inflation.
>
>See: http://csf.colorado.edu/forums/debt/1999/msg00255.html
>
>2. Referencing http://csf.colorado.edu/forums/pkt/2000/msg00791.html
>
>[Paul Davidson]
>What happened in the Great Depression is that even if the central bank
>did its job correctly--as it did during the Roosevelt years when
>interest rates were barely above zero--the economy could not achieve
>full employment.  And the same thing is true today in Japan--and if it
>was not for the US running an unheard of trade deficit--thereby
>spending tremendously more than its income--the whole entrepreneurial
>world would see a repetition of the Great Depression.
>----------
>
>Yes, indeed!  Not necessarily a prolonged world-wide depression, for
>that would depend on how the authorities react.  But a crash, which
>will surely come in any case, sooner or later.
>
>In the past few years we've already had not a few "mini" crashes,
>where the authorities successfully intervened to stop the dominoes
>from falling.  Whether they can stop the dominoes if there is a much
>larger crash is problematic.
>
>The big crash, where the dominoes will not be stopped, could come at
>any time.  In my estimation, it must come no later than within the
>next twenty or thirty years, at the point when the big investment
>funds are forced to become net sellers instead of buyers, when
>retiring American "baby-boomers" begin to outnumber those newly
>entering the workforce.  At that point, the securities markets will
>come tumbling down.  In principle, there are things that could be
>done to preclude such a crash from occurring, but I doubt they will be
>implemented.
>
>If there is anything that members of this list should be able to agree
>on, it is that depressions need not be prolonged if the authorities
>react with prudent fiscal and monetary measures.  There is no reason
>that normalcy could not return quickly.
>
>Bill Ryan
>william_b_ryan@xxxxxxxxxxx
>Internet: http://www.geocities.com/w_b_ryan
>
>
>
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