Re: Backed money/reply to tomasson

["Gunnar Tomasson" <tomasson@xxxxxxxx>]

Mike wrote:

>GUNNAR:

> I hope you didn't get the impression (though apparently you did)
> that my "Backed Money" paper (http://www.csun.edu/~hceco008/rbd2000.doc)
> had anything in common with Bentham's
> ideas, or that the theory of backed money is in any way alligned
> with the idea that there can be no such thing as involuntary
> unemployment.

Mike:

The reason for my original comment:

On a quick look through your paper, it seemed to me that you are well on the
way towards the Benthamite view of money...

is this.

(a)  ALL New Money comprises IOUs of the Issuer in exchange for IOUs of the
Customer, whence it follows that ALL Money is "backed" in the trivial sense
dictated by the logic of double-entry book-keeping.

(b)  SOME New Money is also "backed" in the non-trivial sense that
Entrepreneurial Customers use it to acquire factor services for the
production process.

(c)  The REMAINDER of New Money that is not so used remains "backed" ONLY in
the trivial sense under (a) above.

Keynes wrote somewhere that "the" classical theory of money was never
explicitly stated but had to be culled out from the writings of classical
economists.

Since Bentham's monetary writings were published only after Keynes' death,
his statement would seem to imply that Keynes did not know the full details
of Bentham's work in this area.

In this respect, I note that Charles Goodhart expressed the view in a
Financial Times article in the 1980s that modern monetary theory was in "a
less satisfactory state" than that to which Keynes and Robertson had
advanced it by the early 1930s.

I agree with Goodhart's assessment and note that the label given by Keynes
to his lectures at Cambridge in the early 1930s was "The Monetary Theory of
Production".

This was a follow-up on the monetary ideas of the Treatise and prelude to
those of the General Theory.  In all three cases, Keynes' point of departure
was that of classical monetary theory as conceived by Adam Smith and
elaborated by Bentham.

In all three cases, also, Keynes screwed up his presentation albeit in
different ways.

The fact that his peers felt more comfortable with the General Theory
screw-up (the "inconsistent hotch-potch" referred to by Keynes in his letter
to Hicks), I submit, explains why, as Goodhart suggested, modern monetary
theory has retrogressed since the early 1930s.

Gunnar