PKT message, Re. an enquiry

Re. the following:

Can a general equilibrium be established under the fiat money economy? The seignorage reve-nue that accompanies a fiat money issue one-sidedly generates an extra excess demand in the model, where all excess demands are instantaneously to be reconciled by a Walrasian auctioneer. Textbook Walrasian theory predicts that fiat money will not have value at the equilibrium, and so the seignorage revenue must be zero. In mainstream economics, the overlapping-generations model, the cash-in-advance constraints and the inclusion of real balances in the utility function are vexed at this question. But heterodox economics has never raised this issue even in its primitive form.

Comment:

In 1978, I had occasion to pose a related question to Paul Samuelson:

Considering that the supply cost of new fiat money is zero, must it not be concluded that, in principle, there exist no determinate conditions of equilibrium in real-world market economies viewed as "[general] equilibrium systems in "******" equilibrium or motion"? (Foundations of Economic Analysis, p. 5)

For "******" read "stable" - which, if there exist no determinate conditions of equilibrium, would seem to be analytically meaningless.

Samuelson's reply (quoted from memory): "If governments act as if the supply cost of money is zero, then there may arise temporary domestic price and balance of payments disequilibria."

Gunnar Tomasson

----- Original Message -----

From: "Michael Perelman" <michael@xxxxxxxxxxxxxxxxx>

To: <pkt@xxxxxxxxxxxxxxxx>

Sent: Monday, September 18, 2000 4:02 AM

Subject: [Fwd: an enquiry]

> A Korean colleague posed the following question. Does anybody have anything to contribute to this question?
>
>
> > Dear Professor Michael,
> >
> > I would like to make an enquiry: Is the following statement correct?
> > ------------------------------
> > Can a general equilibrium be established under the fiat money economy? The seignorage reve-nue that accompanies a fiat money issue one-sidedly generates an extra excess demand in the model, where all excess demands are instantaneously to be reconciled by a Walrasian auctioneer. Textbook Walrasian theory predicts that fiat money will not have value at the equilibrium, and so the seignorage revenue must be zero. In mainstream economics, the overlapping-generations model, the cash-in-advance constraints and the inclusion of real balances in the utility function are vexed at this question. But heterodox economics has never raised this issue even in its primitive form.
> > -------------------------
> > If there is any in the heterodox economics that deals with the seignorage issue, please give me some information.
> >
> > I thank you for your kind instruction in advance.
>
> --
> Michael Perelman
> Economics Department
> California State University
> Chico, CA 95929
>
> Tel. 530-898-5321
> E-Mail michael@xxxxxxxxxxxxxxxxx
>
>