Re.: 'Stability' Of Equilibrium w/Zero-Cost Money

["Gunnar Tomasson" <tomasson@xxxxxxxx>]

Paul:

You wrote:

 In other words, Samuelson assumes that money is neutral, i.e., it does not
affect the real (stable equilibrium) of his "scientific" world!\\

I am very pleased to see that we have "connected" - this is what I wrote to my correspondent on the Internet Forum, who was not sure what all this was about:

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At issue is a point of logic which, in the context of the Laplacian construction of Newtonian gravitational mechanics, may be explained as follows.

1. Consider some "given initial conditions of position and velocity" for all particles of matter in the universe.

2. Under the Laplacian construction of Newtonian gravitational mechanics, an omniscient being, using such initial conditions as point of departure, could then plot the time paths of individual particles until kingdom come.

3. In economist jargon, this means that all particles of matter in a Laplacian universe form a general equilibrium system where, from some given initial conditions, the system's dynamic evolution through time is uniquely determined.

4. In the late nineteenth century, mathematician and aspiring theoretical economist Leon Walras began to toy with the idea that real-world market economies might be viewed as "general equilibrium systems" in the above Laplacian sense of the concept.

5. Hence the invention of Homo Oeconomicus, whose inbuilt economic calculus did for the system's 'stability' - or predictability - what universal gravitation did in the Laplacian scheme of things.

6. John Maynard Keynes, the twentieth-century's foremost economist, was not impressed: "Walras's theory and all others along those lines are little better than nonsense," Keynes wrote to a colleague on December 9, 1934.

7. Six years later, this "little-better-than-nonsense" stuff became Paul Samuelson's ticket to his (a) Harvard Ph. D., (b) professional career, and (c) Nobel Memorial Prize in Economic Science.

8. Now, money impacts real-world economic developments - once it is recognized that modern money is created with the stroke of a computer key, the proposition that "Walras's theory and all others along those lines - including Samuelson's - are little better than nonsense" does not hold water - THEY ARE NONSENSE!

9. Specifically, the injection of NEW MONEY into a market economy is a monkey wrench with respect to a general-equilibrium view thereof in the sense that the appearance of NEW PARTICLES out of nowhere would wreak havoc on the Laplacian construction of Newtonian gravitational mechanics.

10. The latter, of course, would violate the cornerstone of modern physics which is the Conservation of Mass/Energy Principle.

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I made the like point to Robert Lucas a few years ago - it was lost on him.

Gunnar