RE: 'Stability' Of Equilibrium w/Zero-Cost Money

[Adam.Stokes@xxxxxxxxxxx]

If, occording to orthodox theory, fiat money has no impact on real resources
(ie. it is neutral), and an increase in money will merely push up the
'price' of resources, how can orthodox theory justify the concern that
inflation will interfere with the price mechanism? To do so would be
assuming that the inflationary impact of increases in the money supply is
NOT equally proportional between resources, which surely implies that there
is a real impact (somewhere).

who was it that said the real cost of inflation is a few extra trips to the
bank?

-----Original Message-----
From: Paul Davidson [mailto:pdavidson@xxxxxxx]
Sent: Thursday, 21 September 2000 11:10
To: Gunnar Tomasson
Cc: pkt@xxxxxxxxxxxxxxxx
Subject: Re: 'Stability' Of Equilibrium w/Zero-Cost Money


At 02:41 PM 09/20/2000 -0100, you wrote:
>>A correspondent on an Internet Forum asked with respect to the subject
>>matter of my yesterday's posting to the PKT-list entitled 'Re. an
enquiry':
>>
>>What are the questions being raised [thereby] (in philosophical terms)?
>>
>>My answer follows:
>>
>>As background, let me quote the following passage from a 1976 book by the
>>late New York Times economic columnist Leonard Silk:
>>Once regarded as a brash, arrogant opponent by the pillars of the
>>economics establishment, [Paul Samuelson] has lived to embody that
>>establishment in his own person. The attack on - or defense of -
>>contemporary economics must begin with Paul Samuelson, whom time and his
>>own talent and industry have endowed with fame, wealth, and
>>respectability. He has become the leading practitioner of what may be
>>called bourgeois economics. i(The Economists, Basic Books Inc.,
>>Publishers, New York, 1976, pp. 3-4)
>>(Parenthetically, I should add that Leonard Silk's memory is very dear to
>>me - he took great interest in my 'heretical' work in economics, which he
>>judged to be "very important", suggesting that I submit a manuscript
>>thereon to a university publisher whom he served as editorial adviser.)
>>
>>The current point at issue goes to the heart of Samuelson's bourgeois
>>economics - is it rigorous 'science' or mathematical 'pseudo-science'?
>>
>>In his original Harvard Ph. D. thesis, later published as Foundations of
>>Economic Analysis, Samuelson predicated his 'foundations' on the twin
>>propositions:
>>(a) that real-world market economies are "system[s] in 'stable' [general]
>>equilibrium or motion," (p. 5) and
>>
>>(b) that "any sector of economic theory which cannot be cast into the
>>mold of such a system must be regarded with suspicion as suffering from
>>haziness [hence my label 'pseudo-science' - insert]." (p. 9)
>>
>>The two principal components of proposition (a) are
>>(i) that the economic calculus whereby economic agents are held to
>>interact in the real world is constantly operative so that the time paths
>>of observed economic exchange transactions is akin to that of the time
>>paths of gravitating particles of matter in the Laplacian construction of
>>Newtonian Mechanics; and
>>
>>(ii) that the 'stability' - read: predictability - of the time paths of
>>observed exchange transactions is ensured by the activation of automatic
>>corrective forces generated by the economic calculus whenever the
>>conditions of equilibrium motion are "displaced".
>>
>>In economist jargon, the economic calculus concerns decision-making with
>>respect to scarce 'resources' - hence, it does not apply to the supply of
>>'fiat money', the cost of which in terms of 'resources' is zero.
>>
>>Again, in technical jargon, this means that the supply of 'fiat money' is
>>indeterminate - that Samuelson's 'stability' condition may or may not
>>obtain with respect to real-world market economies.


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




Paul

>>In other words, mainstream 'bourgeois economics' is pseudo-science!

Paul Davidson
Holly Chair of Excellence in Political Economy
Editor, JOURNAL OF POST KEYNESIAN ECONOMICS [JPKE]
Economics Department -- 523 SMC
University of Tennessee
Knoxville, Tennessee 37996-0550
email: Pdavidson@xxxxxxx;   phone: (865)974-4221;    fax: (865) 974-4601
home phone:(865) 573-9160
http://econ.bus.utk.edu/Davidson.html