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

["Alan G. Isaac" <aisaac@xxxxxxxxxxxx>]

If we are going to correct the errors of
orthodox macro, it is best not to parody
it. Otherwise we will simply be ignored.

Orthodoxy is not just a stylized classical
model with monetary superneutrality.
Changes in the money stock have short-run
real effects in many orthodox models.
Changes in the rate of growth of the money
stock have short- and long-run effects in
most  ``orthodox'' models.

What is orthodoxy? RBC models? ``New'' classical
models? ``New'' Keynesian models? Monetarist
models? If you mean everything besides PK models,
you have to cast quite a wide net.  If you don't,
then you shd have some damn good criteria to
prevent you from drifting into pointless parody.
If your concept of orthodoxy is non-academic and
means something like the ``Washington consensus''
or other mainstream policy-maker ideology, then
pick a vocabulary that makes that clear.

Alan Isaac



On Thu, 21 Sep 2000 Adam.Stokes@xxxxxxxxxxx wrote:

> 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
>