Re: Money stocks and interest flows - Addendum

["Gunnar Tomasson" <tomasson@xxxxxxxx>]

Re. the following:

> While this story may suggest it is unwise for a person
> to borrow in the absence of anticipated income,
> it tells us nothing about monetary economies
> (where the money STOCK has no necessary relationship
> to income FLOWS).

True - in the real world.

But as late as 1969, when James Tobin outlined the portfolio asset
management approach to monetary analysis in an inaugural article in 'The
Journal of Money and Banking' (?), he identified the search for an
INTEGRATED conceptual framework for analyzing the economy's "income" and
"capital" accounts as THE unresolved issue on the mainstream research
agenda.

Later, when I had occasion to suggest to Tobin that it is LOGICALLY
impossible to formulate any such integrated framework, he referred me to his
Nobel lecture in 1974 (?) for what, by then, had become his favored approach
to monetary analysis - "the stock-flow-stock approach."

Apparently, after spending a quarter century or so on the search for an
"integrated" conceptual framework, Tobin had given it up as quixotic.

Of course, ABSENT an integrated conceptual scheme for analyzing the
interaction over time between the economy's "income" and "capital" accounts,
justification for the "stock-flow-stock" approach itself, if any, MUST be
its efficacy in modeling the monetary aspects of real-world economic
activity over time.

In this respect, the succession of nasty "surprises" on the monetary front
during the past two decades (S&L Crisis, Third-World Debt Crisis, Asian
Tiger Crisis, Russia-Mexico-Brazil-Turkey-Argentine etc. Crisis) would seem
to represent prima facie proof that "stock-flow-stock" monetary economists
have yet to "earn their daily bread as fruitful contributors to knowledge" -
by the standards applied thereto by Paul Samuelson in 1964 foreword to his
'Foundations of Economic Analysis'.

Gunnar


----- Original Message -----
From: "Alan G. Isaac" <aisaac@xxxxxxxxxxxx>
To: "POST KEYNESIAN THOUGHT" <pkt@xxxxxxxxxxxxxxxx>
Sent: Friday, December 22, 2000 12:28 AM
Subject: Money stocks and interest flows (was: James A. Baker III)


> On Thu, 21 Dec 2000, Gunnar Tomasson wrote:
> > Given
> > (a) outstanding credit (money supply) of 100, and
> > (b) loan interest rate of 10% per loan period, then
> > (c) end-period repayment of principal and interest will total 100 + 10 =
> > 110.
>
> > Absent NEW credit to the original debtor(s) in the amount of 10, accrued
> > interest CANNOT be paid.
>
>
> While this story may suggest it is unwise for a person
> to borrow in the absence of anticipated income,
> it tells us nothing about monetary economies
> (where the money STOCK has no necessary relationship
> to income FLOWS).
>
> Alan Isaac
>
>
>
>
>