Re: Sweden - Monetary Policy

["John O'Donnell" <jackodonnell@xxxxxxxx>]

Bruce McFarling wrote:
>
> On Sat, 28 Apr 2001 10:47:31 -0700,
> John O'Donnell <jackodonnell@xxxxxxxx> wrote:
>
> >It could be that the earth should be the center of the
> >universe but facts are facts and printing more money does
> >not add to the value of anything. A tautological certainty
> >is a tautological certainty no matter what Mill, Ricardo,
> >Bentham or even Gunnar may claim.
>
> The facts are that under the monetary systems of most
> countries, the printing of money has next to nothing
> to do with the total money supply.  Most money is
> created in the act of lending.

Sort of. This is one of the many problems introduced by poor
terminology.

Most "money supply" aggregates include various measures of
financial assets, most prominently demand deposits at
commercial banks. The extension of intermediated credit by
commercial banks does increase the amount of demand deposits
but these deposits are better described as "money
substitutes" than money itself. The deposits are promises by
the bank to pay money on demand to the banks customer and,
if the deposit includes check writing privileges, pay money
to a third party at the direction of the deposit holder.
[i.e. -- Read the instructions printed on your checks --
"Pay to the order of ..."] The fact that most such payment
transfers result in transfer of "bank promises to pay" from
one deposit holder to another does not change the underlying
relationship the the money promised is the government issue,
not just a another promise by a bank.

> The provision of credit
> CAN add to the total product of an economy, if it permits
> the mobilisation of resources that would otherwise be
> idle, or alternatively permits the redirection of
> resources from a less productive to a more productive
> use.

This is misplaced causation derived from the poor use of
terminology. The production that results comes from trade
[i.e. -- Any transfer of ownership whether it is of money,
consumption goods or productive capacity increases the value
held by both parties to the exchange or else the trade would
not occur.] and not from an increase in money or
intermediated credit.

While it may appear such production requires an increase in
money supply [i.e. -- The "money supply" that includes
demand deposit increase from intermediated credit.] it only
requires trade to occur. That the introduction of money and
its first cousin, intermediated credit, does enhance trade
possibilities, the quantity of such money and credit is not
a causal factor of trade. Quite the opposite is true -- the
desire to trade is the cause of money and credit and the
QUALITY of both money and credit enhance the effectiveness
of each.

> This is, after all, one important impact of the "printing
> money" myth: to divert from considering the question of
> whether the impact of credit creation is or is not
> beneficial.

"Printing money" is not a myth, it is a metaphor for
increases in money supply whether it is in the form of
credits recorded as reserves, coins and certificates held by
the public or whatever else may be counted in some arbitrary
measure called money supply. My reference of "printing MORE
money" was to the fallacy that any increase in such "aids to
trade" can cause an increase in productive activity. It is
only the proper quantity of such aids that ensure the value
received in exchange for the value given is worth what it
purports to be worth that can enhance the production
entailed in trade. Any quantity that alters the value of the
medium of exchange or brings its value into question
diminishes the effectiveness of that aid to trade whether it
is money, personal credit or intermediated credit or even a
standardized barter commodity such as gold or silver. [i.e.
-- Check the consequences of precious metal imports from the
Americas to Spain for the effects on the value of gold and
silver used as commodity money.]


--
			-- jbod

		Tax Privilege, Not People
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