Re: Keynes on "sinking funds" and Economic Policy Inst. and

[Warren Mosler <mosler@xxxxxxxx>]

Colin Danby wrote:

> 2 quick notes on this thread
>
> To Rakesh: re
>
> > What  then is the relationship, if any, between the quantity of money
> and  changes in the price level?

The quantity theory, if I recall correctly, focuses on the 'vertical'
component of a currency (see 'A Gen Fram for the Analy. of Curr
and other Comm www.mosler.org).  For example, under a gold standard, if
the available gold was doubled, thereby reducing its 'relative value' all
other
prices might be expected to double.  'Money supply' was defined as the
available gold.  If there was a gold futures contract trading somewhere out
there, the 'open interest' in that contract (the total of the longs or
shorts)
was not considered as part of the 'money supply' for this purpose.

With the $US, this concept of the 'quantity of money' would be represented
by
the cumulative deficit spending of the government of issue.  The components
are
bank reserves, currency in circulation, and tsy secs outstanding.  Further,
we know this total to be classified as 'net nominal wealth.'  With govt.
spending at
'market' prices, I think we all would agree that sufficiently increasing
govt. deficit
spending will result in some upward bias on prices (particularly when
assuming we are
at or near 'full employment').

That being said, what today are often called components of 'money supply'
are
actually expressions of 'open interest,' such as bank deposits.  As such,
they
do not 'qualify' as 'money' under 'quantity theory.'

'A Geneneral Framework for the Analysis of Currencies
and other Commodities' at  www.mosler.org has more on this as well.

w

ps  Who would have thought I'd be 'defending' quantity theory on this
list...