Re: two currencies and Korean war

[Ted Winslow <egwinslow@xxxxxxxxxx>]

Per wrote:

> Well, Ted, let me at least acknowledge that you play that one string very
> well! Having said that, I'm not sure if I myself know what I think Keynes
> may have thought, much less in what precise sense Keynes may have been a
> Chartalist. Those are History of Economic Thought matters, which I gladly
> leave to the pros.

I'm very interested in the ideas of Keynes.  I believe they can be shown to
be based on realistic foundations and that they contain, in consequence, a
great deal of insight.  These foundations are themselves based on insights
drawn from a very wide range of highly relevant economic, philosophic,
historical, literary and psychological writing (i.e. from the "history of
thought" including the history of economic thought). I also believe that to
understand both Keynes and the phenomena with which he's concerned you need
knowledge of the ideas found in these writings.  I'm discussing Keynes's
ideas on this list because the list has as one of its main functions the
provision of a forum for such discussion.

You are very interested in "circuitist" and "chartalist" ideas.  These, you
claim, "might provide, if not a definitive theory of money, then at least a
lot of very valuable insights into the workings of a monetary economy."
(How did you discover what these ideas were other than through reading
them?) You also implicitly claim that they are much more interesting than
the ideas of Keynes, ideas which you say you're not even sure if you know
what you think they are (impossible as it is discover this by reading them),
but which are in any event irrelevant since they "are History of Economic
Thought matters, which [you] gladly leave to the pros."  This doesn't
prevent you from occasionally making claims about them in the course of
discussing, on this same list, what really interests you.  When I attempt to
discuss these claims you respond with contemptuous dismissal and ad hominem
abuse.

One of us is obsessional.

Keynes, of course, specifically identifies a particular kind of mistaken
thinking about money (such as the "circuitist" idea of cash balances as
"idle savings") with irrational obsessional thinking.

"I emphasise these obvious matters to clear our minds of the idea that the
quantity of hoards depends in any way on what people are doing with their
savings, or that there is any connection between idle balances and the
conception (meaningless on my definitions) of idle savings.  But I have
only a limited hope of success.  There is a deep-seated obsession
associating idle balances, not with the action of the banks in fixing the
supply of cash or with the attitude of the public towards the comparative
attractions of cash and other assets, but with some aspect of current
savings."  (XIV, p. 214)

So how do you deal with these "obvious matters"?

You claim that government borrowing from business and households creates
"money" and that government taxing destroys it.  The amount of such money in
the economy, "MA", is equal to the public debt.

Assume three components of aggregate demand: consumption C, intended
investment (I(i)) and government spending (G).  Assume the government
finances its spending entirely by borrowing from households and business and
that aggregate demand equals aggregate supply.  Business and households will
add to their accumulated savings government bonds, treasury bills etc equal
to the amount of the government's spending.  This acquisition will be
entirely financed by current saving i.e. by Y - C (assumed equal to I(i) +
G).  If aggregate demand is greater than aggregate supply at the current
level of income, intended investment will be greater than realized
investment and outcome and income will increase until Y - C is again equal
to I(i) + G. The increase in realized investment will be entirely financed
by the increase in current saving.

You substitute for this account the idea that the bonds, etc. through which
the borrowing to finance G is done are "money" and that this "money" has
some link to aggregate demand other than as the means through which G is
financed out of Y - C.  You then take excessive creation of this "money"
rather than aggregate demand (C + I(i) + G) in excess of full employment
aggregate supply as a source of inflation.

You make "the quantity of hoards," i.e. of money, depend on what people are
doing with their saving. The quantity increases when these savings are used
to finance government deficit spending.

By the way, when you say that the "core point" arising from circuitist
theory

"is to recognise that businesses and households are 'functionally opposite'
in the economic scheme, in that the former are always (net) debtor while the
latter sector taken as a whole must be a net creditor providing businesses
with their financial means. We should make a distinction between the State's
financial relations with businesses on the one hand, and its financial
relations with households on the other. I am confident that building up a
conceptual apparatus along these lines will prove worthwhile and useful for
a more complete understanding of the functioning of a monetary economy."

what, other than the circuitist ideas we were discussing, do you have in
mind?

Ted