Re: two currencies and Korean war

["Per Gunnar Berglund" <pgberglund@xxxxxxxxxxx>]

Dear Ted,

You regularly contribute a lot of long and very valuable posts to this list.
As I have said many times before, and now repeat again, I really appreciate
that. But as I also said, I would rather not want to get involved in your
interpretive obsessions with Keynes. Somebody once suggested to me that
Keynes 'obsesses one', and that is certainly true, but to different degrees.
Yours is certainly greater than mine.

Again, I personally don't think we can access the definitive truth about
what 'Keynes really meant', but must make do with impressions and
approximations. There is scope for differences of opinion, in other words. I
respect and value yours, although I sometimes feel you are going pushing
your points too hard, beyond what there is reasonable support for in the
materials, as far as I can see.

Moreover, you cannot reasonably expect other people to devote such an
enormous amount of time and effort as you do in trying to counterbalance -
in order to stress other aspects of Keynes' writings - this cascade of
excerpts you are supplying us with.

I understand I may have irritated you by expressing my point of view, and
that is alright with me. I'm used to it! But when you try to force your own
opinion upon other people, like you clearly do below, you will probably find
that it backfires.

I am sorry if I have somehow misrepresented your point of view. I certainly
never intended to do so, and given that it makes you upset, I will
henceforth simply refrain from making any reference to your arguments - to
avoid a repetition of this mishap.

Given this, it becomes impossible for me to answer your queries below, for
you connect each and every one of them to Keynes or, rather, to your own
opinion on 'what Keynes really meant'. I think you should argue those
matters out with Davidson or somebody else who feels more strongly engaged
in them than I do.

Best,
Per

_____________________________________________
Per Gunnar Berglund
CEPA    80 Fifth Avenue, 5th floor    New York, NY 10011
Tel: (212)229-5901, ext.327    Fax: (212)229-5903







> Per wrote:
>
> > Having said that, I felt I should wipe the dust off of Keynes' Treatise
and
> > do like you - pull a couple of quotes. So how about this one?
> >
> > "Furthermore it is a peculiar characteristic of money contracts that it
is
> > the State or community not only which enforces delivery, but also which
> > decides what it is that must be delivered as a lawful or customary
dischrage
> > of a contract which has been concluded in terms of the money of account.
The
> > State, therefore, comins in first of all as the authority of law which
> > enforces the payment of the thing which corresponds to the name or
> > description in the contract. But it comes in doubly when, in addition,
it
> > claims the right to determine and declare *what thing* corresponds to
the
> > name, and to vary this declaration from time to time -- when, that is to
> > say, it claims the right to re-edit the dictionary. This right is
claimed by
> > all modern states and has been so claimed for some four thousand years
at
> > least. It is when this stage in the evolution of money has been reached
that
> > Knapp's chartalism -- the doctrine that money is peculiarly a creation
of
> > the State -- is fully realised." [Treatise on Money, Vol. I, p. 4]
>
> Given the grandiose contemptuousness with which you do it, you might try
> pulling one that supports the interpretive claim you made.  The passage
> doesn't say that people value money as a store of wealth because they hold
> what you are calling "chartalist" views about the value of money.  It says
>
> "it is a peculiar characteristic of money contracts that it is
> the State or community not only which enforces delivery, but also which
> decides what it is that must be delivered as a lawful or customary
discharge
> of a contract which has been concluded in terms of the money of account."
>
> It's this that allows Solon to debase the currency.  They are precisely
the
> characteristics pointed to in the passage about Solon I quoted, the ones
> that make debasement possible - a rational policy, according to Keynes,
> because it reduces the weight of the dead hand accumulated rentier wealth
on
> the active classes.  Where in your "chartalism" is their logical space for
> this policy and the conception of rentier wealth on which it's based?
>
> Keynes, of course, never says that people desire to hold money as a store
of
> wealth because they believe rationally on the basis of a "chartalist"
> understanding of money that the state will act to preserve the future
value
> of their holdings.  I've pointed out to you many times what, in writing
from
> Indian Currency and Finance to "My Early Beliefs," he explicitly does say
> about their motives.  What he repeatedly says directly contradicts your
> "chartalist" explanation.  Your explanation also also faces the problem
that
> if you derive the use of money as a store of wealth from what you claim
are
> rationally expected consequences you are disconnecting it from true
> uncertainty since this describes a context where consequences are unknown
> and unknowable.
>
> There is another good reason it's not Keynes's idea.  It's false.  The
"vast
> majority" (were talking very big percentages here) of the population have
> never heard of the idea that what they use as "money" is usable as money
> because the state insists taxes be paid with it, let alone based their use
> of what the state has decided "must be delivered as a lawful or customary
> discharge of a contract which has been concluded in terms of the money of
> account" to discharge such contracts, buy groceries, pay taxes etc. on
> belief in the idea.
>
> > the
> > balance between bullishness and bearishness, which determines the rate
of
> > interest according to Keynes, involves a rational, or at any rate
> > pseudo-rational element of equalising expected yields of various types
of
> > capital assets with the money rate of interest.
>
> This doesn't answer the question I asked.
>
> It's also false.
>
> What is equalised by this balance are the desired holdings of money (in
> Keynes's sense) and the amount of money available to be held. How do you
> explain it with your definitions of "money"?
>
> "Conventional" expectations about future interest rates and the "very
strong
> irrational feelings" about money are linked in the way set out in the QJE
> passage, i.e. the "conventional or instinctive" "feeling about money"
"takes
> charge" when the irrational "conventions" expectations of future interest
> rates "have weakened."
>
> Keynes assumes a small minority of market participants - rational
> "speculators" - base their behaviour on rationally "forecasting the
> psychology of the market." As this possibility itself requires, however,
> the "vast majority" of participants are assumed to form their expectations
> of future rates of interest "conventionally" i.e. irrationally.  Their
> expectations are "fixed by mass psychology," by "the mass psychology of a
> large number of ignorant individuals" (VII, p. 154).
>
> "This [liquidity-preference arising from speculation about future rates of
> interest] is closely analogous to what we have already discussed at some
> length in connection with the marginal efficiency of capital.  Just as we
> found that the marginal efficiency of capital is fixed, not by the 'best'
> opinion, but by the market valuation as determined by mass psychology, so
> also expectations as to the future of the rate of interest as fixed by
mass
> psychology have their reactions on liquidity-preference; - but with this
> addition that the individual, who believes that future rates of interest
> will be above the rates assumed by the market, has a reason for keeping
> actual liquid cash, whilst the individual who differs from the market in
the
> other direction will have a motive for borrowing money for short periods
in
> order to purchase debts of longer term.  The market price will be fixed at
> the point at which the sales of the 'bears' and the purchases of the
'bulls'
> are balanced."  (VII, 169-70)
>
> This is consistent with his general claim about the "vast majority" of
> participants in stock and bond markets that:
>
> "The vast majority of those who are concerned with the buying and selling
of
> securities know almost nothing whatever about what they are doing.  They
do
> not possess even the rudiments of what is required for a valid judgment,
and
> are the prey of hopes and fears easily aroused by transient events and as
> easily dispelled.  This is one of the odd characteristics of the
capitalist
> system under which we live, which, when we are dealing with the real
world,
> is not to be overlooked."  (VI, 323)
>
> These ideas are the basis of his own investment practice (which was
rational
> "speculation" in his sense).  Here he is, for instance, corresponding with
> business friends in July 1932 about why it's nearly certain that U.S.
> interest rates are going to fall in the near-term future.
>
> "the most striking feature of the immediate situation is the extraordinary
> disparity between yields in London and yields in New York of comparable
> securities.  It seems to me quite impossible that the present situation
can
> long persist.  And I should have supposed it to be probable that the
> readjustment would be brought about by a substantial rise in the prices of
> prime fixed-interest securities in New York.  The present may be the
chance
> of a lifetime for the purchase of the latter.  Obviously everyone in New
> York is scared so stiff as to be unable to move.  But that may be the
> opportunity of others away from any unsettling influence of the local
> atmosphere.  No serious risk can arise unless the existing financial
system
> in America is going to peg out altogether.  I suppose that that is just
> possible, but I cannot believe that it is probable." (XII)
>
> "The whole subject has, of course, many more ramifications than can be
> discussed in a letter, but almost everyone who has any pretensions to
being
> a sound or orthodox thinker on financial problems in New York probably has
> his brain stuffed with fallacies on this particular matter.  So there is
an
> opportunity for anyone, if there is anyone, who can think (or so it seems
to
> me) scientifically straight on this issue." (XII, 320)
>
> In the GT he claims this was a period in which the "very strong irrational
> feelings" about money had taken charge; he claims the U.S. was then in "a
> financial crisis or crisis of liquidation"  "when scarcely anyone could be
> induced to part with holdings of money on any reasonable terms." (VII,
> 207-8)
>
> What explanation do "circuitist" and "chartalist" ideas provide for a
> "crisis of liquidation"?
>
> > I have made this point several times before. No matter how many quotes
you
> > pull about the 'irrationality' streak in Keynes' thinking (something
which I
> > find very enlightening and appreciate enormously), there will
nevertheless
> > remain another 'rational' side to his economics. After all he viewed
> > economics as 'a special branch of logic'.
>
> The last time you made this "point" I pointed out to you that it was based
> on misunderstanding my interpretive claims.  I don't claim Keynes's
> economics is irrational.  I claim, on the basis on an enormous amount of
> textual evidence such as that above, that his economics is based on the
> premise that there is a significant degree of irrationality in economic
> behaviour in general and in financial market behaviour in particular.  He,
> of course, understands this theory to be itself rational i.e. defensible
on
> reasonable grounds as a realistic explanation of the phenomena with which
> it's concerned.  I also claim, again on the basis of textual evidence of
the
> kind I've just produced, that his theory allows for rational behaviour -
the
> most important being rational "speculation" such as he himself practiced
in
> financial markets.  Pointing out mistakes to you doesn't seem to have much
> effect.
>
> You're not, are you, claiming that you can pull out lots of textual
evidence
> showing that Keynes assumes the "vast majority" of financial markets
> participants are well-informed and rational and that his explanation of
> "conventional valuation" in financial markets is based on this assumption?
> That would be as reasonable a claim as the "circuitist" claims we were
> discussing.
>
> You are also, like Gunnar, misinterpreting Keynes's claim that economics
is
> a "branch of logic."  I've been through this several times in a very
> detailed way with Gunnar (e.g.
> <http://csf.colorado.edu/forums/pkt/2001/msg00241.html>).  "Logic" in this
> context means "human" rather than formal logic and the whole point is to
> argue that, on grounds available from "logic" in this sense, the phenomena
> of economics do not have the character that allows economics to be based
> mainly on deductive reasoning from fixed axioms.  It particularly limits
the
> applicability of mathematical forms of such reasoning.
>
> Like you, Gunnar doesn't find this interpretive argument convincing.  At
> least this is what I conclude from the fact that, though he's never
provided
> any argument demonstrating it's mistaken, he keeps endlessly repeating the
> interpretative claim that when Keynes described economics as "an apparatus
> of  the mind, a technique of thinking" and as "a branch of logic" he meant
> that its method was formalized deductive reasoning from fixed axioms.  You
> too treat deductive reasoning from axioms as the method of economics -
> that's the basis of your "chartalism" isn't it?
>
> According to Keynes there is also a "deep-seated obsession" associating
> "science" with deductive reasoning from axioms.  (X, p. 186)
>
> Ted
>
> Ted
>
>
>