Re: Money supply

[John Vertegaal <vertegaa@xxxxxxxxx>]

Paul Davidson wrote:

>>...we define it in terms of its essential properties and
>>functions -- as Keynes does in ch. 17 of the GT and I do
>>in ch 6 of my POST KEYNESIAN MACROECONOMIC THEORY.

>Yes, but a set of (tacit) principles is used to identify the
>essential properties and functions of money. If one feels some
>of the principles are objectionable then Keynes' definition of
>money will be considered unsatisfactory.

>Harry Veeder

The issue gets more critical if those definitions can be shown to
be internally contradictory, as I believe I did on this forum a few
years ago, and no reply was submitted.  If I'm making an error in
logic or otherwise, I'd sure like to know it.

John V

--- original msg01361  ---
Re: Uncertainty and Liquidity Preference
by John Vertegaal
18 July 1999 14:48 UTC

Paul Davidson wrote:

>>>If you would read my Post Keynesian Macroeconomic Theory book
>>>you would see that money is defined by two functions and two
>>>properties.

>>>The two functions are :
>>>1.THE MEDIUM OF CONTRACTUAL SETTLEMENT. (this is not the same as
>>>the conventional theory's medium of exchange)
>>>2. A store of value.


and I responded:

>>...what I'd like to know is how particularly the second function
>>squares with the "Uncertainty" of the world we live in?
>>Isn't there a fundamental contradiction between these two axioms?

>First of all these two functions are NOT axioms.

When you approvingly quote Hicks (PKMT p.86) that "money is defined
by its functions ...money is what money does", you forfeit the
possibility of defining money on the basis of more fundamental
axioms.  Hence, "money is a store of value" is an axiom.
Now, I'd have no problems with the conditional assertion that
economic agents act _as if_ money is a store of value, thus
inducing the economy to follow an uncertain path; but, as far as I
understand PKMT this is not your position.


>Secondly, even in a world of uncertainty -- one needs something to
>carry claims to the future.  That is what liquidity is all about.

No disagreement here, but with the significant proviso that since
current claims to future output _add_ to the potentially already
complete set of claims that will be inherent in that output, what
inherent value is there in this second function?
  The problem is that the currently outstanding claims are a couple
of magnitudes greater than what can be reclaimed in terms of
anyone's standard of living augmentation; the undisputed? final
goal of all economic endeavour.  So that from my perspective; which
(unless you can explain the above) has less axioms and thus, by
your own definition, is more general than yours; the assertion that
"money is a store of value" obfuscates rather than clarifies
economic behaviour.

Furthermore it is not clear to me that by dropping the classical
ergodic axiom, you did not simply replace that with the non-ergodic
axiom; so that at this point, my query about the conflict between
the "uncertainty" axiom and the above "second function" still
stands.

John V.