Re: Stiglitz on Soros--question for Leigh

["William B. Ryan" <william_b_ryan@xxxxxxxxxx>]

Replying to Leigh Harkness http://csf.colorado.edu/forums/pkt/2002II/msg00313.html

LH:  ?You need to take out inter-bank loans and adjust for the formation
of new banks, the conversion of savings banks to commercial/trading banks,
etc. to find what is the growth of bank credit.?

Will you not admit that in such an involved analysis it is possible to
introduce ?experimenter?s bias??

LH:  ?However, the growth in the monetary aggregates I was able to gain
was greater than the current account deficit, and there was a very close
correlation.?

I thought you said there was equality.  That there may be correlation
I will not dispute.  Correlation, as you well know, does not infer the
chain of causation.  In an extended sense, everything in the universe
correlates with everything else.

LH:  ?Lets say there is a pool of goods in the economy out of which people
with money are entitled to draw out.  To earn money, you must provide
goods into the economic pool, and the money you earn entitles you to
take out goods of the same value.  So provided the amount of money in
circulation stays the same, no-one can draw out more goods than they
have put in??

This of course does not apply to those who, through no contribution of
their own, have inherited wealth, or to those who have won the lottery.

LH:  ??But imagine if someone were to print money to entitle people to
take goods out of the pool without putting anything in.  That would cause
the pool of products to be depleted??

This presumes that there is no functional relationship between investment
or demand and the volume of the pool of products.  There is no independent
role for the entrepreneur.

LH:  ??Once that new money was in circulation, it would not cause excess
demand.  Everyone who subsequently uses it would have contributed to
the pool of goods before they could earn the money.  It is only the initial
expenditure of that money that causes the shortage??

This is purely and simply the quantity theory of money.

LH:  ??Savings are in two forms: repayment of loans (which reduces bank
deposits); and increases in foreign reserves (from increased exports.
 When bank lending is greater than these forms of savings, then they
finance more entitlements to draw upon products in the pool than have
been put into the pool??

Then you are advocating a fixed quantity of money.

Let me submit an alternative view that was expressed in an extraordinary
address given sixty-seven years ago.  The speaker also used the ?pool
of goods? metaphor.

?The modern economic production system is not a system of individual
production and exchange of production between individuals. It is more
and more the synthetic assembly, in a central pool, of wealth consisting
of goods and services which are preponderantly due to the use of power,
to modern scientific processes and all sorts of organisations and other
constituent contributions of each one of us which will occur to you.
The problem is not to exchange the constituent contributions of each
one of us to that central pool, because in fact our contribution to that
central pool, in the ordinary sense of tangible economic things, is becoming
smaller and smaller.

?The correct picture - the incontestably exact picture of the modern
production system - is, to my mind, based upon a kind of typewriter with
a decreasing number of operators who are tapping the keys, and, by tapping
these keys, fewer and fewer operators can produce all that we require.
Through the power of the sun (oil power, steam power and so forth consist
of what is generalised as solar energy) the so-called curse of Adam is
being transferred from the backs of men to machines, so that a small
number of persons operating on this machine of industrial "production",
can produce all that is required for the use of the population. And the
problem is not to exchange between the number of the population, who
are less and less required to push keys, but it is to draw from this
central pool of wealth by means of what can be visualised as a ticket
system.

?And the modern money system is in fact losing almost daily its aspect,
however much it may at one time have been true, of a medium of exchange,
and becoming more and more a ticket system by which people, who are not
exchanging their production, can draw from that central pool of wealth.
That I believe at bottom to be the fundamental cleavage between, let
us say, my own view and those who think with me, and the school of classical
economics.?

Read ?ticket? above as ?chartal? or ?contractual?.

LH:  ?This theory fits the facts.  If you have another one that fits
the facts, I would be happy to hear it.?

I?ll provide it in a subsequent post.


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William B. Ryan
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