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----- Forwarded Message -----
From: pdavidso <pdavidso@xxxxxxx>
To: mosler <mosler@xxxxxxxx>
Cc: pkt <pkt@xxxxxxxxxxxxxxxx>
Subject: RE: say's law?

>===== Original Message From mosler@xxxxxxxx =====
>
>
>
>But if the foreigners "sold" our TSY bonds -- on the
>open market -- what
>would they get for them?? U.S. dollar bank accounts.

I am still travelinh and hecw can no provide a full answer -- but I think you
stop to short -- If they sell the securities they use the resuilting US dollar
account to buy oreign exchange and forerin securities -- before the rst of the
"heard" --that can ead to a drastic drop in the dollar -- and a rush by others
to unkad US dollar reserves -- for Euro reserves, etc.  Yhe effecy cpuld be a
return of a Great Depressiom intertnatioally- as US aggregate demand for
imports collapses!. Any rapid depreciation in foreign
>exchange rates is, according
>>to Milton Friedman, highly undesirable because it
>reduces the value of that
>>money significantly reduces the ability of money.
>>
>>WHAT IS THE 'ABILITY OF MONEY?'  CHANGES IN THE
>>EXCHANGE RATE ALTER THE DISTRIBUTION OF CONSUMPTION
>IN A NATION, BUT THE
>>REAL 'NATIONAL
>>WEALTH' IS UNCHANGED, APART FROM SPECULATORS/
>>GAMBLERS WHO HAVE 'BETS' WITH FOREIGNERS.
No there are losers who fibd ther portfolio values collapse -- rmember the
1929 Crash and that affacts others "confidence"  in a workd of uncertainty--
with a resuilting colapse in aggregate effective demand -- bankrupcies,
collapsing banking institutions, etc.
>
>Here is the crux of the difference you are suggesting
>that the real
>wealth  (including current income) of a nation is
>unchanged no matter what
>the exchange rate is.
>
>Yes, the tables and chairs, drill presses and
>software don't vaporize when the currency falls,
>or multiply when it rises.
>

Yes but whern currnt deand falls then existing real facilities lose present
value -- and if the decline is sufficient, prodictive facilities may even be
abandon ed -- and certainly not maintained as well -- so the "precent value of
the rel wealth declines -- and that is important-- just as when the automobile
replaced the horse and buggy -- many "real" buggy whips remained -- but the
real wealth that these buggy whips represented collapsed!!
\
>
>YES, INCOME EFFECTS WITHIN THE COUNTRY, PRIMARILY
>INCOME SHIFTS BETWEEN IMPORTERS AND EXPORTERS.


No it is a decline in total real income flows not just a redistribution of
incomes -- pnly under Say's Law assumption can you get your claimed result.

So I am sorry to say, Warren, you claims only hold in a non monetary{ "neutral
money") system -- and is lgically incompatible with a onetary entrepeneurial
system.
>
>ALL MY CONTENTIONS ASSUME A MARKET ECONOMY.  IN FACT,
>THE BASIC ASSUMPTION IN ELR IS THAT IN A MARKET
>ECONOMY ONLY ONE PRICE NEED BE SET AND THE REST
>ALLOWED TO REFLECT RELATIVE VALUE.
>
And that of course is basic to the classical Arrow and Debreu non monetary
system and was rejected by Keynes in the GT--


>WHAT IT DOES RECOGNIZE IS THAT THE TAX DRIVEN MONETARY
>SYSTEM IS NECESSARILY ITSELF A CASE OF IMPERFECT
>COMPTITION.

As Keynes demosreated imperfect competition is irrelevant -- (Also note what
Joan Robinso in the 2nd edition of her ECONOMICS OF IMPERFECT COMPETITION
stated!!)

 ONCE YOU HAVE A GOVT THAT TAXES, AND
>IS THE SOLE SUPPLIER OF THE THING IT DEMANDS FOR
>PAYMENT, IT IS NECESSARILY PRICE SETTER, ETC.


And of course it is this assertion which is not relevant for an
entrepteneurial economy -- but might have some sigifiance for a fully planned
economy like the former Soviet Union.
>
>
>>  It is nice to know that
>>flexible exchange rates are desirable as long as the
>exchange rate is
>>stable.
>>
>>I'M NOT CLEAR ON THAT ARGUMENT.
>


That is exactly my point --- Only in the classical system would you mot be
clear about this point.
>>  The question is when demand and/or supply changes
>dramatically --
>>would you want the exchange rate to be flexible or
>stable?
>>
>>WITH FLEXIBLE ONE CAN MAINTAIN FULL EMPLOYMENT
>>IN ALL CASES.
>>


I am sorry Warren -- but this is just not true if you understand the GT and
the essential properties of interest and money as even Frank Hahn -- a
formidable developer of the GHE system -- argued in his 1977 article.

Whast we have here is an inabiloity of me to communicate wuth you -- mainly
because you d not understan the logic of the entrepreneurial system -- and
continually fall back into thinking in terms of classical economics where
money is just a numeraire.
>
>This the most obvious statement of yours indicating
>you position depends on
>Say's Law.
>WHY?  AS IN Y PAPER, EXCHANGE RATE POLICY AND FULL
>EMPLOYMENT, THE REASON YOU CAN MAINTAIN FULL
>EMPLOYMENT WITH FLOATING FX IS THAT THERE ARE NO
>FINANCIAL CONSTRAINTS ON DEMAND MANAGEMENT.
>WITH FIXED EXCHANGE RATES THERE ARE CONSTRAINTS ON
>DEMAND MANAGEMENT.  I KNOW THAT YOU FEEL IMCU
>SOLVES THIS ISSUE, BUT THAT'S A DIFFERENT POINT.
>POINT HERE IS YOUR CONTENTION THAT I THINK FLOATING
>FX WILL MAINTAIN FULL EMPLOYMENT BECAUSE MARKETS WILL
>CLEAR.  THAT'S NOT IT.  FLOATING FX CAN MAINTAIN FULL
>EMPLOYMENT BECAUSE DEMAND MANAGEMENT IS UNRESTRICTEDBY
>CONVERTIBILITY WITH FIXED FX.
>
Again thia lain of yours is just not compatible with the essential properties
of interest and  money (ch 17 of the GT) which assures that instantaneously
flexible relative prices (including exchange rates) can not assure full
employment---


.

Paul Davidson
Editor, Journal of Post Keynesian Economics
University of Tennessee
SMC 523
Knoxville, Tennessee 37996-0550
phone # (865)974-4221; fax #(561)737-8262;
email pdavidson@xxxxxxx
http://econ.bus.utk.edu/davidsonextra/Davidson.html

Paul Davidson
Editor, Journal of Post Keynesian Economics
University of Tennessee
SMC 523
Knoxville, Tennessee 37996-0550
phone # (865)974-4221; fax #(561)737-8262;
email pdavidson@xxxxxxx
http://econ.bus.utk.edu/davidsonextra/Davidson.html