Re: What is Creditary Economics?

["Gunnar Tomasson" <gunnar.tomasson@xxxxxxxxxxx>]

Paul:

I wrote:

MONEY so defined EXCLUDES the "non-chartalist institution" of non-MONETARY
forms of CREDIT, which are vitally important in real-world economies in
general and in the less developed economies in particular.

A case in point.

In the "stabilization" phase of Indonesia's economic and financial
rehabilitation after the inflationary ravages of the late Sukarno era (ca.
1966-1970), the growth of key monetary variables at rates far in excess of
concurrent real output growth was consistent with rapidly decreasing rates
of domestic price inflation because of (a) the RE-monetization of some parts
of the economy, and (b) the monetization EX NOVO of other parts.

You replied:

 I am sorry but I do not see your point-- I think you are trying to force a
Monetarist quantity theory of money on me-- but if you read my writings on
inflation you would see that i reject such an argument

Comment:

My point is that the TWO "essential properties" of money as defined by
Keynes are BOTH inapplicable in the real world.

First.  Keynes wrote "that money has, both in the long and in the short
period, a zero, or at any rate a very small, elasticity of production, so
far as the power of private enterprise is concerned, as distinct from the
monetary authority; - elasticity of production meaning, in this context, the
response of the quantity of labour applied to producing it to a rise in the
quantity of labour which a unit of it will command."  (GT, Ch. 17)

In the real world of NON-COMMODITY MONEY, the amount of money "produced" is
NOT a function of "the quantity of labour applied to producing it" in the
first place.

Second.  Keynes wrote that "The second differentia of money is that it has
an elasticity of substitution equal, or nearly equal, to zero; which means
that as the exchange value of money rises there is no tendency to substitute
some other factor for it; - except, perhaps, to some trifling extent, where
the MONEY-COMMODITY is also used in manufacture or the arts."  (GT, Ch. 17)

Leaving aside the question whether Government Taxation 'drives'
NON-COMMODITY MONEY into the COMMODITY MONEY category, the level of
employment and output is a function of ALL kinds of production-related
CREDIT and NOT of money alone.

Gunnar



----- Original Message -----
From: "paul davidson" <pdavidson@xxxxxxx>
To: "Gunnar Tomasson" <gunnar.tomasson@xxxxxxxxxxx>
Cc: <pkt@xxxxxxxxxxxxxxxx>
Sent: Monday, April 14, 2003 4:08 PM
Subject: Re: What is Creditary Economics?


> At 02:22 PM 4/14/03 , Gunnar wrote:
> >  Paul:
> >
> >Re. the following:
> >
> > > There is one logically consistent Post Keynesian view--
> > > others who call themselves "post Keynesians" {including Paul Samuelson
by
> > > the way} require the same basic restrictive classical assumptions as
the
> > > mainstream -- e.g., the neutrality of money -- at least in the long
run;
> > > the ergodic axiom; etc
> >
> >Comment:
> >
> >Let me respond in the context of the extract below from your 1998 paper
on
> >'Post Keynesian Employment Analysis and OECD Unemployment".
> >
> >The "one logically consistent Post Keynesian view" is predicated, inter
> >alia, on a CONCEPT of 'money' of which you write as follows:
> >
> >6. Money is a chartalist institution. In any money-using system,
liquidity
> >is defined as being able to meet your monetary contractual obligations as
> >they come due. The civil law of contracts makes the State the enforcer of
> >all contractual commitments. In modern entrepreneurial systems, where
> >slavery is illegal, all contractual obligations can ultimately be
enforced
> >only in terms of nominal payments and penalties. Thus money and the
demand
> >for liquidity affects real behaviorial decisions in both the short and
long
> >run.
>
>
> Yes this implies the rejection of the neutral money axiom in both the
short
> and long run
>
> >7. Money possesses two "essential properties" [Keynes, 1936, ch. 17],
namely
> >its elasticity of production is (approximately) zero, i.e., money does
not
> >grow on trees, and its elasticity of substitution with the products of
> >industry is (approximately) zero so that if the price of money
> >
> >(or other liquid assets increases) agents do not attempt to substitute
> >producible goods to provide the same services as liquid assets do.
> >Consequently, as Hahn points out, "in any economy which is not a barter
> >economy, the existence of "any nonreproducible asset [i.e., a durable
that
> >has a zero elasticity of production] allows for a choice between
employment
> >inducing and non-employment inducing demand. But, of course in a monetary
> >economy money is an important nonreproducible asset" [Hahn, 1977, p. 39].
In
> >other words, as Hahn [p. 31] unemployment is possible as long as there
> >"resting places for saving [in] other than reproducible assets"(3).
> >
> >MONEY so defined EXCLUDES the "non-chartalist institution" of
non-MONETARY
> >forms of CREDIT, which are vitally important in real-world economies in
> >general and in the less developed economies in particular.
> >
> >A case in point.
> >
> >In the "stabilization" phase of Indonesia's economic and financial
> >rehabilitation after the inflationary ravages of the late Sukarno era
(ca.
> >1966-1970), the growth of key monetary variables at rates far in excess
of
> >concurrent real output growth was consistent with rapidly decreasing
rates
> >of domestic price inflation because of (a) the RE-monetization of some
parts
> >of the economy, and (b) the monetization EX NOVO of other parts.
>
>
> I am sorry but I do not see your point-- I think you are trying to force a
> Monetarist quantity theory of money on me-- but if you read my writings on
> inflation you would see that i reject such an argument
>
>
> >Moreover, this growth of monetary variables reflected CREDIT CREATION
within
> >the organized banking system.
> >
> >Thus, the "restrictive axiom" that money's "elasticity of production is
> >(approximately) zero" was/is inapplicable in real-world economies.
>
>
> Again you have no understanding of the concept of the elasticity of
> production as used by Keynes in chapter 17 of the GT and by me!! I am
sorry
> that you fail to understand the point -- but I cannot teach you these
> things unless you read them yourself as they are in print in both the GT
> and in my writings!!
>
>
> >Accordingly, I submit that ANY "logically consistent Post Keynesian view"
> >which incorporates the "essential properties" of money as defined by
Keynes
> >must be held to attain such consistency at the cost of real-world
> >applicability.
>
>
> And of course you are exactly wrong!
>
> Paul
>
>
>