Re: imagination?

["William B. Ryan" <w_b_ryan@xxxxxxxxx>]

Let me address each of the elements in your answer.
First, you cannot be serious in thinking that either
Austrian or mainstream economists who accept the
quantity theory assume that money consists of
commodity money.
----------------------------------------
That's right.  My apology.  They see it in terms of
the commodity money metaphor.  Not literally
commodity money.
--


I do not know what you mean by (1) the volume of
production...
----------------------------------------
Yes, etc. etc. etc.  None of these terms were dreamt
up by me although most certainly they have been
stated better with more clarity in context.  They
have been in the better social credit literature for
more than eighty years and in recent years have crept
into the literature of Post Keynesianism.  I could
cite papers by others from academic journals that use
many of these exact same phrases.  And books have
indeed been written.  I could refer you to some.  At
this moment I'll just try to lift some of the mystery
from the phrase you labeled (5):

*more money in consumers' hands in respect to the
accounted for costs of production*

We think in terms of flow:  The flow of costs (as
determined by the ordinary methods of double entry
accounting) flowing to the point of retail in
counterpoint to the flow of effective demand from
consumers flowing back in the opposite direction.
Effective demand is recorded in double entry
accounting as sales.  These flows can be plotted
simultaneously on the same chart against time on the
X-axis.  We may also plot production in quantitative
terms on that same chart.  So many cars, so many
apples produced per unit time.

>From this accounting perspective, inflation (which we
might call "type 1" for want of a better term)1 is
where the flow of costs is increasing to production.
The A + B theorem explains how this could occur which
might seem incomprehensible to you at this time.  I
won't go into it now.  Suffice it to say we want
costs to increase proportionately to production so
that unit *prices* in competitive markets remain
stable which can be achieved through financial policy
not too much different from current practice.  That
was not the case in the years immediately leading to
l929, which is one reason we do not expect to see a
similar crash in the future with anything like the
catastrophic consequences following l929.  We know
now how to pull ourselves out of such a situation in
fairly short order.

We further assert that the flow of costs to the point
of retail do not necessarily equal purchasing power
flowing to final consumers, the "A" in A + B:
salaries, wages and dividends.  A + B is the flow of
costs as they are defined in double entry accounting
as opposed to how they have been defined by
economists traditionally.  We want truth in
accounting which mandates conscious accounting
adjustment.  The general case is that the flow of
purchasing power automatically flowing to consumers
(in the absence of adjustment) is falling in respect
to the accounted for costs of production flowing to
the point of retail with improvement in process.

So not only do we want costs to remain proportional
to production through time to sustain the
meaningfulness of accounting enabling economic
calculation, we want the flow of purchasing power to
consumers to remain proportional to costs.  Since the
general case is that the flow of purchasing power to
consumers is falling in respect to costs, we want to
augment that flow with dividends to consumers and
price compensation to retailers to the benefit of
consumers, drawn against the national credit account.
Otherwise, the willing seller progressively
disappears into what we would call the permanently
under performing economy, since he cannot recover his
costs of production in their totality without pilling
on debt.  Production thereby is financially pinched
off short of realizable productive capacity, creating
the illusion of scarcity in the midst of plenty.
When plotted, the process looks superficially like
the intersecting curves in marginal utility analysis,
but in reverse.

If, and this is really a big if, the situation is
somehow already such that the flow of costs,
production and purchasing power are remaining
proportional to each other through time, dropping
money into such a situation affecting *prices* as if
from a helicopter would seem to mandate inflation
"type 2" (again for lack of a better term)2 in terms
of increasing prices, which is the metaphor most
people think of when they think of inflation.

But within controlled limits we say that some such
*exogenous* injection of credit money will bring
forth increasing production, as demanded by the
consumer recipients of the helicopter money, rather
than proportionately increasing prices.  To this
extent production becomes the function of demand,
rather than demand being the function of production,
as in Say's law.

Correct me if I am wrong, but don't most Austrians
define inflation to be ANY simple increase in the
quantity of money?  Most economists define it
somewhat differently, I think.
--

1 similar to "cost push"
2 similar to "demand pull"



---original message---
[snipped]
Pat Gunning, Feng Chia University, Taiwan;
New book: UNDERSTANDING DEMOCRACY
http://nomadpress.com/public_choice/
http://mail.ebtnet.net/~manta/public_choice/

Web pages on Praxeological Economics, Democracy,
Taiwan,
Ludwig von Mises, Austrian Economics, and my
University
Classes;
http://www.constitution.org/pd/gunning/welcome.htm
and
http://knight.fcu.edu.tw/~gunning/welcome.htm




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