Money and value
- Thread starter littlebabyjesus
- Start date
littlebabyjesus
one of Maxwell's demons
Ok, I'm not going to talk about creating money out of nothing now. Banks can't do this as the person taking the money would have no reason to believe it was worth something.
I think the anthropologist in TruXta's post is onto something (although he falls into the trap of thinking that banks made money out of nothing in the credit crunch) when he says that money is simply a promise. So it always needs to be a promise of something - a promise to do something, or as in the case of deferred consumption, not to do something.
I do now accept that my OP is wrong. But I think the root cause of it going wrong was that I was conceptualising money wrongly - trying to see how value was attached to the symbol - which is the wrong way of looking at it. And in fact money isn't really a symbol in that sense. It's just an iou. Nothing more mystical than that.
Something else that anthropologist said rings very true too. Once you simply view money as the writing down of a promise, you can then reintegrate it into human relations. It ceases to appear to have some kind of autonomous existence, which is what dwyer considers it to have, and is what I was struggling with. The whole idea that there is some separate field of scientific study called 'economics' is a nonsense.
I think the anthropologist in TruXta's post is onto something (although he falls into the trap of thinking that banks made money out of nothing in the credit crunch) when he says that money is simply a promise. So it always needs to be a promise of something - a promise to do something, or as in the case of deferred consumption, not to do something.
I do now accept that my OP is wrong. But I think the root cause of it going wrong was that I was conceptualising money wrongly - trying to see how value was attached to the symbol - which is the wrong way of looking at it. And in fact money isn't really a symbol in that sense. It's just an iou. Nothing more mystical than that.
Something else that anthropologist said rings very true too. Once you simply view money as the writing down of a promise, you can then reintegrate it into human relations. It ceases to appear to have some kind of autonomous existence, which is what dwyer considers it to have, and is what I was struggling with. The whole idea that there is some separate field of scientific study called 'economics' is a nonsense.
littlebabyjesus
one of Maxwell's demons
Yes. Ungracious of me not to acknowledge it. I did read and appreciate that post. Thanks.
There is a HELL OF A LOT of misinformation and misunderstanding kicking around about this - and not just from me.
love detective
there's no love too small
i have no willpower 
bingo!
that's why we need a return to Political Economy - and what political economy is, is best articulated on the back cover of Rubin's History of Economic thought
Political economy deals with human working activity, not from the standpoint of its technical methods and instruments of labor, but from the standpoint of its social form. It deals with production relations which are established among people in the process of production.
In terms of this definition, political economy is not the study of prices or of scarce resources; it is a study of social relations, a study of culture. Political economy asks why the productive forces of society develop within a particular social form, why the machine process unfolds within the context of business enterprise, why industrialization takes the form of capitalist development. Political economy asks how the working activity of people is regulated in a specific, historical form of economy.
There was a bit of discussion about this on this thread here (i.e. the idea that economics is the key - or that marx's capital was an economics text)
bingo!
that's why we need a return to Political Economy - and what political economy is, is best articulated on the back cover of Rubin's History of Economic thought
Political economy deals with human working activity, not from the standpoint of its technical methods and instruments of labor, but from the standpoint of its social form. It deals with production relations which are established among people in the process of production.
In terms of this definition, political economy is not the study of prices or of scarce resources; it is a study of social relations, a study of culture. Political economy asks why the productive forces of society develop within a particular social form, why the machine process unfolds within the context of business enterprise, why industrialization takes the form of capitalist development. Political economy asks how the working activity of people is regulated in a specific, historical form of economy.
There was a bit of discussion about this on this thread here (i.e. the idea that economics is the key - or that marx's capital was an economics text)
It wasn't political economy either, as you well know.
Political economy is just as much bullshit as economics.
In reality, "economic" behavior is inseparable from other kinds of behavior.
TruXta
tired
You lost us all at the first two words, phil.
littlebabyjesus
one of Maxwell's demons
I think dwyer kind of has a point here, though, or at least, his point of view illustrates a point.
Time and again, behaviour that has a practical reason becomes elevated to a symbolic, 'magical' status in order to explain and to pass that behaviour on.
A good example would be religious prohibitions on certain kinds of foods. At some point in the past it was noticed in certain parts of the world, for instance, that eating certain kinds of seafood was often followed by illness. Not knowing why the one caused the other - not having any idea really about how diseases are passed on - the best explanation that can be found is that 'god doesn't want us to eat these things and is punishing us for eating them by making us ill'.
I see similar processes with money - where people don't properly understand the nature of economic exchanges, but they see bad things happening when debts aren't repaid: and so the money itself is somehow granted an autonomous existence to explain it. It's not so different from attributing the reason water flows downhill to a river-demon. It is elevated to godly status to be someone who repays debts, even if you really and truly ought to be fucking the debts off when they are unjust.
It's very characteristic of modern humans that we're able to generate systems such as modern economies whose dynamics we don't understand. Just because we made something, that doesn't mean we understand how it works - particularly when it is something that has arisen out of the mass behaviour of millions or billions of individuals.
Time and again, behaviour that has a practical reason becomes elevated to a symbolic, 'magical' status in order to explain and to pass that behaviour on.
A good example would be religious prohibitions on certain kinds of foods. At some point in the past it was noticed in certain parts of the world, for instance, that eating certain kinds of seafood was often followed by illness. Not knowing why the one caused the other - not having any idea really about how diseases are passed on - the best explanation that can be found is that 'god doesn't want us to eat these things and is punishing us for eating them by making us ill'.
I see similar processes with money - where people don't properly understand the nature of economic exchanges, but they see bad things happening when debts aren't repaid: and so the money itself is somehow granted an autonomous existence to explain it. It's not so different from attributing the reason water flows downhill to a river-demon. It is elevated to godly status to be someone who repays debts, even if you really and truly ought to be fucking the debts off when they are unjust.
It's very characteristic of modern humans that we're able to generate systems such as modern economies whose dynamics we don't understand. Just because we made something, that doesn't mean we understand how it works - particularly when it is something that has arisen out of the mass behaviour of millions or billions of individuals.
My basic point is that the belief that signs can do things is magical.
And that usury is the belief that signs can do things.
And that our society is based on usury.
So that our society is based on magic.
And that the alleged disappearance of magic from our society is in reality its complete triumph.
And that usury is the belief that signs can do things.
And that our society is based on usury.
So that our society is based on magic.
And that the alleged disappearance of magic from our society is in reality its complete triumph.
TruXta
tired
lbj, I think it's characteristic of all humans ever to generate systems that are unpredictable. It's no different from the weather really, we can have a good guess at the very short and the pretty long scales, but everything in between is forever opaque. Economic relations are no different from other social dynamics in that regard.
littlebabyjesus
one of Maxwell's demons
lol
It's a good line. It's total nonsense, but it's a good line. Now I'm the first to admit that I struggle with this stuff, but at least I'm trying to understand it. You, on the other hand, seem to just give up and call it 'magic'. We'd still be living in a world where river-demons make water flow downhill if everyone thought like that.
TruXta
tired
Well, your basic point is bullshit. The fact that humans can use indexicals without attributing magical properties to that basic element of speech renders your "point" dismissed at the first test.
It.
There, is that magic?
littlebabyjesus
one of Maxwell's demons
The bigger the society, the more complex the system can become, though. If you live in a very small hunter-gatherer society, you've got a much better chance of understanding your group's dynamics than if you live in a society of millions of individuals.
But you are right, and there's no reason why we ought to understand group behaviour, really. An ant doesn't need to understand its nest's needs in order to carry out its functions for the good of the nest - mechanisms (pheremones in the case of ants in a nest) are in place to guide it. In that sense, magical thinking performs a perfectly understandable and valid function. It's just that we are in fact able to think beyond it.
TruXta
tired
For sure (h/t Rafa Nadal) there will exist aggregate phenomena that are only emergent at a certain level of complexity, but from a purely structural viewpoint the combinatorics suggest that with even small increases in group membership the number of possible variations skyrocket. This is where the point about multiple non-linear processes comes back to bite our asses. We have many in themselves simple processes acting on a finite number of actors, with feedbacks and feed-forwards all over the shop, together acting to produce chaotic systems.
love detective
there's no love too small
i doubt we'll ever see eye to eye on anything to be honest
There's two books, both by Ben Fine & Dimitris Milonakis that cover this move from Political Economy to 'Economics' very well (although they are a bit dry at times to be fair). They sum up everything that's wrong with 'economics' as a subject in modern times. They are pretty pricey but I got both of them second hand for £9 each from Amazon - well worth it
These are:-
From Political Economy to Economics: Method, the Social and the Historical in the Evolution of Economic Theory
Economics has become a monolithic science, variously described as formalistic and autistic with neoclassical orthodoxy reigning supreme. So argue Dimitris Milonakis and Ben Fine in this new major work of critical recollection. The authors show how economics was once rich, diverse, multidimensional and pluralistic, and unravel the processes that lead to orthodoxy’s current predicament. The book details how political economy became economics through the desocialisation and the dehistoricisation of the dismal science, accompanied by the separation of economics from the other social sciences, especially economic history and sociology. It is argued that recent attempts from within economics to address the social and the historical have failed to acknowledge long standing debates amongst economists, historians and other social scientists. This has resulted in an impoverished historical and social content within mainstream economics.
The book ranges over the shifting role of the historical and the social in economic theory, the shifting boundaries between the economic and the non-economic, all within a methodological context. Schools of thought and individuals, that have been neglected or marginalised, are treated in full, including classical political economy and Marx, the German and British historical schools, American institutionalism, Weber and Schumpeter and their programme of Socialökonomik, and the Austrian school. At the same time, developments within the mainstream tradition from marginalism through Marshall and Keynes to general equilibrium theory are also scrutinised, and the clashes between the various camps from the famous Methodenstreit to the fierce debates of the 1930s and beyond brought to the fore.
The prime rationale underpinning this account drawn from the past is to put the case for political economy back on the agenda. This is done by treating economics as a social science once again, rather than as a positive science, as has been the inclination since the time of Jevons and Walras. It involves transcending the boundaries of the social sciences, but in a particular way that is in exactly the opposite direction now being taken by "economics imperialism". Drawing on the rich traditions of the past, the reintroduction and full incorporation of the social and the historical into the main corpus of political economy will be possible in the future.
From Economics Imperialism to Freakonomics
Is or has economics ever been the imperial social science? Could or should it ever be so? These are the central concerns of this book. It involves a critical reflection on the process of how economics became the way it is, in terms of a narrow and intolerant orthodoxy, that has, nonetheless, increasingly directed its attention to appropriating the subject matter of other social sciences through the process termed "economics imperialism". In other words, the book addresses the shifting boundaries between economics and the other social sciences as seen from the confines of the dismal science, with some reflection on the responses to the economic imperialists by other disciplines.
Economics imperialism reaches its most extreme version in the form of "freakonomics", the economic theory of everything on the basis of the most shallow principles.
By way of contrast and as a guiding critical thread, a thorough review is offered of the appropriate principles underpinning political economy and its relationship to social science, and how these have been and continue to be deployed. The case is made for political economy with an interdisciplinary character, able to bridge the gap between economics and other social sciences, and draw upon and interrogate the nature of contemporary capitalism.
ymu
Niall Ferguson's deep-cover sock-puppet
Those look more like a critique of the predominant practitioners of economics at the moment, not a critique of the discipline itself, which obviously cannot and should not be disconnected from politics. I'm not sure it describes economics as a discipline so much as its hijacking by a dominant school and some highly inadequate policing by the academy.
We're really quite fussy about good science in my field (medicine), but it's rare that anyone bothers to assess quality outside stuff published in the big 4 journals because their authors don't get it right most of the time, so it's not necessary to show that less high profile research is also often badly flawed.
The other parallel between the two fields is that there are often very powerful vested interests pushing the wrong answers in medicine too. The relative powerlessness of independent scientists/economists if the loudest voices decide to promote recklessly poor evidence and arguments, is not the same thing as the entire discipline having morphed into something irrelevant.
But I may well be anticipating much of the argument in those books, I realise.
We're really quite fussy about good science in my field (medicine), but it's rare that anyone bothers to assess quality outside stuff published in the big 4 journals because their authors don't get it right most of the time, so it's not necessary to show that less high profile research is also often badly flawed.
The other parallel between the two fields is that there are often very powerful vested interests pushing the wrong answers in medicine too. The relative powerlessness of independent scientists/economists if the loudest voices decide to promote recklessly poor evidence and arguments, is not the same thing as the entire discipline having morphed into something irrelevant.
But I may well be anticipating much of the argument in those books, I realise.
love detective
there's no love too small
it's a critique of the 'discipline' in its current form - i can't see how you can get anything other than that from the blurb
littlebabyjesus
one of Maxwell's demons
I still haven't completely let go of this one. While I accept all the things I had wrong about fractional reserve lending - and fully accept now that it does not involve creating money out of nothing in any sense - there is something missing from this picture, which is the question 'where does the employer's £105 come from?'.
Now if all new money enters the system as a debt with interest due, which it does in our current system, that £105 that you are paid was itself originally created (not out of nothing - don't worry, you've convinced me of that one) for someone by a loan with interest due. Basically, whatever scenario you imagine, you cannot talk about money already in the system without going back to its origins. Every sum of money mentioned has to be accounted for.
Your example is zero-sum only once the employer's £105 is already there, but the system as a totality cannot be. Every loan has interest due, so for any given set of total loans, the total amount owed by the borrowers exceeds the total amount loaned. It still seems to me that only a spiral of ever-increasing loans can service this situation.
I think the best way to look at this is to imagine a snapshot of the entire money supply at any given moment. All the money circulating has been created as a debt with interest due. So the amount owing on all the money out there at any given moment is greater than the amount of money out there. The only way to pay it is for more loans to be taken out.
love detective
there's no love too small
Except in our current system it doesn't - and this is where your reasoning is once again let down by faulty premises.
I did actually go over how money enters the system in this post here
The relevant part is here:-
the mechanics of the way the [central] bank manages the money supply and money creation (something that I've noted you seemed to have a poor understanding off previosuly). This process is called open market operations - and again perhaps somewhat counter intuitevely, the mechanics of the process is exactly the same as quantative easing, the only difference is the reason for doing it - i.e. it's done on a much smaller basis and it's purpose is to manage short term interest rates via the supply of base money in the economy.
So if the central bank decides it wants to inject more money into the economy - there are two steps that happens, firstly it creates money by a touch of a key stroke (the modern equivalent of the printing press) - it then uses that created money to purchase or repo from the commerical banks securities or other financial instruments. This is how the money enters the economy, i.e. not through the central bank lending to commerical banks, but by the central bank purchasing (or repoing) assets from commericial banks with money that it's created
So when money originally enters the system, it is debt free. This is how it works now, and this is also how it worked when metals were used as the currency (i.e. gold producers produced money in their production process, there was no debt attached to it on creation, only once it began to circulate as debt).
So when that new money starts to circulate within the system, it leaves in its trace a multiple of loans & deposits, all bearing interest. However at any point (just like my simple example above), the total amount of debt + interest due from borrowers is exactly the same as the total amount of debt + interest due to lenders. It can't be any other way. The system is the system, and if you add it all together it always comes to zero. You don't have a position where the system as a whole, owes something to something outside it.
I've noticed you've continually used this 'money created as debt' thing as the premise behind a whole load of your assertions in relation to this topic - which always leads to you coming to incorrect conclusions on things. For example, this is why I was saying to you that it's completely illogical/wrong/contradictory to accept that the flows on derivatives are a zero sum game, but deny that the flows on loans & deposits are also a zero sum game. Even if the borrower defaults, it's still a zero sum game as on a default the debt (or the defaulted portion) is written off by both the lender and the borrower, leaving a net zero at the total level
This is why I constantly keep coming back to the point that things that happen in the sphere of circulation, never amount to anything other than moving existing money & value around the system - yes it can result in a different distribution of that total money & value as banks capture a bigger share through their activities (both by capturing a share of the value produced by other capitals through commercial lending, and also capturing a share of wages earned by labour through personal lending), but it doesn't effect anything at the total level - it never creates something which is not negated by something else somewhere in the system.
love detective
there's no love too small
I could have maybe simplified/stripped down the point about central bank money creation there - and just said that at the point money is created by the central bank (which is out of thin air) - that is the point the money enters the system, and there is no debt attached to it at that point, it's debt free (just like the gold that starts circulating once the gold producer as produced it)
So even if the central bank then lent that money to commercial banks (although it doesn't, as noted it buys securities from them with it) - this is still just a loan & deposit between two parties within the system, with everything canceling out between those two parties
So even if the central bank then lent that money to commercial banks (although it doesn't, as noted it buys securities from them with it) - this is still just a loan & deposit between two parties within the system, with everything canceling out between those two parties
ItWillNeverWork
Messy Crimbobs, fellow humans.
I think the point here is that lbj is not convinced that the mainstream story of how money is created (i.e. via central bank & money multiplier) is true. Other theories exist, hence my mentioning of the post-keyenesians. http://en.wikipedia.org/wiki/Money_creation#Alternative_theories
ItWillNeverWork
Messy Crimbobs, fellow humans.
Thought the following might be useful:
The real interest rate;
The lending interest rate;
The inflation rate;
The real interest rate;
The lending interest rate;
The inflation rate;
love detective
there's no love too small
i could go on for pages about my thoughts on this (i.e. the endogenous stuff) - but i think i try to say far too much in any individual post and then get frustruated when others don't pick up on the points being made - it's a difficult thing to write about though without rattling on for ever about it as there's a lot of things to introduce & interlink for any given point
littlebabyjesus
one of Maxwell's demons
This idea that money is created through demand for loans makes a lot of sense to me. After all, banks exist to make loans - they only take deposits (which in reality are themselves loans) to enable them to make loans. So, the bank wants to make loans so has to attract deposits, by advertising that they will pay interest, etc.
If the system is functioning with high demand for loans, there is never any need for outside intervention to create new money - the money supply grows to fulfill the increasing demand for loans. Then whenever demand in the private sector for loans dips, the govt steps in and itself borrows from the banks in the form of gilts. Either way, the aim is to keep the money supply growing by keeping the demand for loans at a rate that is higher than the rate of repayments. It seems to me that a money supply could in theory grow from a tiny sum of a few quid to billions and trillions in this fashion.
I don't have much time today for this, but I still think my basic premise - that we have a system where money enters the system through the creation of debts with interest owing, and that this system demands inflation in order to function - has legs.
If the system is functioning with high demand for loans, there is never any need for outside intervention to create new money - the money supply grows to fulfill the increasing demand for loans. Then whenever demand in the private sector for loans dips, the govt steps in and itself borrows from the banks in the form of gilts. Either way, the aim is to keep the money supply growing by keeping the demand for loans at a rate that is higher than the rate of repayments. It seems to me that a money supply could in theory grow from a tiny sum of a few quid to billions and trillions in this fashion.
I don't have much time today for this, but I still think my basic premise - that we have a system where money enters the system through the creation of debts with interest owing, and that this system demands inflation in order to function - has legs.
love detective
there's no love too small
Everything you've said here is bog standard fractional reserve lending - all of which is accomodated within the mainstream theories of money creation. Also throughout all our arguments I've never suggested that the above is not the case - i.e. just a few posts up I said
when that new money starts to circulate within the system, it leaves in its trace a multiple of loans & deposits, all bearing interest.
And
fractional reserve lending is pretty much the same principal as this, except that it's not direct purchases & sales between two parties, but instead they are mediated by the banking system lending & borrowing the money - which in turn creates a build up of assets & liabilities within the system - all on the back of a small amount of central bank money - if one person then repays the £10 loan, that can allow the whole chain to also be repaid without any problem
So there's no real argument here - and the 'debate' about whether central bank money is needed for the money supply to expand through increased velocity/circualtion (exogenous) or not (endogenous) is irrelevant to the basic theory of money supply growing through increased circulation
The main point I've been making in relation to this is that it's not the commercial banks (or central banks) that are the independent variable/actor here, i.e. neither the central or commercial banks can make money circulate if there is no demand for it within the wider economy. And of course the money supply can grow hugely on the base of a relatively smaller amount, this is also a point I've made consistently throughout our arguments.
This, however is massively confused, your mixing up fiscal & monetary mechanisms - and also the fact that commercial banks own a small proportion of govt debt (pension funds & insurance companies have a far bigger share)
I'd argue the reverse here - the objective is not to keep the money supply growing by creating demand for loans (through fiscal measures) - the objective is to create demand in the economy, which in turn brings with it the necessity for the money supply to grow to accomdate it.
I don't.
I disagree on both logical and empirical grounds
1. Logical: Your whole argument seems to be based on the tail wagging the dog. Despite naming this thread money & value - your whole focus has been on money alone, with value being either non-existent or a mere afterthought in the analysis. Value creation (or non-creation/destruction) is a better starting point for looking at things like this.
In your assertion you state that the simple act of a loan with interest being created, in and off itself, is the fundamental reason for inflation in the ecomomy. You don’t put any analysis on what happens in the wider economy following the creation of that loan - and because of that your analysis is incomplete & flawed. If someone takes out a loan and (in value terms) the loan & interest is paid back out of created value (either from wages for workers or surplus value for capital) along with a bit of profit left over for the borrower - then how can this result in inflation. The marginal amount of value production here is higher than the amount of interest due on the loan. And when the loan is repaid (which effectively decreases the money supply in your terms as there is less loans/deposits) we have a situation where there is less 'money' in the system but more value (as the profit is higher than the interest paid) - so if anything this points to deflation not inflation.
Clearly not everything runs as smoothly as this all the time, but you don't even look at what happens in relation to value creation - you base everything on the fact that a loan has been created and your theory is blind to the real substance of what then happens next. In your theory whether the money from the loan is wasted, eaten, transplanted to mars, used to produce real value or whatever, is not even considered - you simply assert that more loans = more inflation
You also have failed to account for how inflation that is caused by the things I raised in this post would magically disappear if loans with interest didn't exist.
2. Empirical: Your theory essentially says the more loans & deposits (or money, or things circulating like money) in the system, the higher inflation will be. But if we look at the period from say mid 1990's to 2007 (in say the US and UK). This was a time where a huge amount of money/loans/deposits/ficticious capital were circulating around at incredible speeds (save for the blip of the dotcom crash). This was a result of loose monetary policy, huge (ficticious) banking profits, massive confidence, huge amounts of loan capital flowing in from surpluses in China etc.Now according to your theory we should have been seeing pretty high inflation then, but in fact the reverse was true and inflation was pretty low over that period (the fact that interest rates were fairly low during this period shouldn't detrat from your theory, as the theory is based on volumes of interest bearing loans/depoists circulating - so while perhaps the interest rates were relatively low on them, the fact that the circulation/velocity/mulitplication of them was very high is what's important for your theory)
From 2007 onwards however all that activity ground to a halt, loads of the stuff that was circualting was destroyed because it was ficticious, loans were paid down or defaulted on, so the whole build up through previous circulation came crashing down - now according to your theory we should be seeing a lot less inflation than before, however we are in fact seeing much more.
So when your theory says there should be high inflation we see low inflation and when it says we should see low inflation we see high inflation. It doesn't appear to be a particular useful theory for explaining real world phenomena
So, so far, I can't see any support for your theory, either on logical/rational or empirical grounds
While I'm here I can't resist a comment on the exogenous & endogenous (and possibly the erogenous) argument - as there are some interesting things coming out of looking at this. One one hand in terms of end result I can argue that there is in essence not much difference between the two (edogenous effectively says that loans create deposits whereas exogenous says deposits enable loans - same end situation though, lots of deposits & lots of loans, each dependent on the other, and all cancelling out to leave a zero sum game)
However on the other hand (and in addition to various technical reasons for disliking the theory) I have knee jerk ideological reaction to the core/thrust of the endogenous/circuitism theory as I see it as providing ideological succour to the idea of a purified neo-liberal view of the world where the state & central bank are not required - i.e. the view that markets, money, capitalism can function naturely, without the state crutch, and are effectively a natural thing.
Endogenous/circuitism theory & models eschew the need for state/central bank activity in the economy and instead posit that that commercial banks can lend (without the need for any central bank money to exist) purely because of their social role (i.e. people put trust in it because of what it is). However commercial banks don't just appear from heaven, supernaturally endowed with a social role, they only have it because the state/central banks stand squarely & solidly behind it. So the basic premise of endogenous/circuitism implicitly relies upon something that it explicitly rejects (yet very obviously & tangibly exists)
It seems to be a theory which, along with the likes of the austrian economists, leads to the conclusion that the real world can't possibly exist in theory - and what use is such are such theories
deke t lefel
Active Member
value is created by work, money represents value in order to allow the holder the convenient facility to exchange for other products
money can have value in its own right, for instance, there have been times when coins have been melted down because the metal is worth more, however, increasingly, money has become more virtual and the vast majority is now floating in the electronic aether
growth figures are adjusted for inflation so that growth is measured in real terms rather than getting a false impression of growth due to inflation
to what extent are financial services and the lending of money excluded from growth figures?
the symbol is faith or trust......originally precious metals were used as money because the holder had faith that the metal could be exchanged for products, then paper/electronic money was introduced and the holder had trust in a guarantee by the issuer
inflation, interest and growth are all functions of time....time consists of the past, the future and that elusive firmament of the present, so it is only reasonable to assume that the future can influence the present as well as the past
overall global inflation can only be achieved if the money supply exceeds growth..... and money can only enter the system through a trading window - if that window is in the future (not futures specifically) then additional money can be created for use in the present from the future
love detective
there's no love too small
LBJ, I'm guessing with nearly three months passing with no reply to the points made in my last post this discussion has stopped
But the reason for bumping the thread was not to pick a fight but to post a link to a paper published this month by the Research on Money & Finance network called Neoclassical Inflation: No theory there - which critiques the neo-classical theory of inflation.
A lot of the arguments you were making on this thread (and others) about the driver for inflation are similar to the neo-classical view and a lot of my rebuttals of your arguments are contained within this paper. So you may be interested in having a read at it. It's not a great paper however, is a bit narrow and misses a lot of other relevant things out, but I thought it quite neatly reflected the argument we were having a few months ago where I crticised you for placing all focus/attention on money supply alone (and in isolation) as a driver of inflation (i.e. the tail wagging the dog criticism)
But the reason for bumping the thread was not to pick a fight but to post a link to a paper published this month by the Research on Money & Finance network called Neoclassical Inflation: No theory there - which critiques the neo-classical theory of inflation.
A lot of the arguments you were making on this thread (and others) about the driver for inflation are similar to the neo-classical view and a lot of my rebuttals of your arguments are contained within this paper. So you may be interested in having a read at it. It's not a great paper however, is a bit narrow and misses a lot of other relevant things out, but I thought it quite neatly reflected the argument we were having a few months ago where I crticised you for placing all focus/attention on money supply alone (and in isolation) as a driver of inflation (i.e. the tail wagging the dog criticism)
Abstract said:
littlebabyjesus
one of Maxwell's demons
Yeah, ta for that. I struggled through it. It brought out the editor in me because it needs a thorough copy edit!
But yes, it makes some interesting points. Certainly, I have already conceded - if you had misunderstood - that the relationship between the size of the money supply and inflation is not what I had thought it was: ie not a simple relationship at all, and increasing the size of the money supply does not necessarily lead to inflation.
Interesting to see that I had unwittingly fallen in with Friedman!
But yes, it makes some interesting points. Certainly, I have already conceded - if you had misunderstood - that the relationship between the size of the money supply and inflation is not what I had thought it was: ie not a simple relationship at all, and increasing the size of the money supply does not necessarily lead to inflation.
Interesting to see that I had unwittingly fallen in with Friedman!
You haven't understood it yet LD
Your example is not incorrect, however it is carefully contrived to disguise the fact that something really fairly extraordinary is going on.
That 'multiple of loans and deposits' or 'liabilities' IS new money. When we make bank transfers, or write cheques, we are simply shuffling the debt around. That is what the money IS! As such fractional reserve lending does indeed create money out of thin air and for every £1 the Bank of England creates the high street banks can loan out £10, thus getting 60% interest not 6%.
Your example is not incorrect, however it is carefully contrived to disguise the fact that something really fairly extraordinary is going on.
love detective
there's no love too small
no desire to enter into a discussion about this with someone like you, but answer me one thing:-
if banks can create money out of thin air - why do they need bailed out, why is there a credit crunch, why do they have to rely on central banks to fund them - why don't they just create that money they so desperately need out of this thin air you talk off?
money circulates (and sometimes it doesn't), get over it
if banks can create money out of thin air - why do they need bailed out, why is there a credit crunch, why do they have to rely on central banks to fund them - why don't they just create that money they so desperately need out of this thin air you talk off?
money circulates (and sometimes it doesn't), get over it
You don't understand money mate. Not at all.
It is precisely because banks are creating money (lines of credit) pretty much out of thin air that the system is unstable, and they are always vulnerable to "the run on the bank". At any time for a high st bank, if a significant fraction of depositors withdraw all the money in their accounts it would bring down the bank. That is because they are continually lending out far more than they have the cash reserves for (precisely what "fractional reserve" banking means), and if confidence drops the whole scam - and it is a scam - can go tits up. If they were just lending out hard cash from the central bank in they way you or I would, there couldn't possibly be a 'run'.
Why is there a credit crunch? Well simply put that is what happens when the banks (as a whole) stifle the amount of loans made and hence new credit appearing. When that happens, that is how banks steal everyone's property, as we cannot pay back our loans. Perhaps some banks may do badly and even fail, however, overall it is a terrific land grab for them.
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