From: Rakesh Bhandari (bhandari@BERKELEY.EDU)
Date: Sun Nov 21 2004 - 20:33:21 EST
At 2:08 PM -0500 11/19/04, Allin Cottrell wrote: >On Fri, 19 Nov 2004, Rakesh Bhandari wrote: > >>At 10:04 AM -0500 11/19/04, Fred Moseley wrote: >>> >>> >>>I have the same question: what grounds do we have for supposing that >>>the price/labor-time ratio for that particular basket of commodities >>>determines the MELT? >> >>First, note that I am specifying a determinant for quantity of money >>in circulation. > >Your specification is just: the quantity of money in circulation is >determined by the policy of the Federal Reserve system, which is not >exactly news to anyone. That's not what I was asking and you know it : what determines the money put in circulation by the Fed or on what basis does the Fed attempt to regulate the money in circulation? When does Goldspan pump, when does he drain liquidity from the system? I gave the example of Greenspan now trying to drain liquidity from the system as the dollar price of gold has risen to $430, though the economy remains weak with a lot of idle cash. You have said that Greenspan inflation targets, but this is not--I believe--true. Think here of the controversial 1994 interest rate hikes which seem to have been occasioned by gold targetting, not inflation price targetting in general. Again I don't have hard evidence for this but Randall Wray's reading of the Fed transcripts suggested that this is what happened. >>For example, Greenspan will now drain liquidity from the economy >>in order to bring the dollar price of the basket of commodities >>down. > >If that happens to imply CPI deflation, I don't believe it. Well again this is why I think the standard was modified beyond gold to a basket. It is also possible that in a certain situation Greenspan would calculate that CPI deflation is the least worse outcome. We have seen the BOJ allow deflation. I am not clear why you think Goldspan would not countenance deflation at all. In a way, he allowed allowed for deflationary ravaging of wages. Deflation could benefit bigger firms over smaller ones; it could force technological upgrading so that firms may reduce costs faster than prices are falling, and technological upgrading would benefit what Galbraith calls K class firms, ie knowledge intensive capital goods. Big capital, technological monopolies could, in short, benefit from a mild deflationary environment. In the WSJ a couple of years ago Wayne Angell came close to saying this. RB > >Allin
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