From: Fred Moseley (fmoseley@MTHOLYOKE.EDU)
Date: Wed Nov 24 2004 - 18:02:50 EST
On Sun, 21 Nov 2004, Rakesh Bhandari wrote: > >Rakesh, > > > >Precisely how does the MELT follow? > > > >Determined by the ratio MV / L, or otherwise? > > > >Fred > > Fred, > Let's say your theory of how MELT is determined is correct, that my > previous attempts to explain how it is determined in a commodity > index system fails. But in terms of your interpretation we still do > have to know what regulates Greenspan's determination of the quantity > of money in circulation. If you treat the quantity of money as an > exogeneous or independent variable, I don't see how you have broken > with the quantity theory of money! > Do you think I am correct that Greenspan attempts to regulate the > level of liquidity such that "value of dollar" is constant over the > medium terms in terms of some composite commodity (xCommodityA, > ycommodity B and z commodityC)? If so, then we can see that implicit > in your theory of how the MELT is determined is some linkage between > money and commodities. I can see why Allin and Jerry don't want to > call this commodity money or a modified gold standard. But whatever > we call it we do still have to some theory of what determines the > quantity of money put in circulation by the Fed. > Yours, Rakesh Hi Rakesh, I agree that we need a theory of what determines the quantity of money, and that I have not (yet) tried to explain this. I think this is a complicated question, and the answer will not be simple. Your theory of Greenspan's focus on key commodities may have something to do with the determination of M, although I don't know. But I don't think that the Fed has complete control over M. Lapativitsas has argued that M today depends in part on endogenous factors such as the rate of capital accumulation. So I agree that we need to push further on this question of what determines the quantity of M. I am just emphasizing for now the EFFECT of M on the MELT, and hence on the general price level, and I hope I've got that right. Comradely, Fred
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