From: Rakesh Bhandari (bhandari@BERKELEY.EDU)
Date: Wed Nov 24 2004 - 19:47:07 EST
At 6:02 PM -0500 11/24/04, Fred Moseley wrote: > >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. I don't understand how post keynesian theorists insist on the endogeneity of the money supply [that is, the Fed is obliged to supply the quantity of money that is demanded by economic agents] while elevating the Fed to the key, autonomous institution in the determination of the performance of the macroeconomy. Costas is not a post Keynesian of course. >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. It is unavoidable that your theory has to be tangled in all the complex questions about what counts as money. M1 or M10? Which measure of money does your theory lead us to accept? I actually don't see how what you have proposed is a theory. You are just saying that if one subscribes to the labor theory of value in a world without commodity money, then this is how the MELT will have to be defined. And that is intuitive as Claus noted. If one wants to save Marx for a world without commodity money, the theory of value has to provide one with an actual explanation of the quantity of money in circulation. And as I related in another post, I think it is theoretically and politically troublesome (in the extreme) not to to provide said explanation. What I am saying is that Greenspan has to increase that quantity to allow for the national and international circulation of new value but that his powers are limited by the need to maintain confidence in a piece of valueless paper (the dollar) as a store of value. If Goldspan overissues money then that composite commodity becomes more expensive; inflationary pressures build up; and he may endanger the role of the dollar as world money. Taking advantage of the entrenchment of the dollar, he can in fact get (and has got) away for some time with such a devaluation of the dollar but then he is in fact forced to play catch up. In short, unless value theory can provide a superior explanation for the quantity of money in a world of valueless paper money, Marxism must cede the ground of monetary theory. Claus and Paul B won't do this because they don't think valueless paper is true (Platonic?) money though it is money in every practical sense. And you imply that you may accept post Keynesian endogeneous explanations of the quantity of money. Rakesh
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