Roger Sandilands wrote: "[Young defined 'credit' as currency plus demand
deposits, and was a critic of Edwin Cannan for focussing only on
currency, and would no doubt equally fault James on this score.]"
Young might have believed in the genuineness of his criticism of
distinguishing money (cash or currency) from "credit." But does that
make him correct? I think the classical distinction is more useful.
Credit is the facility to make a purchase (or obtain a good or service)
without money (cash), thus a liability of the user. But a user of cash
incurs no liability. Cash is the holder's asset, just as is the demand
deposit for its owner. But when one writes a check to make a purchase,
one is using an "instrument of credit," incurring a liability in the
process. (That's why one's driver's license is usually required in the
U.S.to employ the means of payment.)
Now a central bank may vary the quantity of money (currency) in an
economy by expanding or contracting its "credit." But, given the
quantity of money (currency), the volume of credit may contract or
expand depending upon the flow of savings or financial institutions' own
demand for reserves (cash) -- withholdings from the public's deposits
with them. And whereas variations in a central bank's credit (currency)
creation have more direct effects on the price level, the same does not
follow from variations in private sector's credit (savings). Only
private sector's demand to hoard cash does. Thus, I find the classical
distinction between money (currency), which derives from a modern
central bank's credit creation, and demand deposits (part of private
sector 'savings') more analytically useful.
On Currie's contributions to the literature, Sandilands suggests: "Maybe
James will first read chapter 12 of David Laidler's _Fabricating the
Keynesian Revolution_ for an account of Currie's considerable
contributions to the literature on monetary and fiscal theory and
policy, or chapters 2 and 3 of my 1990 biography."
I wonder if Sandilands has in mind chapter 9 of Laidler's book rather
than 12 (on IS-LM). I did read that as well as his biography and
Laidler's 1993 article on the origins of the Chicago School. Besides
Laidler's and Sandilands' 2002 /HOPE/ article on the 1932 Harvard
Memorandum, it was those sources I had in mind when I made my comment
about "much too much" being made about Currie's contributions to our
understanding of the necessary monetary mechanism to deal with a
depression. I remain puzzled by comments like, the 1932 document to
which Currie contributed was "evidence about an *original* and
provocative element in the macroeconomic thought of an important
intellectual center, namely, Harvard, in the early years of the
depression" (Laidler and Sandilands 2002, 516), when all Currie,
Ellsworth, and White did was mostly to have applied the quantity theory
of money. Indeed, Currie (1934, 4) himself subsequently wrote: "The
logic of practically all monetary theories of the business cycle called
for an energetic expansion of money in 1930-33." And such monetary
theory was well known to the likes of Fisher, Viner, Mints, and Knight
in the U.S., and numerous others, including Hawtrey, Pigou, and
Robertson in the U.K. In fact, I trace the principle all the way back
to David Hume (1752), especially on the "good policy of the magistrate"
to sustain the price level from falling.
Incidentally, I just noticed from Robert Leeson's piece on the web, the
fact that Currie considered himself "a Keynesian from way back ... my
theoretical approach had been influenced by Keynes since my London
School of Economics days in 1922-25" and he was "using [Keynes's]
Treatise in classes at Harvard." On the other hand, I read Laidler and
Sandilands as strenuously attempting to distance Currie from Keynes's
influence. Further material in my efforts to correct the view of Currie
that Sandilands has written, especially in a way that would make it
acceptable for publication; read, "getting past the referees."
Meanwhile, I plead guilty to my "rather overweening self-belief" in
being able to succeed in the task. Isn't that a prerequisite for anyone
who undertakes to challenge established authority?
James Ahiakpor
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