Two points a propos the F grade that James Ahiakpor has awarded me.

1.    I cannot remember the last time I ever 
saved money by putting cash into a bank. My 
university is apparently rather more advanced 
than James’s classical institution, since mine 
pays me electronically by instructing its bank to 
transfer its DD money into my DD. (QED)

2.    I have indeed seen Fed figures, and so I 
know the money supply has held up (though 
velocity obviously hasn't). But my point was that 
in the face of a sudden flight by the banks into 
liquidity and excess reserves, the money supply 
would indeed collapse (as in the 1930s); and I 
immediately went on to say that M has held up 
today only because of countervailing monetary and 
fiscal activism on the part of the authorities, 
but that so far the decline in MV has not been reversed.

This brings me to Pat Gunning’s interesting point 
about the potential ease with which 
liquidationism could be avoided, namely by 
abolishing fractional reserve banking in favour 
of the 1930s “Chicago 100% plan” which separates 
the creation of money (in cash and demand deposit 
form) from the lending of money.

I agree. Financial intermediaries would then 
handle the nation’s savings separately. Savings 
could rise or fall without affecting the money 
supply, and if loans go sour there would not be 
major systemic crises of the kind we are witnessing today.

I also agree with him that 100% money would 
obviate the need for deposit insurance. (In fact 
Lauchlin Currie in the 1930s thought the need for 
deposit insurance was not the main lesson of the 
Great Depression – and nor, for that matter, 
should Glass-Steagall have been needed. The main 
issue was how best to control the money supply. 
That required (a) rejection of the real-bills 
doctrine, and the appointment of the best 
monetary theorists to the Fed; (ii) greater 
powers for the Fed over banks’ reserves, even if 
“100% money” was a political non-starter; and 
(iii) helping to ensure that the banks were 
always “fully loaned up”, and that meant allowing 
them a broader range of assets than short-term commercial loans.)

I am not sure of the point Pat is making about 
the MV of all our macro textbooks. Under 100% 
money there would still be MV – with V calculated 
as a simple matter of arithmetic. But 
_understanding_ the arithmetic requires thinking 
in terms of Marshall’s “k”, and why the community 
finds it convenient to hold that particular 
fraction of income as money. Currie was not only 
the first person -- in 1934 -- to calculate the 
US money supply (though not on James’s 
definition), but also the first to estimate the 
income velocity (he found Fisher’s transactions 
version unhelpful and misleading), and was still 
developing empirical and theoretical estimates of 
the demand for money through to his death in 1993 
(see special issue of Journal of Economic Studies 31:3/4 [2004]).

So, to answer Pat’s final question, I do believe 
Currie drew the “right” lessons. But yes, there 
is also much to glean from Keynes, Hawtrey and 
Hume (the ones I mentioned). Keynes mainly for 
his early work on money; Hawtrey for the greater 
emphasis he continued to place on money in his 
cycle theory, while recognizing that in 
exceptional circumstances “Keynesian” fiscal 
remedies were an essential accompaniment (but 
likely inadequate if the deficits were not 
monetized); and Hume for the quantity theory. Of 
course I could have mentioned others, notably Currie’s mentor Allyn Young.

Roger Sandilands