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Subject:
From:
Robert Leeson <[log in to unmask]>
Reply To:
Societies for the History of Economics <[log in to unmask]>
Date:
Tue, 15 Sep 2015 14:57:02 +0000
Content-Type:
text/plain
Parts/Attachments:
text/plain (249 lines)
Could James explain the purpose of examining the relationship between M0 and Y?

In a truly 'cashless society': what information would be revealed by examining the relationship between zero and national income?

________________________________________
From: Societies for the History of Economics <[log in to unmask]> on behalf of James Ahiakpor <[log in to unmask]>
Sent: Tuesday, September 15, 2015 7:01 AM
To: [log in to unmask]
Subject: Re: [SHOE] Fwd: origins of Y=C+I+G+(X-M)

Robert Leeson wrote:
> Is James suggesting that money *should* be defined only as a unit of account and *not* as circulating media (medium of exchange)?
Yes, indeed.
>
> Is there any literature on the historical values of the M0/M2 ratio?
Yes, it exists.  One easily can calculate the series from Federal
Reserve statistics, too.
> My guess is that it has fallen enormously.
It is because the data exist that one can say that the ratio "has fallen
enormously."
>
> If M = M0; and
>
> M0.V = P.Y
>
> or V = P.Y/M0
>
> wouldn't V become meaningless as M0/M2 fell?
Having fallen does not make the ratio meaningless.  I wonder why Robert
thinks it does.  In fact, the classical explanation of the Quantity
Theory is in respect to money, the unit of account.

BTW, I should have inserted "mainly" before "by the private sector" in
my post yesterday.  There are government checkable deposits with
commercial banks, too.

James Ahiakpor
>
> ________________________________________
> From: Societies for the History of Economics <[log in to unmask]> on behalf of James Ahiakpor <[log in to unmask]>
> Sent: Monday, September 14, 2015 5:17 PM
> To: [log in to unmask]
> Subject: Re: [SHOE] Fwd: origins of Y=C+I+G+(X-M)
>
> Robert Leeson correctly states that "the US monetary base increased over
> fourfold ($0.847626 to $3.3919 trillion)" and yet declares: "It is
> fallacious to suggest that 'the Fed has been printing money'."  I see a
> self-contradiction in Robert's protest.  I wonder why he doesn't.
>
> The only thing a central bank can *print* is its own currency.  Bank
> deposits are originated by the private sector: deposits made by
> individuals (households and firms).  Perhaps, it's Milton Friedman's
> insistence on focusing the profession's attention on M2 as the relevant
> measure of "money" that has created the problem for Robert.  This, in
> spite of the classics' definition of money as the unit of account, hence
> currency only.  I might note that Irving Fisher (1912) follows this
> classical principle when he writes: "although a bank deposit
> transferable by check is included in circulating media, it is not
> money.  A bank /note/, on the other hand, is both circulating medium and
> money" (p. 148; italics original) [quoted on p. 46 of my /Classical
> Macroeconomics/, 2003].
>
> Of course, I agree with Tom Humphrey's earlier clarification to Robert
> on the link between the monetary base and M, through the so-called money
> supply multiplier.
>
> James Ahiakpor
>
> Robert Leeson wrote:
>>
>> "The equation of exchange cannot ... explain why MV changes".
>>
>> Does it - anywhere - address the connection between M (currency +
>> deposits) and the monetary base (currency + reserves)?
>>
>> Central banks can increase reserves - but just have to hope that these
>> newly-created reserves are translated into loans (deposits) and thus
>> stimulate the aggregate economy. The Fed's "primary dealers" are the
>> chosen channel: Lehman Brothers, Bear, Stearns, Merrill Lynch, MF
>> Global, Goldman Sachs etc.
>>
>>  From just before the start of the monetary policy response to the GFC
>> to today (August 2008-August 2015), the US monetary base increased
>> over fourfold ($0.847626 to $3.3919 trillion), while the US money
>> supply (M2) increased by only about 56% ($7.7 to $12.1 trillion).
>>
>> Over roughly the same period (August 2008-July 2015), the US CPI has
>> increased by less than 10% (218 to 238; 100 = 1982-1984).
>>
>> It is fallacious to suggest that "the Fed has been printing money" -
>> the expansion of reserves has not unduly fed into M (and therefore P
>> and/or Y. )
>>
>> ------------------------------------------------------------------------
>> *From:* Societies for the History of Economics <[log in to unmask]> on
>> behalf of Bruce Littleboy <[log in to unmask]>
>> *Sent:* Friday, September 11, 2015 4:29 PM
>> *To:* [log in to unmask]
>> *Subject:* Re: [SHOE] Fwd: origins of Y=C+I+G+(X-M)
>>
>> Perry’s point is valid, but requires comment. The principal difference
>> between MV=PY and C+I+G+ net X is that the latter points to the
>> macro-structure of the economy. If the equation of exchange is used
>> not as an accounting identity but as a means to organise theoretical
>> reflection, it leads to the idea that changes in M and/or V cause
>> changes in P and/or Y. By contrast Keynes’s theory diverts attention
>> elsewhere; C, I , G and net X require separate measurement and a
>> different customised set of explanatory/predictive theories. In a
>> Keynesian framework, autonomous changes in expenditure reverberate
>> specifically through the C sector, and demand shocks are thus
>> amplified (the multiplier). The equation of exchange cannot cater for
>> these effects; it does not explain why MV changes and where the
>> changes fade away to result in a new equilibrium of MV (and thus PY).
>> Those who think in terms of the quantity equation soon become ‘new
>> Keynesians’ who see output fluctuations in terms of generic stickiness
>> in prices in the face of demand shocks. More muscular Keynesianism
>> looks to the key role of interest rates as failing to ensure steady
>> equilibrium at Y* (target capacity utilisation).
>>
>> Bruce L
>>
>> *From:*Societies for the History of Economics [mailto:[log in to unmask]]
>> *On Behalf Of *[log in to unmask]
>> *Sent:* Friday, 11 September 2015 11:31 PM
>> *To:* [log in to unmask]
>> *Subject:* Re: [SHOE] Fwd: origins of Y=C+I+G+(X-M)
>>
>> As a matter of theory, it is I think important to see the expression
>> as an evolution from the quantity equation.  One of the steps,
>> emphasized by Hansen as early as 1927 in Business Cycle Theory, Its
>> Development and Present Status, was Aftalion, see pp. 100-101 in my
>> book Money Interest and Public Interest.  "Aftalion summarized his
>> theory in the equation R = PQ, where R is money income, P the price
>> level, and Q real income.  In this equation, the nominal value of real
>> output (PQ) is related directly to money income (R) rather than to the
>> quantity of money times the velocity of money (MV), as was customary
>> in the tradition of the quantity theory of money."
>>
>> Subsequently, I would also emphasize the importance of the development
>> of national income accounts, which treat your equation as a
>> definition.  Keynes (1940 "How to Pay for the War" was an early use of
>> the new national income accounting framework.
>>
>> Perry
>>
>> ------------------------------------------------------------------------
>>
>> *From: *"Stephen Marglin" <[log in to unmask]
>> <mailto:[log in to unmask]>>
>> *To: *"SHOE" <[log in to unmask] <mailto:[log in to unmask]>>
>> *Sent: *Tuesday, September 8, 2015 9:57:46 AM
>> *Subject: *Re: [SHOE] Fwd: origins of Y=C+I+G+(X-M)
>>
>> Samuelson deals with the closed economy version Y = C + I (that is,
>> without G and X-M) in “Stability of Equilibrium,” /Econometrica,
>> /1941, pp 113ff.  “Fiscal Policy and Income Determination,” /QJE/,
>> 1942,//has the formula Y = C + E, where E is the sum of private
>> investment and government expenditure, in a footnote on p 584. Steve
>> Marglin
>>
>> *From:*Societies for the History of Economics [mailto:[log in to unmask]]
>> *On Behalf Of *Steve Kates
>> *Sent:* Monday, September 07, 2015 8:10 PM
>> *To:* [log in to unmask] <mailto:[log in to unmask]>
>> *Subject:* [SHOE] Fwd: origins of Y=C+I+G+(X-M)
>>
>> I was wondering whether anyone could help me here. The farthest back I
>> can trace the use of the basic macro expression Y=C+I+G+(X-M) - now
>> usually rendered Y=C+I+G+NX - is to Samuelson's 1948 text. In the
>> /General Theory/ there is D=D1+D2 (p: 28), which is later turned into
>> Y=C+I in the work of others before 1948. But so far as that full
>> equation goes, I am wondering whether it has an earlier pre-Samuelson
>> provenance. I would be most grateful for any assistance.
>>
>> --
>>
>>
>> Dr Steven Kates
>> Associate Professor
>>
>> School of Economics, Finance
>>      and Marketing
>> RMIT University
>> Building 80
>>
>> Level 11 / 445 Swanston Street
>> Melbourne Vic 3000
>>
>> Phone: (03) 9925 5878
>> Mobile: 042 7297 529
>>
>>
>>
>> --
>>
>>
>> Dr Steven Kates
>> Associate Professor
>>
>> School of Economics, Finance
>>      and Marketing
>> RMIT University
>> Building 80
>>
>> Level 11 / 445 Swanston Street
>> Melbourne Vic 3000
>>
>> Phone: (03) 9925 5878
>> Mobile: 042 7297 529
>>
>>
>>
>> --
>>
>>
>> Dr Steven Kates
>> Associate Professor
>>
>> School of Economics, Finance
>>      and Marketing
>> RMIT University
>> Building 80
>>
>> Level 11 / 445 Swanston Street
>> Melbourne Vic 3000
>>
>> Phone: (03) 9925 5878
>> Mobile: 042 7297 529
>>
>
> --
> James C.W. Ahiakpor, Ph.D.
> Professor
> Department of Economics
> California State University, East Bay
> Hayward, CA 94542
> 510-885-3137
> 510-885-7175 (Fax; Not Private)


--
James C.W. Ahiakpor, Ph.D.
Professor
Department of Economics
California State University, East Bay
Hayward, CA 94542
510-885-3137
510-885-7175 (Fax; Not Private)

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