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Date: | Fri May 5 17:03:32 2006 |
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Pat Gunning still clings to the Keynesian myth that the state of
unemployment has anything to do with whether changes in the supply of
money (H = currency) relative to its demand affect the price level.
Thus, he writes: "Richard, I believe, is making the logically (or
mathematically) correct point that, with unemployment, an exogenous
increase in the quantity of money which causes a subsequent increase in
aggregate demand need not cause an increase in prices. It depends on
whether there are idle resources."
In the first place, the claim is not mathematically correct. Verify
that from the price level equation: P = H/ky. (By the way, Lipsey
didn't mention the quantity of money in his posts. He talked about
increases in nominal income.)
Second, look around the world. Is it only in countries where there is
"full employment" that increases in the quantity of money are associated
with increases in prices? All the data I have seen show otherwise.
It's about time we gave up on the Keynesian myth, I repeat.
James Ahiakpor
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