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)