RE: DIVISIONS PERSIST

>
> But the more general point (just repeating my
> earlier argument in ROPE) is that whether private
> sector agents are willing to receive outside money
> in exchange for goods and services is not the end of
> the matter. If I stand outside the Post Office and
> offer people $100 to shake hands with me, I think
> many people will trade. But the fact that they are
> willing to ACCEPT outside money in exchange for this
> service does not mean that they wish to HOLD outside
> money -- in their pockets or portfolios.

At the macro level, it does mean that at the exchange
rate of $100 per handshake the non govt sector is
willing to shake hands to obtain $100 for net savings.
 Relative value may then dictate that
the general price level is 100 times higher than
today, and it may even climb with each handshake,
and at some point the non govt sector may no longer
accept $100 per handshake, etc. but a long as there is
an ongoing tax liability and no easier alternative
to obtain funds needed for tax payment I would
anticiapte continuous handshaking and much higher
prices for all else.

The same
> applies to providers of other labour services under
> an ELR/JG policy. If there are excess money balances
> in the aggregate, in the private sector, as a result
> of the financial mechanism of an ELR/JG policy, how
> will attempts by agents to relieve themselves of
> these excess balances be resolved? And will the
> consequences of that resolution be benign and/or
> desirable?

No doubt that if the JG wage was set at $1000 per hour
the price level would increase accordingly.
However, it would tend to 'stabilize' at that level
for all the reasons given in all the papers which
state the 'price level' is a function of 'prices paid'
by govt. (at the margin) when it spends, etc.

Also note the difference between govt. 'budgeting'
a quantity of $ and conducting all spending at
'market' prices (today's policy), and govt. offering a
fixed JG
wage with quantity spent allowed to 'float' and
the marginal 'value of the currency' being the JG
wage.

>
> In his 20 February communication RW considers a
> situation in which government spending is via the
> creation of bank deposits rather than issuance of
> outside money. This doesn't change any of my above
> reasoning -- except that one must now substitute
> "excess bank deposits" for "excess outside money
> balances" in my earlier arguments. RW's subsequent
> commentary continues to ignore the need to show that
> the sum of the growth outside money and government
> bonds supplied to the private sector is reconciled
> with the private sector's desired holdings
> (including the private banks, if one wishes to treat
> them explicitly).

Market forces dictate it will be reconciled by the
'price level,' as
the non-govt sector needs the govt's funds to pay
taxes and net save.

>
> RW's argument at the end of his 20 February
> commentary, concerning how endogenous mechanisms
> make public deficits "self-limiting" seems to ignore
> the need to treat the stocks of financial assets
> resulting from the flow balances (so it's
> essentially the same problem as stated in my last
> paragraph). So whatever he means by self-correction
> in this context, it cannot be about sustainable
> stocks over time. He concludes that "it is all very
> simple and clear enough that one supposes maths
> would be superfluous".
>
> Well, it's not clear to this simpleton. And it is
> not "maths" that I have asked for. I've asked that a
> substantive issue be addressed in some formal manner
> that might give more transparency to the issues.
> Anyway, if others are sufficiently convinced by the
> character of the arguments presented via this site,
> so be it. I only add, as a final contribution, an
> extension of the somewhat muted conclusion to my
> ROPE piece.
>
> If moving from the sort of unemployment regimes we
> are now used to in contemporary societies, to a
> vigorous full employment policy, must be consistent
> with definite budgetary constraints (deficit to GDP,
> debt to GDP ratios), this shift will probably
> require higher taxes.

As the literature states, if the JG force is deemed
'too large' taxes are 'too high' relative to spending,
and vice versa.

I still conclude there isn't a 'division' of 'monetary
thought,'
though there may be a division on the general
understanding of how markets function.

Warren Mosler

===http://www.mosler.org
      http://www.moslerauto.com

Primary email contact: wmosler@mosler.org

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Received on Thu Mar 6 20:40:58 2003