baba@spar.UUCP (Baba ROM DOS) (03/04/85)
Quoth DKMcK: > What I said was > > dP/P = dM/M + df/df - dT/T > > Obviously, if > > dM/M + df/f is less-than or equal-to dT/T > > then dP/P will be less than or equal to 0. (For those of you who haven't been taking notes on Dan'l's previous postings, P is the price level, M is the money supply, f is the frequency of transaction, and T is the aggregate "real" value of transactions.) Then equally obviously, if dP/P = 0 then any increase in dM/M *or* df/f, *or* any decrease in dT/T will cause a positive dP/P. > Obviously, if > > dT/T > df/f > > > given the growth-rate of a regulated economy, then expectations of price > increases must come from dM/M. Yes, but you've never demonstrated the premise. I have never been shown that dT/T and df/f maintain any sort of constant relationship within an economic system. My limited awareness of such matters is that the damnedest fluctuations in both do occur. In fact, you later write: > The kind of pressures that you name, which are supply-shock pressures, > could hypothetically, I will admit, bring-on one-shot increases in the > price-level. Please explain what it is that makes these increases intrinsically any more "one-shot" than an expansion of the money supply. I thought it was generally accepted that a non-trivial portion of the global inflation that occurred in the '73-'75 time frame could be directly attributed to the first of the oil shocks. You also write: > Actually, there have been repeated demonstrations that frequency-boost > increases in the price level are not self-perpetuating. For example, the > Weimar hyper-inflation was brought to a halt by introducing (and declaring) > a monetary-growth ceiling (later rescinded by Hitler). Again, there must be some mechanism at work that you have not explained if the expectations brought on by rises in P due to increases in f will not have the same effect as those brought on by increases in M. On the basis of your own assertions, it would appear that price increases are only inflationary when brought about by increases in M, and thus that "dP/P = dM/M + df/f - dT/T" is an erroneous model with which to prove anything about inflation (or Hitler). And that is how I failed to see the ellipsis in your original article as the forward-reference in your chain of proof (you're not supposed to do that, you know) that you have now explained it to be. It makes no sense to say that there will be no inflationary expectations because money will be denationalized when you have just pointed out two factors apart from the money supply that distort price levels, unless you know a priori that those other factors are negligible. Lacking such knowledge, I quoted you out of context because I saw no contextual relationship. >>> That the money-supply >>>would be denationalized follows from Libertarian principle (another non- >>>vacuous tautology). That, given a choice, people will choose money which >>>is most servicable is obvious, and money which holds a fixed value is the >>>most servicable (which is why I have argued elsewhere that a gold standard >>>would not persist in a Free Economy). >> >>The likelyhood (though hardly tautological) that people will choose the >>least inflating (or better still, fastest deflating!) currency to transact >>in does not of itself imply that they will always have a good choice >>available to them. > >First, I didn't claim that THAT was tautological. Not that it matters, but what was? > Second, a money which >declines in value presents problems, and would be bargained away given an >alternative. (Irrelevant to my argument, but included to preclude accusations of omission) > Third, the absence of legal tender laws DOES imply that there >will be a good choice of monies available (this has, in part, already been >achieved by indexing!). This, then, is the core of your argument. As you later put it: > What would evolve (in the absence of legal >tender laws) would be monies which had a growth-rate such that dM/M would >be approximately equal to dT/T - df/f. What are the mechanisms for this evolution? I'm no economist (and becoming proud of it), but I always thought that Gresham's Law (I'm sure you know the correct spelling) was the observation that bad money drives good money out of the marketplace. You seem to be assuming that the reverse will happen. > Recurring major supply-shocks (from >where?) could bring on recurring episodes of price-increases, but there >would be no mechanism for recurring episodes of price-decreases (even >assuming that a good faerie repeatedly came and increased the GNP, the >issuers of monies would be able to off-set the effects on the price-level >by expanding the money-supply in accordance with a constant price-level). Who will these issuers of monies be? On what information will they base their expansions of the money supply? What will enable them to do a better job than today's central bankers? Biotechnology ;-) ? B'ba