----- Forwarded Message -----
From: Michael Hudson <[email protected]>
To: [email protected]
Sent: Saturday, 28 July 2012, 14:53
Subject: Re: [gang8] Quantity Theory of Credit
Great, Richard. Just what Sir James Steuart said in 1767. Hume also admitted
these points in his correspondence with Oswald and others.
Michael
On 7/28/12 1:49 AM, "Prof. Richard Werner" <[email protected]> wrote:
>
>
>
>
>Sorry, I should have said
>
>Hi Gunnar!
>
>Also, for sake of completion, further elements of my Quantity Theory of Credit:
>
>Distinguish between
>productive credit creation: Cr that is used for investment or productivity
>enhancement
>consumptive credit creation (Cr used for consumption) and
>speculative credit creation (Cf)
>
>
>Effect:
>productive credit creation: growth without inflation
>consumptive credit creation: inflation without growth
>speculative credit creation: asset price inflation, always unsustainable;
>followed by non-performing assets in banking sector (if large enough: banking
>crisis)
>
>Developing countries should use credit created from domestic banking system
>(banks plus central bank) to foster growth, and focus on credit for productive
>use, restrict credit for consumption and for speculative purposes.
>Central banks should use their ‘guidance’ of bank credit to control total
>credit creation and its efficient allocation.
>Credit guidance is the most successful tool in preventing banking crises and
>delivering high, non-inflationary growth.
>Developing countries should not borrow from abroad.
>
>Regards,
>Richard
>
>
>From: [email protected] [mailto:[email protected]] On Behalf Of Prof.
>Richard Werner
>Sent: 28 July 2012 06:41
>To: [email protected]
>Subject: RE: [gang8] The American Monetary Institute's views on monetary issues
>
>
>
>Hi Arno,
>
>Am a bit surprised by your comments. I thought we have had a consensus on
>these matters…?
>
>
>Werner’s Quantity Theory of Credit:
>
>Consider money used for transactions.
>
>All that money is credit and can best be measured by credit data.
>
>Hence the old textbook MV=PT, which is nicer to write I think as MV=PQ
>becomes
>
>CV=PQ
>
>Now we need to separate credit money used for GDP transactions and credit
>money used for non-GDP transactions:
>
>C = Cr + Cf
>
>Cr Vr = Pr Qr
>Cf Vf = Pf Qf
>
>Whereby we can approximate PrQr with nominal GDP.
>
>Add to this the recognition that there is unlimited demand for credit, and
>hence the credit market is perpetually rationed and supply-determined, and you
>also have the direction of causation.
>
>My simple quantity theory of credit explains everything we need to explain:
>economic growth, cycles, asset price booms, banking crises, how to get out of
>banking crises etc.
>
>As to the definition of credit, it includes all forms of credit money, which
>can in principle also include government-issued money, but sadly we don’t get
>much of that these days.
>
>I am not sure talking too much about precious metal money, and a 100% gold
>standard, is useful, as there is no evidence that such a monetary system has
>ever existed for any significant amount of time.
>
>I should look at Stephen’s argument, but am also surprised by the claim that
>Innes actually succeeded in informing anyone about money being credit –
>clearly this was a view largely ignored until today. I certainly had not come
>across Innes in my research on monetary systems in Japan and Germany, as,
>unlike other relevant authors, he did not seem to have been widely read there.
>
>Surprised you seem to want to measure ‘money’ using things like M2.
>Traditional measures of the money supply, such as the M-aggregates, are not
>money supply measures but savings supply measures, as I have long argued.
>
>Regards,
>Richard
>
>
>From: [email protected] [mailto:[email protected]] On Behalf Of Gunnar
>Tomasson
>Sent: 26 July 2012 20:45
>To: [email protected]
>Subject: [gang8] The American Monetary Institute's views on monetary issues
>
>
>
>Dear Gang.
>Stephen Zarlenga’s comments of yesterday’s date to Arno –
>In the meantime, I'm presenting a paper at our conference on how A. Mitchell
>Innes has misled the economics profession, back at the founding of the FED,
>into regarding money as credit. In googling for that theme I found a Gang 8
>post on it, and thought I'd ask if you could post my paper on Innes onto the
>Gang 8? I've attached the paper, in case you can do it. I think it may be
>controversial there, but many people would like it.
>
>– led me to reflect – and think out aloud – on the AMI views on monetary
>issues as summarized on Wikipedia:
>
>The American Monetary Institute is a non-profit charitable trust established
>by Stephen Zarlenga in 1996 for the "independent study of monetary history,
>theory and reform."
>The institute is dedicated to monetary reform and advocates taking control of
>the monetary system out of the hands of banks and placing it into the hands of
>the US Treasury. Zarlenga argues that this would mean money would be issued by
>government interest free and spent into circulation to promote the general
>welfare, and that substantial expenditures on infrastructure, including human
>infrastructure (education and health care) would become the predominant method
>of putting new money into circulation.
>Research results are published in Zarlenga's 736 page book, The Lost Science
>of Money.
>This book asserts that money did not emerge from barter between individuals,
>but rather through trade between tribes and as part of religious worship and
>sacrifice. Though this is not the mainstream view, there are other scholars of
>money, such as Keith Hart, who agree that money developed in this way. The
>reason this distinction is believed to be important is because, according to
>Zarlenga, it is the definition of money which determines how the public will
>allow the money supply to be controlled. If money is a commodity to be traded,
>then all that matters is that the money is 100% backed by some commodity, like
>gold or silver for example. If money is credit, then it makes sense that
>bankers control it, as they do in the United States today. But if money is an
>artifact of law, whose value is derived from law (payment of taxes and legal
>tender laws) then Zarlenga argues it would only be proper for the government
>to issue, and control the money supply.
According to Zarlenga, it is this last definition that is supported by the
history and nature of money. Government-controlled money is also postulated to
be more stable than credit money or commodity money.
>Coins have been claimed to represent an advance over weighing out precious
>metals with a fixed amount of precious metal being stamped so they need not be
>weighed and could be exchanged more conveniently than lumps of metal which
>needed to be weighed[3]
><http://en.wikipedia.org/wiki/American_Monetary_Institute#cite_note-2> .
>However, Zarlenga emphasises the ratio of gold to silver in ancient coinage,
>and asserts that the variability in this ratio was crucial to understanding
>trade in the ancient world, the fall of the Roman Empire, and the drive behind
>the Crusades.
>
>My reflections and comments.
>
>I. Three alternative views of money
>
>1. Commodity money – backed 100% by some commodity, e.g. gold or silver.
>
>2. Credit money – makes sense for bankers to control it.
>
>3. Artifact of law money – proper for government to issue and control the
>money supply.
>
>***
>
>II. Macroeconomic balance-sheet view of money – Dirk Bezemer
>
>…you need to think about balance sheets – which macroeconomics almost forbids
>one to do.
>
>Nothing more intricate is involved than the accounting equality that the
>financial sector’s assets are the real sector’s liabilities.
>
>***
>
>III. Implications of Macroeconomic balance-sheet view of money
>
>a. Bank credit is part – but not the whole – of the financial sector’s assets.
>
>b. Bank loans are part - but not the whole – of the real sector’s liabilities.
>
>c. Money supply is part – but not the whole – of the financial sector‘s
>liabilities.
>
>d. Money supply is part – but not the whole – of the real sector‘s financial
>assets.
>
>e. All financial sector assets are the non-financial/real sector‘s liabilities.
>
>f. All financial sector liabilities are the non-financial/real sector‘s assets.
>
>***
>
>IV. Ratio of M2 to GDP in selected countries
>
>United States = 83
>France = 152
>United Kingdom = 171
>Netherlands = 226
>Japan = 236
>
>See:
>http://data.worldbank.org/indicator/FM.LBL.MQMY.GD.ZS
>
>V. Comments
>
>To control an economy‘s money supply is not to control the assets/liabilities
>of its financial/real sectors.
>
>Hence, US Treasury control money over supply would affect only a part of US
>financial assets/liabilities.
>
>There is no “ideal“ or “normal“ ratio of M2 to GDP.
>
>Hence, there would be no benchmark values of M2/GDP to guide US Treasury
>control over money supply.
>
>Gunnar
>
>
>
>
>
>
>
>
>
>
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