me:
>> it's true that saving (and other "leakages," i.e., the government
>> surplus (when it exists), and the trade deficit = capital inflow) pump
>> spending power into financial markets. But most of the trades in
>> financial markets involve selling of old (pre-owned) securities and
>> equities (or money) to buy new ones. Financial markets mostly involve
>> buying and selling stock magnitudes, not flow magnitudes.
John Vertegaal says:
> The first issue at hand is one of solvency, or possible clearance of the
> market in real terms; for the purpose of maintaining (or if adequate natural
> resources allow for this, augmenting) our standard of living. Then, the
> agreement that a necessary condition for the market to clear, is either a
> stop of, or replenishment for, leakages from the process. The underlying
> problem of our discussion though, is your unstated assumption (axiom), that
> a stock magnitude has a determinate value, and an agglomeration of those
> values depicts a solvency situation ex ante.
I don't quite get the drift of what you're saying. I wasn't talking
about solvency but about the need to maintain the distinction between
"real goods & services inflation or deflation" and "asset-price
inflation or deflation." Market clearing does not seem to be a
necessary topic in that discussion.
If a stock magnitude can be sold, then it has a determinate price on
the market. As far as capitalism is concerned, that's its value.
> Once one agrees however, that a stock without a return is valueless, and I
> don't think anyone can disagree with that, you at least don't seem to do so
> when you say "that financial assets are, strictly speaking, nothing but
> claims on real goods and services (now and in the future)"; there is no
> other way to *determine* the value of a stock but through a flow.
right, but the value of the stock is conceptually separate from the flow.
> So, in
> order to be consistent: up until that flow has taken place, all stock
> magnitudes are indeterminate.
before the flow has taken place, the value all stock magnitudes are
based on _expected_ flows. Those expectations may or may not
correspond with actual flows, but there should be _some_ sort of
connection.
> It is not such a big deal that all economic
> equity signifies an unresolved debt, for that's the meaning of a _claim_;
> or, at least there is no reason for it to be disconcerting to those with a
> social conscience.
in economics, "equity" refers to net worth, one's capital. It does not
correspond to debt. If I own stock in Microsoft, it's like I'm a
partner in the business. It's not that they owe me money in a
contractual sense, even though I may expect and hope to be paid
dividends and/or capital gains. My stock represents a claim on their
property (software, etc.) but it's different from a debt claim.
John had said:
>>> i.e. the supplement from outside the current income circuit, to
>>> maintain a wages=prices identity; according to Keynes's prescription to
>>> sustain full employment?
me:
>> I have never heard of any wages=prices identity. Please tell me about
>> it.
> You don't have to take my (non-economist) word for it. Here is a quote from
> a recent EconoSpeak blog entry:
here, Peter Dorman is saying that a wage are a type of price. That
makes total sense to me. But that's not an _identity_ of wages with
prices, since not all prices are wages.
>> The way I understand economics, the identity would instead be
>> prices = wages + property income + indirect taxes.
John:
> But your understanding of economics is a non-circuitist approach.
I don't know what circuitism is, so I don't know what "non-circuitism"
means. It sounds like a disease.
>The above
> linear equation rests on the assumption that it is possible to independently
> determine, at any point in time, the value of all of those factors. No?
no. It's an accounting definition for any specific point in time. It's
not a linear equation as much as an identity. I thought you were
talking about identities.
>> And what specific prescription of Keynes are you referring to?
John:
> Insufficient purchasing power is to be augmented with newly created income.
> Keynes thought that this process, as represented by increased investment in
> the capital goods industry, restores equilibrium....
by equilibrium, you mean full-employment equilibrium? Because Keynes
posited that equilibrium could be below full employment.
Most macroeconomists would agree that increasing investment in a
below-full-employment economy would move in the direction of full
employment. But there are other ways of doing so.
John had said:
>>> An exercised claim from inflated disinvested
>>> assets means an excess of available purchasing power for existing real
>>> goods
>>> and services.
me:
>> if you sell an asset (disinvest from it), you can use the cash to buy
>> another asset, including used physical assets (like most housing).
>> That's what day-traders and their kin are doing all the time.
John, now:
> Yes, but it does not necessarily depict an overall solvency of both domains
> in terms of the current pricelevel. As I see it, one of the many economists'
> tasks is to point out the why of billion dollar losses in these so-called
> equity markets; which cannot be be done when such values are considered to
> be determinate at the time of their creation and a solid base from which to
> proceed.
bringing in solvency seems to be changing the subject. What is your
topic? what are you arguing for or against? Can you summarize your
perspective in a small number of points?
John had said:
>>> There has to be at least a lagged but direct effect on the
>>> latter's prices. If so, I fail to see the logic of conceptually
>>> separating
>>> these two domains, as subject to both inflation and deflation; for that's
>>> exactly where the "double counting" would come in.
me:
>> there's definitely a connection between the (newly-produced) goods &
>> services markets and the asset markets. But the nature of this
>> connection is best understood if we first avoid conflating the two
>> sets of markets.
John, now:
> The two are too interrelated in terms of resolving flow and consequent value
> determination to be able to be looked at separately.
huh?
>> when asset markets have gone up (during the late 1990s & early-to-mid
>> 2000s in the US), the increased wealth seems to have allowed increased
>> borrowing (using assets as collateral) and spending. This is the
>> "wealth effect" of macroeconomics. To the extent that people use paper
>> values of assets (rather than something more fundamental) and
>> over-leverage, this spells trouble, of course.
John:
> This spells trouble indeed, but as I see it "of course" doesn't cut it as an
> explanation.
that's an irritating habit, i.e., criticizing someone's use of
short-hand ("of course") as if it were somehow a fundamental
proposition (something that needs "explanation").
> The critical point is under what circumstances does debt get
> resolved, and regardless of your criterion for fundamentality, all financial
> assets including money represent claims or a systematic debt.
you need to define your terms. What is "fundamentality"? what is
"systematic debt"?
> There is no
> such thing as _net_ equity, or a stock of surplus value from which to draw;
surplus-value is a flow variable and I don't know what "net equity" is.
> only resolvable debt, given that a return in terms of augmented living
> standard is sought.
what in hell is "resolvable debt"? _who_ is seeking "augmented living
standard"? and what is that?
> If already satiated and that's not what they're after;
> screw the bastards and confiscate through taxes/fees, because that kind of
> activity has only negative consequences in terms of full employment and
> attainable living standard for everyone else.
I'm sorry, but you're speaking a language I don't know.
--
Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own
way and let people talk.) -- Karl, paraphrasing Dante.
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