Re: (OPE-L) recent references on 'problem' of money commodity?

From: Fred Moseley (fmoseley@MTHOLYOKE.EDU)
Date: Wed Nov 24 2004 - 18:02:50 EST

On Sun, 21 Nov 2004, Rakesh Bhandari wrote:

> >Rakesh,
> >
> >Precisely how does the MELT follow?
> >
> >Determined by the ratio MV / L, or otherwise?
> >
> >Fred
> Fred,
> Let's say your theory of how MELT is determined is correct, that my
> previous attempts to explain how it is determined in a commodity
> index system fails. But in terms of your interpretation we still do
> have to know what regulates Greenspan's determination of the quantity
> of money in circulation. If you treat the quantity of money as an
> exogeneous or independent variable, I don't see how you have broken
> with the quantity theory of money!
>   Do you think I am correct that Greenspan attempts to regulate the
> level of liquidity such that "value of dollar" is constant over the
> medium terms in terms of some composite commodity (xCommodityA,
> ycommodity B and z commodityC)? If so, then we can see that implicit
> in your theory of how the MELT is determined is some linkage between
> money and commodities. I can see why Allin and Jerry don't want to
> call this commodity money or a modified gold standard. But whatever
> we call it we do still have to some theory of what determines the
> quantity of money put in circulation by the Fed.
> Yours, Rakesh

Hi Rakesh,

I agree that we need a theory of what determines the quantity of money,
and that I have not (yet) tried to explain this.

I think this is a complicated question, and the answer will not be
simple.  Your theory of Greenspan's focus on key commodities may have
something to do with the determination of M, although I don't know.
But I don't think that the Fed has complete control over M.  Lapativitsas
has argued that M today depends in part on endogenous factors such as the
rate of capital accumulation.

So I agree that we need to push further on this question of what
determines the quantity of M.  I am just emphasizing for now the EFFECT of
M on the MELT, and hence on the general price level, and I hope I've got
that right.


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