[OPE-L:2028] Re: [MIKE WILLIAMS] electronic money

Duncan K Foley (dkf2@columbia.edu)
Mon, 29 Apr 1996 08:47:20 -0700

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On Sun, 28 Apr 1996 Steve.Keen@unsw.EDU.AU wrote:

> Sorry about the "empty" reply; hit the wrong key!
> Duncan comments that:
> |I think the formulation "a pure credit system is quite possible, in 'pure
> |theory', even without convertibility" is doubtful. What is possible in
> |pure theory is a credit system that operates with a zero or vanishing
> |reserve, due to the possibility of clearing.
> I recently undertook that "pure theory" exercise, in an attempt to put
> Minsky's "Financial Instability Hypothesis" into a multi-sectoral
> framework. The system was a circulating capital only, no technical change,
> no population growth, no stocks, three class model (workers, bankers,
> capitalists) with multiple commodities and hence input-output relations.
> One of the side effects of this endeavour was the result that bankers'
> hoards, while being determined by the system, did not themselves
> determine anything else in the system. It was quite possible to commence
> with zero or even negative hoards, or to have negative hoards develop,
> without affecting the economy itself one zot.

As you describe it, I don't see how your model addresses the problem of
the valuation of the bank liabilities. Did you implicitly assume a
constant price level? In fact, your model sounds as though it is an
example of a credit system operating with a given value of bank
liabilities in terms of commodities, where the bank reserves are
absorbing the violations of budget constraints in disequilibrium.