[OPE-L:5317] Re: OPE-L:5136 - Duncan's reply

Hans Ehrbar (ehrbar@marx.econ.utah.edu)
Thu, 3 Jul 1997 11:19:45 -0700 (PDT)

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To answer Duncan's OPE-L 5316:

> One question this raises is how, within Marx's theory, the central bank is
> able to influence prices. In a gold standard system, for example, it can't,
> since money prices are a reflection of gold prices.

A capitalist economy cannot grow without the injection of purchasing
power from the outside, as Duncan has shown in his "Realization and
Accumulation in a Marxian Model of the Circuit of Capital", Journal of
Economic Theory 28, 1982, pp. 300-319. How is this new purchasing
power introduced into the economy? One important source is the
banking system (antevalidation). The Fed endorses the lending
decisions of the private banks by creating the money which the banks
loan out (pseudovalidation). The Fed has some control and can
stem an overextension of credit, which would generate more nominal
purchasing power than there is actual value created in the economy,
and therefore would allow prices to take off. In other words,
monetary policy is an important factor in keeping the "exoteric"
sphere in line with the "esoteric". This seems so simple to me,
that I am probably overlooking something. I am eager to discuss this

Hans Ehrbar.

Hans G. Ehrbar                                    ehrbar@econ.utah.edu
Economics Department                              (801) 581 7797
1645 E. Central Campus Dr. Front                  (801) 581 7481
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