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

From: Rakesh Bhandari (bhandari@BERKELEY.EDU)
Date: Sun Nov 21 2004 - 20:33:21 EST

At 2:08 PM -0500 11/19/04, Allin Cottrell wrote:
>On Fri, 19 Nov 2004, Rakesh Bhandari wrote:
>>At 10:04 AM -0500 11/19/04, Fred Moseley wrote:
>>>I have the same  question:  what grounds do we have for supposing that
>>>the price/labor-time ratio for that particular basket of commodities
>>>determines the MELT?
>>First, note that I am specifying a determinant for quantity of money
>>in circulation.
>Your specification is just: the quantity of money in circulation is
>determined by the policy of the Federal Reserve system, which is not
>exactly news to anyone.

That's not what I was asking and you know it : what determines the
money put in circulation by the Fed or on what basis does the Fed
attempt to regulate the  money in circulation? When does Goldspan
pump, when does he drain liquidity from the system? I gave the
example of Greenspan now trying to drain liquidity from the system as
the dollar price of gold has risen to $430, though the economy
remains weak with a lot of idle cash.

You have said that Greenspan inflation targets, but this is not--I
believe--true. Think here of the controversial 1994 interest rate
hikes which seem to have been occasioned by gold targetting, not
inflation price targetting in general. Again I don't have hard
evidence for this but Randall Wray's reading of the Fed transcripts
suggested that this is what happened.

>>For example, Greenspan will now drain liquidity from the economy
>>in order to bring the dollar price of the basket of commodities
>If that happens to imply CPI deflation, I don't believe it.

Well again this is why I think the standard was modified beyond gold
to a basket.
It is also possible that in a certain situation Greenspan would
calculate that CPI deflation is the least worse outcome. We have seen
the BOJ allow deflation.
I am not clear why you think Goldspan would not countenance deflation
at all. In a way, he allowed allowed for deflationary ravaging of
wages. Deflation could benefit bigger firms over smaller ones; it
could force technological upgrading so that firms may reduce costs
faster than prices are falling, and technological upgrading would
benefit  what Galbraith calls K class firms, ie knowledge intensive
capital goods. Big capital, technological monopolies could, in short,
benefit from a mild deflationary environment. In the WSJ a couple of
years ago Wayne Angell came close to saying this.



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