tag:blogger.com,1999:blog-2277215496195926573.post3465186061563334392..comments2024-01-01T07:41:51.347-08:00Comments on RALPHONOMICS: Malcolm Sawyer’s flawed criticisms of full reserve banking.Ralph Musgravehttp://www.blogger.com/profile/09443857766263185665noreply@blogger.comBlogger6125tag:blogger.com,1999:blog-2277215496195926573.post-88603023642716994652016-05-24T00:19:35.464-07:002016-05-24T00:19:35.464-07:00“Like Friedman, PM say they want to run the econom...“Like Friedman, PM say they want to run the economy by controlling the money supply.”<br /><br />I dealt with that criticism above. But to repeat, nowhere in PM literature will you find the claim that (a la Friedman) there should be a SPECIFIC money supply TARGET. The target is full employment, with government aiming to print and spend enough new money each year to attain that target.<br /><br />Moreover, the idea that the quantity of money (base money to be exact) has an effect is hardly in dispute: you may have noticed that we’ve had a massive increase in the amount of base money thanks to QE. And I’m not suggesting QE is a particularly good counter recessionary tool, but it does have SOME effect. Why did Zimbabwe experience hyper-inflation? Because Mugabe printed too much money, unless I’m much mistaken.<br /><br />Re your point No.2, I think you’re right (on second thoughts). I.e. the ban on private money destroys one transmission mechanism for interest rate adjustments, but doesn’t make those adjustments totally ineffective. Bit technical, that.<br /><br />However, I still don’t think interest rate adjustments are a good way of regulating demand. Reason is that given a need for more demand, there is no obvious reason to increase it just via more borrowing, lending and investment, as opposed to more spending on ice-cream, whiskey, education, you name it.<br /><br />3. You’re back to claiming PM’s central aim is to control the money supply a la Friedman. I repeat: where do they say that?<br /><br /><br />Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-2277215496195926573.post-27660476946221939242016-05-23T00:18:14.574-07:002016-05-23T00:18:14.574-07:001. As many commentators have noted, PM’s ideas sti...1. As many commentators have noted, PM’s ideas stink of Friedman type monetarism, or something very similar.<br />Like Friedman, PM say they want to run the economy by controlling the money supply.<br />They propose that "interest rates be set by market forces". This implies that monetary policy would focus on the quantity of money, rather than the cost of borrowing (interest rates).<br />Presumably this is why PM propose a new "Money Creation Committee" of "experts" at the BoE.<br />As the name suggests, this would set quantity of money targets instead of interest rates.<br /><br />2. Under FRB deposit taking banks would obviously no longer make loans. But, contrary to what you say, this is not a problem. The BoE could still set interest rates through open market operations in government securities. Interest rates on government issued securities, together with rates for international capital, would influence lending rates from investment banks to private businesses and individuals. No problem here. <br />So PM & Co were certainly not "FORCED" to think up a "new alternative method of implementing stimulus", except by their own misunderstanding of FRB. <br /><br />3. Contrary to your claims, PM did not think up any "new alternative method of implementing stimulus". PM's primary idea seems to be control of the money supply, which was borrowed from Friedman, Fisher and other monetarists . <br />However, as you mention, PM also claim that they have new ideas of "having the state print and spend money (and/or cut taxes) in whatever amount is needed to achieve the full employment target". These latter ideas are difficult to reconcile with the proposed control of the money supply. Moreover, these latter ideas are merely plagiarised from Keynes, Lerner, other Post-Keynesians, MMT etc., without any refinements or improvements by PM.<br /><br />What a pity that the real case for FRB is confused by all these macro-economic muddles.KongKinghttps://www.blogger.com/profile/10992633301481631373noreply@blogger.comtag:blogger.com,1999:blog-2277215496195926573.post-65132459297128856522016-05-22T06:49:16.561-07:002016-05-22T06:49:16.561-07:00KK,
You say “This focus on discredited monetarist...KK,<br /><br />You say “This focus on discredited monetarist policies is unnecessary….”. Yes, I agree. But it’s Sawyer (and indeed Ann Pettifor) who try to link Pos Money, or more generally FRB with monetarism. <br /><br />However, as I tried to show in the above article, PM’s ideas do not rely on Friedman type monetarism, and nowhere in PM’s literature do they say anything like “we’re big fans of Friedman and his wonderful monetarist ideas”.<br /><br />Next, you say “the BoE could continue the set and pursue a target interest rate as today…”. I think a problem there is that interest rate adjustments work VIA the “private bank money issuing” system. That is, if the BoE cuts interest rates, private banks then create some extra money and lend it out. But that clashes with the fact that PM opposes privately created money, and indeed private money does not exist under FRB.<br /><br />So it strikes me that PM (and indeed the New Economics Foundation and Richard Werner) are right to think up some alternative method of implementing stimulus: they’re actually FORCED TO. <br /><br />Re your final few words, I don’t agree that PM & Co advocate a “target” for the money supply. Their target is simply full employment, and to achieve that, they advocate having the state print and spend money (and/or cut taxes) in whatever amount is needed to achieve the full employment target. That is entirely consistent with Keynes’s famous phrase, “Look after employment, and the budget will look after itself”.<br /><br />Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-2277215496195926573.post-23963178813151012992016-05-22T06:22:14.645-07:002016-05-22T06:22:14.645-07:00I just had a quick skim thru that article, and thu...I just had a quick skim thru that article, and thus may be doing the author an injustice, but I don’t think he’s got the distinction between private bank issued money and central bank issued money. As MMTers and Positive Money keep pointing out, the former nets to nothing, in that for every $ of money, there’s a $ of debt . In contrast, CB money is a NET ASSET as viewed by the private sector. <br /><br />That article just deals with privately issued money, and what he says may be right. However, Friedman advocated an annual increase in CB issued money (base money). That’s a different kettle of fish.<br />Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-2277215496195926573.post-33945330262826548152016-05-22T02:53:34.768-07:002016-05-22T02:53:34.768-07:00Sawyer's paper does indeed degenerate into a m...Sawyer's paper does indeed degenerate into a muddle about monetarism. However, he has some excuse for these confusions.<br /><br />It is very unfortunate that several advocates of Full Reserve banking (FRB) have linked FRB to control of the money supply. The worst examples are Friedman in 1948 and Positive Money (PM) in the 2010 paper referenced in Ralph's article above.<br /><br />Friedman advocated FRB as a key part of his proposals for control of money supply. He claimed that increasing the money supply at a steady rate could achieve stable economic growth without inflation.<br /><br />Similarly, PM argues that:<br /> -- "the Bank of England would still be aiming to meet a pre-determined inflation target"<br /> -- "A Stable Money Supply Leads to a Stable Economy"<br />-- "the Bank of England would be able to directly control the quantity of money in circulation". <br />--"the central bank could allow interest rates to be set by market forces."<br />Moreover, going beyond Friedman, PM argue that a new Bank of England "Money Creation Committee" should be instituted to fix the money supply.<br /><br />This focus on discredited monetarist policies is unnecessary and detracts from the primary purpose of FRB. In my view, the primary aim of FRB is to improve the stability of the banking system without any need for state assistance (subsidies) such as deposit insurance, lender-of-last resort facilities and bail-outs.<br /><br />FRB could be implemented much more simply and without raising irrelevant bitter controversies about monetarist macroeconomics if there were:<br />-- No change in institutional/constitutional relationships between the BoE, Government and Parliament regarding the determination of fiscal policy. PM's proposal for a "Money Creation Committee" is irrelevant to the case for FRB.<br />-- The ideas of Friedman and PM on controlling the money supply should be rejected. FRB requires no radical change in the conduct of monetary and fiscal policies. <br />In particular, the BoE could continue the set and pursue a target interest rate as today, WITHOUT ANY TARGET FOR THE MONEY SUPPLY. <br />KongKinghttps://www.blogger.com/profile/10992633301481631373noreply@blogger.comtag:blogger.com,1999:blog-2277215496195926573.post-36697496315542933152016-05-22T02:29:59.999-07:002016-05-22T02:29:59.999-07:00Hello Ralph.
"The next three or four pages o...Hello Ralph.<br /><br />"The next three or four pages of Sawyer’s paper are then devoted to attacking monetarism."<br /><br />Have you seen this?<br /><br />http://www.forbes.com/sites/johntharvey/2011/05/14/money-growth-does-not-cause-inflation/#6abbe308a69b<br /><br />Postkeyhttps://www.blogger.com/profile/11747509012748106827noreply@blogger.com