In the last post, we postulated a money creation event and then lightly explored responses from decision makers who had two different theories of money positioned in their minds. Disruptions to otherwise stable work patterns and resource allocations were found. Here we focus more carefully on the financial and economic forces at work when money is created.
Thursday, April 22, 2021
Saturday, April 10, 2021
The essay "Hard Money, Soft Money, and Economic Ontologies" described the differences between hard physical money and soft ethereal money in a very general way. It then went on to build on the concept that trade between ontologies depends upon physical money. Here we will use a model to demonstrate why this might be correct and add some reservations related to valuation over time periods.
We will build the model by using what might (at first) be considered a two sector model. To dismiss the model as a simple two sector economic presentation would be to miss the essence of the concepts presented. This model is about two ways of economic thinking driven by two different circumstances positioned in the minds of decision makers in each of two ontologies. We use the word ontology in place of 'sectors' to emphasize that the two groupings have, for good reasons, different time-related concepts of 'money'.
Wednesday, March 31, 2021
V. Ramanan gave my thinking quite a boost when he posted his comments on a recent critique of "neochartalism by Costas Lapavitsas and Nicolás Aguila at the Developing Economics blog titled Monetary Policy Is Ultimately Based On A Theory Of Money: A Marxist Critique Of MMT."
Ramanan's contribution to my thinking revolved around the idea that the international acceptance of currencies does not fit into a soft currency framework. This realization fits perfectly with my earlier thinking that society functions systematically with the private economy operating under a hard, Physical Money constraint at the same time that the government sector acts out a soft, Ethereal Money existence. As both Ramanan and C.L. with N.A. point out, international trade also functions systematically under a Physical Money constraint.
It turns out that this realization is an important part of building a better understanding of the effects we might expect as MMT style fiscal policies come to be practiced more vigorously around the world.