Comments on RWER issue no 80

  1. June 28, 2017 at 6:29 am

    Excellent work Tim and Leonie.

    You’ve brought together more than 200 years of critical thought into one concise paper.

    I’m not aware that that’s ever been done before.

    The Real World thanks you.

  2. June 28, 2017 at 12:33 pm

    Precise and to-the-point. Thank you Professor Huber.

  3. June 30, 2017 at 1:00 pm

    Professor Huber says:

    ““Credit creates deposits” has become a general teaching in post-Keynesianism and circuitism. The opposite of “deposits create credit” no longer applies to the bank-customer relationship in a predominantly cashless money system. … Keynes’ writings are somewhat contradictory in this regard. He endorsed the bankmoney theory in his earlier writings, but fell back on the formula of “investment = savings” in his later General Theory. Under conditions of primary bankmoney creation the formula still applies to secondary credit among nonbanks, no longer, however, to primary bank credit”.

    The beginning of this is helpful, but I’ve argued before (particularly in sad disagreement with Egmont Kakarot-Handtke) that this is a superficial and in fact misleading reading of Keynes’ GT. Keynes goes on to discuss different types of investment and non-use of liquid holdings, and on p.85 concludes the chapter on “the Meaning of Saving and Investment” with

    “The reconciliation of the identity between savings and investment with individual free will depending on saving being, like spending, a two-sided affair. … [Likewise with] the fundamental proposition of monetary theory.

    “Both these propositions follow merely from the fact that there cannot be a buyer without a seller or a seller without a buyer. Though an individual whose transactions are small in relation to the market can safely neglect the fact that demand is not a one-sided transaction, it makes nonsense to neglect it when we come to aggregate demand. This is the vital difference between the theory of the economic behaviour of the aggregate and the theory of the economic behaviour of the individual unit, in which we assume that changes in the individual’s own demand do not affect his income.”

    In short, the argument of the GT is not about definitions of relationships but about what can be seen in a macro view of economics that is being obscured in the old micro view. It still neglects the reality of the pre-existence of surplus but deteriorating real goods whose use and maintenance can be facilitiated by provision of monetary credit.

  4. July 3, 2017 at 12:59 pm

    Jørgen Nørgård & Jin Xue, “From green growth towards a sustainable real economy”.

    The abstract of this succinctly captures a good effort:

    “Taking the simple static equation: I (impact) = P (population) ·A (affluence) ·T (technology) as the point of departure, this paper discusses the delusion of decoupling economic activities from environmental impacts (I) by resorting to simply reducing eco-intensities (T), (i.e. increasing efficiencies) through technological advancement… Overall, it is suggested that given an analysis not confined to monetary terms, but with real cost and real benefits represented by environmental damage and human satisfaction, respectively, sustainability in today’s affluent countries might be achievable at no net cost.”.

    But will measures of evident environmental damage and human satisfaction really help achieve what policy makers don’t care about? Contraception hasn’t contained population growth and the scarcity of affluence has on the whole meant wanting more of it. Is this not missing these crucial points?

    a. Human (and more generally animal) population growth adds to the problem but vegetative population growth subtracts from it. This sadly does not seem to be obvious to city dwellers.

    b. Human population control by self-control adds to human satisfaction but political resort to biological culling by wars and plagues subtracts from it. However, self control of population in dispersed cultures requires knowledge of local targets and prior knowledge of status, and provision of the necessary information channels requires politicians to study not ancient Greece, Rome and Macchiavelli but the PID steering control theory of information science.

    c. Belief that money has positive value as a means of achieving affluence adds to (indeed creates) the problem. However, money is now created by bankers as IOU’s requiring to be paid back in real terms, this either subtracting from affluence and satisfaction or adding to to environmental impact by creating unnecessary work and wasteful technological change. The current belief is therefore wrong, and self-control of our own affluence requires us all to understand money (and goods bought with it) as of negative value, as it is with a credit card debt. This can be effected by withdrawal of debit cards and writing off ownership at death so that even the rich, while enjoying earned riches, can see how much they owe society .

  5. Stefanos
    July 10, 2017 at 3:16 pm

    Comments on
    “The coming revolution in political economy” by
    Tim Di Muzio and Leonie Noble

    Although the money-multiplier model is indeed discredited (no need to argue why in this blog), the reasons stated by the authors are not correct in my assessment.
    Double-entry bookkeeping can work perfectly fine even with this model.
    See following example:

    Assume the household sector (HS) has $100 cash (you can imagine a government sector with $100 liabilities so that all financial assets balance out…).
    Assume 10% reserve requirements (as per institutional requirements or liquidity preference of HS)

    Assets 100 (cash)
    Liabilities 0

    Banking sector
    Assets 0
    Liabilities 0


    Now the money is deposited to the Banking sector (BS) thus the HS is exchanging one asset for another and the BS is creating an asset and a liabilitiy

    Assets 100 (demand deposit–dd)
    Liabilities 0

    Banking sector
    Assets 100 (cash)
    Liabilities 100 (dd)


    Now the BS is rebalancing the assets creating (temporarily) $90 of “loanable funds” (a highly dubious concept indeed!–no need to argue why in this blog…) and keeping 10% reserve.

    Banking sector
    Assets 10 (cash reserves) + 90 (lf)
    Liabilities 100 (dd)


    Now the $90 of lf are loaned to the HS. This means that the HS created equal assets and liabilities (cash/loan) and the BS exchanged an asset for another (lf for loans), resulting in

    Assets 100 (demand deposit–dd) + 90 (cash)
    Liabilities 90 (loans)

    Banking sector
    Assets 10 (cash reserves) + 90 (loans)
    Liabilities 100 (dd)


    and after the HS deposits this extra cash to the BS we get

    Assets 100+90 (demand deposit–dd)
    Liabilities 90 (loans)

    Banking sector
    Assets 10 (cash reserves) + 90 (loans) + 90 (cash)
    Liabilities 100+90 (dd)


    which after rebalancing of the BS we get:

    Banking sector
    Assets 10+9 (cash reserves) + 90 (loans) + 81 (lf)
    Liabilities 100+90 (dd)


    This process continues until the lf become 0 resulting in the final snapshot:

    Assets 1000 (demand deposit–dd)
    Liabilities 900 (loans)

    Banking sector
    Assets 100 (cash reserves) + 900 (loans)
    Liabilities 1000 (dd)


    The double-entry book-keeping works just fine even with the discredited money-multiplier model.
    The model cannot be discredited based on math/accounting principles as the authors suggest.

    Please bear in mind that I am not defending this model at all.

  6. Stefanos
    July 10, 2017 at 3:44 pm

    Comments on
    “The coming revolution in political economy” by
    Tim Di Muzio and Leonie Noble

    1) The “orange juice company” example is misleading:

    Do the authors suggest that the costs for oranges, machines, packaging, utilities, interest does not create additional purchasing power ?
    Eg, the farmers who get $100 for the oranges they sell is not PP for the economy?
    A precise argument would require to consider a closed (dynamic) economy…

    2) Similarly the argument on p.101 :
    “Thus the bank that made the loans expects to be paid $3300 dollars, however there is only $3000 circulating in the economy.”
    is not convincing:
    All you need is a “money velocity” of 1.1 in order to create additional income of $300 to be able to pay the interest.

    Please note that the point I am making with these comments is that stronger arguments are needed to make the above statements, not that the statements are necessarily incorrect.

    • Wallace Klinck
      July 13, 2017 at 7:47 am

      The theory that the increased “velocity of circulation” of money creates purchasing-power was entirely discredited by C. H. Douglas in the early part of the 20th century. Money does not “circulate”. It is issued as bank credit for production and cancelled when the goods produced are sold and the money returns to the bank for cancellation. It is issued and cancelled continuously. A new loan results in creation of new production which has a whole new set of prices. Money does not go from butcher to baker to shoemaker. Businesses have costs incurred by production loans. These must be repaid from sales. In other words, money is “short-circuited” at each stage of payment for goods. A dollar is a dollar and not two, three or four dollars depending upon some mythical “velocity”. It is true that the pace of production and consumption can be accelerated or decelerated dependent upon the rates of creation and cancellation of credit–but this is something altogether different. One unit of money can only cancel one unit of financial production costs and when it does so it is cancelled as effective purchasing-power. Douglas brought the study of money or credit and economics down to ground level where it makes sense from an empirical standpoint. Economics as it has been taught falls more in the realm of legerdemain and/or black magic than rational study.

      Major C.H. Douglas on “Causes of War” – part 1 – YouTube – BBC 1934
      Major C.H. Douglas on ‘The Causes of War’ – part 2 – YouTube – BBC 1934 (Robert Klinck – “Economists’ Failed Professionalism” – 2016) (“Social Credit and the Christian Ethic” by Norman F. Webb 1937)

      • Stefanos
        July 16, 2017 at 2:05 pm

        Repayment of loans destroys money. However, what we are talking about is the payment of interest, which does not destroy money. It becomes income of banks (and assuming no retained profits, it becomes income to households).

        See a simple example here:

        on how an initial loan in the economy produces enough income to pay interest FOR EVER without producing new credit!

        If you can tell me where the mistake is in the above simple example I would appreciate it.

  7. Stefanos
    July 16, 2017 at 2:16 pm
    • Matt
      December 15, 2021 at 4:00 am

      Interest payments made by the private sector to other entities in the private sector simply just moves assets/liabilities around within the private sector. When a bank loans out more than is needed to maintain their reserve requirements and leverage ratio’s they will purchase reserves from the federal fund inter-bank market. If needed they will obtain reserves through the Fed’s discount window.

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