I never knew Ritchie was a monetarist

Mr. Murphy today.

FT.com / Companies / Financials – Danger of persistent deflation is seen as low – I agree on one condition: which is that we print a lot of money

That will permit quantative easing

Of course, it\’s quantitative easing, not quantative. But it\’s a straight monetarist argument.

MV equals PQ of course and if V is falling (as it is, obviously) then in order to keep either or both P or Q stable then we need to increase M. And there are a number of ways of increasing M, from things like changing reserve requirements to increase M4, interest rates for M3 (umm, I\’ll admit to being more than a tad hazy at this level of discussion of monetary economics. Please do correct me in the comments) to simply printing the stuff to increase M0.

Who knew, our Ritchie, a follower of Uncle Milt?

9 comments on “I never knew Ritchie was a monetarist

  1. Richard Murphy is just toeing the Labour Party line here, encouraging people to believe that the Gorgon’s nuclear option of devaluing the hell out of our currency is a good thing.

  2. “Who knew, our Ritchie, a follower of Uncle Milt?”

    No, but we did know he’s illiterate. Which makes it understandable that he’s hopeless at complex financial issues.

    It’s obvious he’s thick. But he does seem to have a peasant cunning: he knows what buttons to press to shut down a debate (“blah blah lost family to the holocaust blah blah offended blah blah inappropriate”).

    I wonder how much he’s paid by the various pseudo charities he’s involved with? Peasant cunning is pretty good at pocket-lining.

  3. Isn’t the problem here that treating credit assets (a hope of receiving money) as money creates a false definition of M?

    We should treat money and credit seperately perhaps so in those parts of the economy trading in money (M) we get MV=PQ whereas those parts of the economy trading primarily in credit (e.g. property) we get CV=PQ (where C is credit).

    Without doing that, MV=PQ is actually (M+C)V=PQ. We have negligently aggregated the price levels of cash goods and credit goods to create our imaginary “price level”. As the credit dries up, the price level of credit goods falls, taking the aggregate price level down with it, but the price level of cash goods doesn’t, since there is the same quantity of cash in the economy.

    So, by increasing M we “restore” our balance (M+C)V=PQ but by inflating the value of the cash goods fraction of P. Prices in the shops go racing upwards but our imaginary aggregate inflation doesn’t reflect that due to the falling price of credit goods.

    I’ve put this appallingly badly. I’m basically saying that the credit goods market should be analysed entirely seperately from the cash goods market. One equation is one too few.

  4. You don’t really believe that equation, do you Timmy?

    IIRC (which I may not) M3 is what the Thatcher government tried to control as the basis of their monetary policy. I don’t think it worked too well.

    Am more of a supply side girl myself.

  5. With all this clever and abstruse economics why is it that the rich ones are real estate dealers and other such?
    Or what we used to know as the barrow boys.
    Or is economics at the top end like discussing how many angels can dance on a pinhead?

  6. john –
    I suppose there is no way to directly profit from designing an economic system except taxation.
    If the clever economists were making a massive profit it’d require massive taxation, probably rendering the system useless.
    Maybe they should make a new country and sell citizenship?

  7. john cramer

    “With all this clever and abstruse economics why is it that the rich ones are real estate dealers and other such?”

    Probably because we hate them so much. Given the shame of introducing yourself as a real estate agent, wouldn’t you demand a premium for doing the job?

    And given the large sums of money that are involved in buying and selling houses, it is any wonder that a large-ish chunk should stick to the fingers of the agents?

    We could solve this problem using the Burakumin solution – in many Buddhist countries dirty polluting jobs like butchering animals is done by a lowly hereditary caste. Because their children cannot escape the taint, there is no premium on them choosing that job. They simply have to. So I suggest that all barrow boys should be forced to marry Call Centre workers and their children become Estate agents – or perhaps Used Car salesmen. Then the pressure in the market will reduce them to poverty. Solution!

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