(Gavin Ritz 2011.18.07.11.02NZT)
[From Bill Powers
(2011.07.16.1010 MDT)]
Rick Marken (2011.07.16.0830) –
Gavin
Ritz 2011.07.12.56NZT)–
RM:
Hoarding takes money out of the circular flow of the economy ( see http://www.mindreadings.com/HMod.pdf)
and brings actual production below what an economy is capable of producing.
GR:
this doesn’t make a lot of sense to me, how can the money be hoarded when it is
a balance in the bank account and the bank uses that to lend to other
institutions and individuals… Which part is the hoarding part?
RM:: Good point. My answer is based on what I know of the US
banking system. I can think of two main ways that hoarding takes money out of
circulation:
BP: You’re both making it too complicated. What takes money out of circulation
is not spending it. The form of
the money or where it is stashed makes no difference.
I’m not making any propositions Rick is. I just don’t understand
the argument. It makes no sense to me. The form of money is very important in a
modern economy. In NZ only 2% of notes makes up the money supply, the rest are
balances in bank account. We are well past the days of cold hard cash when that
was required as balances. Balances in banks and saving institutions are used
for investments, with some cash holding requirements.
The money has to get to
the people who need things, and it tends to stop moving when it reaches people
who already have more than they need.
How can you back up this proposition, I don’t
believe this is in any way true.
That’s how people can get rich: they don’t have to spend all they receive, so
their bank accounts, sugar canisters, mattresses, or other storage methods
where burglars look first just keep getting fatter. The money is not paid out
again as income for the people who do need the money more urgently.
This is plainly not true at all. I didn’t
get rich like this. One buys and sells high value assets with leverage in some
cases. Develops IP, or sells a business. It not that often the real money comes
from just trading. The trading gives one the ability to get loans to buy high
value assets like property and move them years later at a big gain.
Cash flow is often a big problem from rich
and the not so rich. What I keep getting is the perspective qualitative aspect of
money is very skewed, in these arguments. It sort of feels like 1920’s
trade union notions.
Anyone can get rich the just have to select
that option.
What drives the economy is not money, it’s people’s needs and desires for goods
and services.
There is no such thing as needs and
desires.
That’s where any model of
an economy has to start. In Bill Williams’ model of the Giffen
Effect (which is no longer a “Paradox”), a person has two needs: one
is the need for calories, the other is any other need, want, or preference that
can also be supplied by purchasing the items that provide calories. Prestige is
the other desired ingredient of food that BW used. You could use vitamin
content, taste, packaging, or anything else less important than getting enough
to eat. But it is the need for calories that takes precedence over any mere
preference. Those who do not follow that priority will not be around to
participate for much longer. This is true of every human being, so we can rely
on this fact in building a model.
Hence us discussing how the environment looks
with two interacting control systems. I don’t think we have had any definitive
agreement on how this looks.
Because of the absolute requirement for a minimum intake of calories,
I’ve always said it’s an energetic
balance, looks like you agree.
Regards
Gavin
