Which Bill's the Liar?

[From Bill Williams 21 January 2OO4

  Those who neglect to learn their history never-the-less
   learn their history, but they do so by repeating it.

Bill Powers [(2004.01.21.0616 MST)] ends a comment on
Bruce Gregory's posting on the economics thread with a
statement recommending that the economics thread proceed by,
"simply discussing the issues and relationships [involved]
themselves." Attempting to benefit from past efforts to
comprehend the economic process is Powers argues futile
because it would be based upon persons "who are far worse
modelers than I am." This is somewhat of a departure for
CSGnet which in the past has, and to a very large degree
continues to be dominated by discussion of a book written
by a man so deeply into old age senility that he couldn't
remember from one day to the next what he had written the
previous day. Rather than actually proceeding by "simply
discussing the issues and relationships themselves." the
effect of Powers' recommendation is obviously intended to
exclude consideration of opinions other than those held
by Powers himself. What can be the expected effect of
such a policy? Extrapolation may not be the preferred
mode of scientific analysis-- but I don't pretend that
what follows amounts to science. It is, however, I hope
based upon an informed view of how economic theory has
either developed, or not, in the past few centuries.
And, it is also based upon discussion with Bill Powers
over a couple of decades.

The discussion with Powers have consistently followed a
sequence in which first my help has been requested in
building a comprehensive economic model. Second,
difficulties have arisen when I've pointed out to
Powers ways in which his very preliminary efforts, if
continued may experience difficulties. Third, the
discussion has terminated with Powers questioning by
intelligence, sanity, or in this last sequence my
intellectual integrity. I like Bill, but it is best to
recognize that he is a man with limited social skills.
And, unfortunately as he grows older his character is
coming to resemble that of his father ever more
closely. The question here, however, is not primarily
a matter of disposition or the agreeability of his
conduct, but rather how to proceed in attempting to
reconstruct theoretical economics in terms of the new
understandings provided by control theory. Powers on
his own, to my knowledge, has never generated a single
new insight regarding economic phenomena on his own.
This past experience does not, of course, in anyway
rule out the possibility that he might in the future
might generate an original insight, but this hasn't
happened yet. After only two or three decades, it
might be premature to ask why, given Powers' interest
in economic issues, he has been unable to generate a
new economic insight on his own, but the sooner this
question is answered, the sooner Powers would be able
to modify his approach, it seems necessary, so
as to be more likely to reach success.

Consider a recent sequence of postings.

[From Bill Powers (2004.01.21.0616 MST)]

Bruce Gregory (2004.01.20.1257) --

"Gross Domestic Product (GDP) may be thought of in two ways. First,
it is a measure of the total income of all individuals in the economy.
Second, it is a measure of the total value of expenditures on goods
and services in the economy. These two measures must be equal. Why?
The distinction between the two has to do with whether one measures
output from the perspective of supply (the first definition) or
demand (the second definition."

It is interesting what this leaves out: savings.

Powers like his dad, has been too impatient to familiarize himself
with the national income accounts. The result for TCP was that he
confused capital costs associated with production with capital
purchases or investment. The result was that TCP imitated an
Under consumptionist model, long after the Under-consumptionists
departed the stage. The result for Powers has been that he
neglected to learn the nomenclature of economics and the
consequence has been that he has been talking nonsense for
decades. For Power to claim that the GNP leaves out savings
displays a very nearly complete absence of understanding of
the system of income/expenditure accounting of which the
measure is a part. I asked, several economics grad-students
to read the statement, some laughed, other were puzzled.

Powers goes on to say,

Since [Keynes] made no provision in his equations for actual
cash reserves or savings,

However, the Keynesian equations Y = C + I, and Y = C + S, obviously
do, contrary to Powers, do include (as the presence of "S" indicates)
a provision for savings. I don't understand how Powers could say
this, when it obviously isn't true.

[Keynes] had to conclude that savings and investment were the same
thing. They are not, of course.

Bill is wrong on both counts. Keynes in an earlier work on money _had_
treated savings and investment as if they could have different
magnitudes. So, the first assertion is evidently mistaken. As to the
second, assertion Bill is attempting to argue from authority. The
"of course" inserted here is completely meaningless.

Powers goes on to say,

Even I, a crank and an ignoramus, can tell the difference between
money I put in savings and money I withdraw from savings in order
to buy stocks or bonds. I obviously can't BOTH save my excess
income AND invest it in stocks and bonds.

Bill's argument here is based on such a complete misunderstanding of
Keynes' position that it took me a moment or two to understand what
Bill was getting at. Depending upon how one chooses to think about
the problem Bill is experiencing the mistake is either comic or
tragic.

Bill says,

Just to prevent conclusion-jumping,

I am afraid that, "the giant leap in the wrong direction" has already
taken place. This time the leap has been made by Bill Powers rather
than Rick Marken.

Bill says,

Note that Keynes' model is stimulus-response: consumption is
driven by income, rather than by reference levels for goods
and services which then require income to satisfy in a market
economy.

Perhaps Bill can supply a page reference for this claim? In the
absence of a reference, I suggest readers disregard the claim.
If Bill can supply a reference, then it might be considered.

Bill says,

My father.. correctly understand the concept of composite
entities in a macroeconomic theory. Composite entities are
not just scaled-up versions of individuals or families.

In the distant past, the CSGweb sight "best of the list"
section included a passage in which Keynes was described as
having misunderstood the economy to be just an individual
scaled up. When I began to raise questions about this,
some how it got removed from the list. If TCP, who made
this absurd claim, actually understood the character of
macro economic constructs, Bill Powers didn't learn it
from his dad. Or, if he did, he's forgotten what he
learned-- as will be demonstrated below.

Bill says,

I no longer expect any help from the economists in our group.

I am perfectly willing to help, if my help is appreciated.
But, the help I will supply will be of the nature of criticism.
If Powers can't make use of criticism, then I can't be of any
help. But, that is up to Powers. He has to be a willing
audience.

Bill Says,

Something has to keep the theoretician honest, so he can't
just say, "Oh, yeah, investment," and write a few lines to add
investment periodically to his system -- from some unmentioned
source off the books. Working models are not supposed to leave
loose ends, or allow the modeler to reach in and tweak things
that aren't coming out right.'

I asked a couple of people here, how in the world could Powers
make such a statement. Their answer was that Powers didn't
understand what he read. I assure readers, that my income/
expenditure model does not correspond to Powers' description.

Powers goes on to say,

Economists are not supposed to cook the books any more than
auditors are.

If what Bill Powers meant to say is that I "cooked the books,"
then he is a liar. If not, then he's just careless with the truth.

Bill Williams

[From Bill Powers (2004.01.22.0747 MST)]

[From Bill Williams 21 January 2OO4
However, the Keynesian equations Y = C + I, and Y = C + S, obviously
do, contrary to Powers, do include (as the presence of "S" indicates)
a provision for savings. I don't understand how Powers could say
this, when it obviously isn't true.

Solving the two equations simultaneously, we have from elementary algebra

Y = C + I
Y = C + S

by substitution,

C + I = C + S

Subtracting C from both sides,

I = S

So Keynes' equations are simply a statement that I = S. Nothing else is
needed to support this conclusion: it's an algebraic identity. There is no
separate provision for S. I and S are being used as different symbols for
the same quantity, which is Y - C.

It would be necessary to have separate derivations for I and S to treat
them as different variables, or else to write Y = C + S + I, which would
establish S and I as separate variables from the start.

Bill, your hatred, jealousy, and superiority are too much for me. I can't
deal with you any more. I will look elsewhere for help with economic
modeling. And for friendship.

Bill P.

[From Bill Williams 21 January 2004 6:24 PM CST]

Bill Powers in the following develops an argument. I agree with the
argument-- up until Bill reaches a conclusion. However, the
conclusion or implication that Bill extracts from the argument is
quite different from the one that many economists have reached.

[From Bill Powers (2004.01.22.0747 MST)]

>[From Bill Williams 21 January 2OO4
>However, the Keynesian equations Y = C + I, and Y = C + S, obviously
>do, contrary to Powers, do include (as the presence of "S" indicates)
>a provision for savings. I don't understand how Powers could say
>this, when it obviously isn't true.

Solving the two equations simultaneously, we have from elementary algebra

Y = C + I
Y = C + S

by substitution,

C + I = C + S

Subtracting C from both sides,

I = S

So Keynes' equations are simply a statement that I = S. Nothing else is
needed to support this conclusion: it's an algebraic identity. There is no
separate provision for S. I and S are being used as different symbols for
the same quantity, which is Y - C.

Isn't that clever? Yes, the quantity is the same. I've marveled over this
ever since I was a sophmore taking a Keynesian theory course. Nothing
new here-- not for me.

So, what do economists make of this? One group comes to the conclusion
that since I = S, only one can be an independent variable. And, they
assign independence to I and dependence to S. So, changes in I are
thought to generate changes in S. But, efforts to change S, do not have
the result that one might naively expect.

It would be necessary to have separate derivations for I and S to treat
them as different variables, or else to write Y = C + S + I, which would
establish S and I as separate variables from the start.

But, this isn't neccesary. They are, in the Keynesian system treated as
an identity. The whole analysis would break down if the two were
separate variables.

Bill, your hatred, jealousy, and superiority are too much for me. I can't
deal with you any more. I will look elsewhere for help with economic
modeling. And for friendship.

You keep talking about "help" with the economic modeling. I will admit
to having ideas about economics that differ from the one that you have.
I am sorry that this offends you. I can't help it, and I wouldn't do
anything
different if I could. You will remeber that I recomended to you that Rick
is really better suited to providing you with the "home grown"
applause you seem to want. And, I'm not currently availible to be used
as a "go fer." But, not to worry, Rick 's happy to run errands for you.

Jealousy? I'm sure I don't know what you are talking about.

Superiority? Well, you keep carping about my Ph. D. Ok, so I in a
sense I have paid my dues. Does the ph. D mean that I know more
about economics than you do? No. Do I know more about economics
than you do. There is no question that I do. Have I made a big deal
of it? Again No.

Hatred? Well, I'd rather that you not charge me with a lack of
intellectual integrity. But, you made such an obvious fool of yourself,
over economic issues that you've become a laughing stock at UMKC,
that it is genuinely to my advantage to have you say such things.

If I felt that there was something that you could and would actually do
to me that would injury me, I would be capable of hating you. But, you
aren't in that sort of position-- so I don't. Most of the time, except when
this economic stuff comes up, you are a good guy-- capable too. But,
you are being so silly.

Bill Williams

[From Bill Powers (2004.01.23.0549 MST)]

Bill Williams 21 January 2004 6:24 PM CST

···

Bill Powers in the following
develops an argument. I agree with the

argument-- up until Bill reaches a conclusion. However, the

conclusion or implication that Bill extracts from the argument is

quite different from the one that many economists have
reached.

Including Keynes. In the General theory, Keynes says the
following:

The prevalence of the idea that
savings and investment, taken in their straightforward sense, can differ
from one another, is to be explained, I think, by an optical illusion due
to regarding an individual depositor’s relation to his bank as being a
one-sided transaction, instead of seeing it as the two-sided transaction
which it actually is. It is supposed that a depositor and his bank can
somehow contrive between them to perform an operation by which savings
can disappear into the banking system so they are lost to investment, or,
contrariwise, that the banking system can make it possible for investment
to occur, in which no saving corresponds. But no one can save without
acquiring an asset, whether it be cash or a debt or capital-goods; and no
one can acquire an asset which he did not previously possess, unless
either an asset of equal value is newly produced or someone else
parts with an asset of that value which he previously had. In the first
alternative there is a corresponding new investment; in the second
alternative, someone must be dis-saving an equal amount. (Chapter 7, p.
81f)

By the last sentence, Keynes has forgotten that he is talking about the
disposal of the difference between income and consumption, so the money
is not coming from any dis-savings, but from income.

The equations which supposedly justify saying that savings and investment
are the same thing occurred in Chapter 6, which comes before Chapter 7 in
my copy of the book. This further supports my claim that the equations
themselves were plucked out of thin imagination. They presuppose the
above assertions, which, however, are not presented until long after the
equations have solidified into reality.

It is perfectly clear that if one disposes of the surplus of income over
consumption by putting it into a bank, it is not available to oneself or
anyone else for making an investment in capital goods. The physical
location of the money is different, and the means of getting it back is
different. But this does violence to the idea that saving is equivalent
to investment in its effect on the economy. That idea is like saying that
buying capital goods such as machinery is the same in its effect on the
economy as leaving the money in the bank and not buying the machinery.
This has led to some very complex (and invalid) arguments, including one
suggestion that there is a “pause” during the year in which all
the money that was saved is spent on the extra goods produced because of
using the same money as an investment. Sheer magic.

Keynes includes both savings and investment in the category of
“acquiring an asset”, so in truth no value actually changes
hands in either case. When I invest, I receive a valuable stock or bond
certificate or a piece of machinery, and when I save I receive a valuable
deposit slip. When a producer invests money from income he surrenders
part of his income to a supplier of capital goods and receives the
capital goods. Since the transactions involving savings and investment
both involve the transfer of money, they must be the same thing. Or so,
it seems, Keynes argues in his verbal development.

Keynes, I think was driven by a blunder he made in Chapter 6, in which he
seems to find mathematically that savings and investment are identical
quantities, both equal to Y - C. Having beenm led by his own mathematics
to that startling conclusion, he had to find an argument that would
justify it – either that, or find the place where he made his mistake
and correct it. He chose the former. By recognizing that value passes
both ways in the process of either saving or investing, he found a way to
put both operations into the same class. If they belong to the same
class, he then reasoned, they must be conceptually equivalent. And if
they are conceptually equivalent, they must be identical. This is the
same form of argument by which one can use the fact that both cows and
beds have four legs to prove that cows are beds.

If many economists have bought Keynes’ argument, I can only conclude that
they have some pressing ideological or practical reason for wanting it to
be true. A love of logic and reason cannot be what underlies their
concurrance.

Bill P.

[From Bruce Gregory (2004.01.23.0925)

[From Bill Powers (2004.01.23.0549 MST)]

It is perfectly clear that if one disposes of the surplus of income
over consumption by putting it into a bank, it is not available to
oneself or anyone else for making an investment in capital goods. The
physical location of the money is different, and the means of getting
it back is different.

I suggest that anyone who finds this perfectly clear might benefit from
reading any one of several books on the history of money. There is less
to money than meets the eye. The notion that you can put your money
into a bank and "leave it there" is, I fear, naive.

Bruce Gregory

"Everyone is entitled to his or her own opinions; everyone is not
entitled to his or her own facts."

Daniel Patrick Moynihan

"Everything that needs to be said has already been said. But since no
one was listening, everything must be said again."
                                                                                Andre Gide

[From Bill Powers (2004.01.23.0825 MST)]

Bruce Gregory (2004.01.23.0925) --

I suggest that anyone who finds this perfectly clear might benefit from
reading any one of several books on the history of money. There is less
to money than meets the eye. The notion that you can put your money
into a bank and "leave it there" is, I fear, naive.

I certainly don't want to be naive. I'd appreciate it if you would
summarize what these books say.

Best,

Bill P.

[From Bruce Gregory (2004.01.23.1047)]

Bill Powers (2004.01.23.0825 MST)

Bruce Gregory (2004.01.23.0925) --

I suggest that anyone who finds this perfectly clear might benefit
from
reading any one of several books on the history of money. There is
less
to money than meets the eye. The notion that you can put your money
into a bank and "leave it there" is, I fear, naive.

I certainly don't want to be naive. I'd appreciate it if you would
summarize what these books say.

That's a bit like asking me to summarize quantum mechanics. But let me
suggest the following exercise. Take a bill out of your wallet and ask
yourself exactly what it represents. Is there an implied promise? What
exactly is that promise? Who is making it? Who is responsible for
keeping it? How will they keep it?

Another interesting question is exactly what happens when you pay a
bill electronically? What happens when the Smithsonian Institution
makes a direct deposit into my checking account? Where exactly are my
retirement funds? What happens when the government spends money it
doesn't have? Where does the money go when foreigners buy Treasury
notes?

Lots of questions. Very few simple answers.

Bruce Gregory

"Everyone is entitled to his or her own opinions; everyone is not
entitled to his or her own facts."

Daniel Patrick Moynihan

"Everything that needs to be said has already been said. But since no
one was listening, everything must be said again."
                                                                                Andre Gide

[From Bill Powers (2004.01.23.0938 MST)]

That's a bit like asking me to summarize quantum mechanics. But let me
suggest the following exercise. Take a bill out of your wallet and ask
yourself exactly what it represents. Is there an implied promise? What
exactly is that promise? Who is making it? Who is responsible for
keeping it? How will they keep it?

How does this help explain the assumption that savings and investment are
the same thing? Or how a dollar in my wallet (or my savings account) can be
spent by an entrepreneur for capital improvements? I guess it's obvious to
you, but I don't see the connection. Sorry for being so slow. As to your
questions, I suppose the answers have to do with the government's
requirement that legal tender be accepted for all debts public and private,
which implies some sort of guarantee, by whom I'm not very sure.

Best,

Bill P.

[From Bruce Gregory (2004.01.23.1227)]

Bill Powers (2004.01.23.0938 MST)

How does this help explain the assumption that savings and investment
are
the same thing? Or how a dollar in my wallet (or my savings account)
can be
spent by an entrepreneur for capital improvements?

A dollar in your wallet can't readily spent by an entrepreneur, but a
dollar in your savings account can be loaned to an entrepreneur by your
bank. I can't imagine how else the bank would be able to pay interest
on your savings.

Bruce Gregory

"Everyone is entitled to his or her own opinions; everyone is not
entitled to his or her own facts."

Daniel Patrick Moynihan

"Everything that needs to be said has already been said. But since no
one was listening, everything must be said again."
                                                                                Andre Gide

[From Rick Marken (2004.01.23.1000)]

Bill Powers (2004.01.23.0549 MST)

It is perfectly clear that if one disposes of the surplus of income
over consumption by putting it into a bank, it is not available to
oneself or anyone else for making an investment in capital goods.

Bruce Gregory (2004.01.23.0925)

I suggest that anyone who finds this perfectly clear might benefit from
reading any one of several books on the history of money...

Bill Powers (2004.01.23.0825 MST)

I certainly don't want to be naive. I'd appreciate it if you would
summarize what these books say.

Bruce Gregory (2004.01.23.1047)

That's a bit like asking me to summarize quantum mechanics. But let me
suggest the following exercise.

Your questions are very interesting. My attempts to answer them are shown
below. But I don't see how this exercise helps me see what's wrong with
Bill's statement above, which, I must admit, seems perfectly clear to me.
When I put surplus income into savings, that money is not available for me
or anyone else to invest. To invest it, I have to withdraw the money from
savings and use it to purchase the investment.

Savings is just income I keep in reserve for future consumption. It sort of
is like an investment because it does pay interest (paid by the bank so they
can use it to make loans for investment). But my money in savings differs
savings at a later date (neglecting interest, which is, indeed, negligible
these days). It's the same as if I had put the money under my mattress. But
I cannot claim exactly what I put into an investment at a later date. I have
to put the investment up for sale (like any commodity) and get more or less
than the original amount, depending on how things are at the time of sale.

Maybe the problem is that when one puts money into savings, we know that the
bank uses that money as collateral on a loan for investment by another
person. But this is not using my savings for investment. The bank has to
give me back my savings whenever I claim it.

I think loans for investment is where money gets created. The savings that
are deposited in the bank remain on the book and, in principle, are
accessible to saves on demand. But the bank is "kiting" this money in loans
to investors who pay back these loans over time with income that (hopefully)
results in the investment. This pay back is income for the bank. This income
from the loans along with an appropriate level of reserve cash allows the
back to pay savers who come in to claim all or part of their savings.

A great deal (but not all) investment money comes from loans (some comes
directly out of income or savings), the amount that can be loans being
determined by the amount of savings in the banks. But these loans are not
really "backed" by the savings. If the loans are defaulted, the bank won't
keep savings deposits to compensate themselves for the loss. That is why
savings and investment are truly separate and why it is perfectly clear to
me that Bill is exactly right when he says that [savings] are "not available
to oneself or anyone else for making an investment in capital goods". That's
because the bank can't keep my savings to compensate themsevles for
defaulted loans.

RSM

···

from my money in investments in that I can claim exactly what I put into
____

Answers to exercise questions (questions are indicated by ">")

Take a bill out of your wallet and ask yourself exactly what it represents.

Something I can exchange for goods or services.

Is there an implied promise?

Yes.

What exactly is that promise?

That the person with the goods or services will accept it in payment for
same.

Who is making it?

Everyone who makes it. My experience is that virtually everyone I meet will
take currency for their goods and services. I will too.

Who is responsible for keeping it?

The people who implicitly make it. That is each individual participant in
the economy. Of course, some people won't accept cash for their goods or
services. They are responsible for that choice too, of course.

How will they keep it?

By accepting the cash in exchange for the goods or services.

Another interesting question is exactly what happens when you pay a
bill electronically?

The electronic representation of my cash reserves is depleted (and the
electronic representation of the creditor's cash reserves is incremented) by
the amount of the bill.

RSM

--
Richard S. Marken
MindReadings.com
Home: 310 474 0313
Cell: 310 729 1400

[From Bruce Gregory (2004.01.23.1315)]

Bill is exactly right when he says that [savings] are "not available
to oneself or anyone else for making an investment in capital goods".

Considering that you have clearly explained why this in not the case,
as far as I can see, it is obvious to me that I do not understand what
you are Bill find perfectly clear. Different strokes, I guess.

Bruce Gregory

"Everyone is entitled to his or her own opinions; everyone is not
entitled to his or her own facts."

Daniel Patrick Moynihan

"Everything that needs to be said has already been said. But since no
one was listening, everything must be said again."
                                                                                Andre Gide

[From Rick Marken (2004.01.23.1100)]

Bruce Gregory (2004.01.23.1315)

Me:

Bill is exactly right when he says that [savings] are "not available
to oneself or anyone else for making an investment in capital goods".

Considering that you have clearly explained why this in not the case,
as far as I can see, it is obvious to me that I do not understand what
you are Bill find perfectly clear.

I showed that savings is not equal to investment. The portion of income that
I put into savings is not available to myself or anyone else for making an
investment _while it is in savings_.

What I showed is that the money loaned to investors by the bank is _not_
savings because savings cannot be used to compensate the bank for a loss if
the loan is defaulted. The bank's income is _not_ savings. The bank's income
is interest on its loans and payment for services. This income is what is
used to pay for the bank's investments (the loans) over time.

If the bank didn't charge for loans and didn't have to give people their
savings on demand then it would be true that I = S because then savings
would be making an investment (in the borrowers). If this were the way
savings worked then it would be more appropriate it "venture capital" rather
than savings because you might get back what you put in, or more, or a lot
less.

RSM

···

--
Richard S. Marken
MindReadings.com
Home: 310 474 0313
Cell: 310 729 1400

[From Bill Powers (2004.01.23.1201 MST)]

Bruce Gregory (2004.01.23.1227)--

A dollar in your wallet can't readily spent by an entrepreneur, but a
dollar in your savings account can be loaned to an entrepreneur by your
bank. I can't imagine how else the bank would be able to pay interest
on your savings.

I think (correct me if I'm wrong) that the dollars in my savings account
actually contribute to meeting the reserve requirement the bank must
satisfy. If the reserve requirement is 20%, the bank can loan an additional
amount that is five times my deposit. If I withdraw that amount, the bank
must reduce its outstanding loans accordingly -- I would guess by not
making new loans for a while and letting old ones be paid down.

The money actually lent, again as I understand it, is created by the bank
when the loan is established. The borrower finds that X dollars, the
principal amount, has been deposited to his account, and the bank records a
new asset for itself of X dollars, the debt. In short, the total amount of
money in existence increases by the amount of the loan, so the money in my
own account is not needed. I hope that is not too far off the mark -- if
so, I'd like to know.

The other question I have about this business is how, if X dollars is
invested in a plant, that same X dollars can be used to purchase any
increased output from the plant. Suppose I deposit X dollars in my bank,
and as a result, the bank lends 5X dollars for investment in increasing
production. As long as my deposit remains in the bank, it is not available
for buying the increased production. So who buys it? And with what?

I know -- consumer credit. Add another storey to the house of cards.

Best,

Bill P.

[From Bruce Gregory (2004.01.23.1417)]

Rick Marken (2004.01.23.1100)

I showed that savings is not equal to investment. The portion of
income that
I put into savings is not available to myself or anyone else for
making an
investment _while it is in savings_.

I agree completely, just so long as you keep your savings under your
mattress. To distinguish this economy from the one that the rest of us
live in, let's call it the PCT-economy. I take it that the Testbed will
be a model of the PCT-economy. That's fine. It seems to resemble a
barter economy. Perhaps that's what you had in mind all along.

Bruce Gregory

"Everyone is entitled to his or her own opinions; everyone is not
entitled to his or her own facts."

Daniel Patrick Moynihan

"Everything that needs to be said has already been said. But since no
one was listening, everything must be said again."
                                                                                Andre Gide

[From Rick Marken (2004.01.23.1200)]

Bill Powers (2004.01.23.1201 MST)]

Bruce Gregory (2004.01.23.1227)--

A dollar in your wallet can't readily spent by an entrepreneur, but a
dollar in your savings account can be loaned to an entrepreneur by your
bank. I can't imagine how else the bank would be able to pay interest
on your savings.

I think (correct me if I'm wrong) that the dollars in my savings account
actually contribute to meeting the reserve requirement the bank must
satisfy. If the reserve requirement is 20%, the bank can loan an additional
amount that is five times my deposit. If I withdraw that amount, the bank
must reduce its outstanding loans accordingly -- I would guess by not
making new loans for a while and letting old ones be paid down.

This is basically correct. Though the reserve requirement is a lot less than
20%. It's something like 3%. One of the main roles of the Federal Reserve
(where, as you know, my little hot tamale used to work) is to loan money to
banks to cover their reserve requirement. The Fed Rate is the rate the Fed
charges banks for the loan to cover this reserve requirement when the
reserve goes below the required level (which, I believe, can happen for two
reasons: a momentary increase in savings withdrawals and/or a momentary
decline in revenue from loan payments).

The money actually lent, again as I understand it, is created by the bank
when the loan is established. The borrower finds that X dollars, the
principal amount, has been deposited to his account, and the bank records a
new asset for itself of X dollars, the debt. In short, the total amount of
money in existence increases by the amount of the loan, so the money in my
own account is not needed. I hope that is not too far off the mark -- if
so, I'd like to know.

That is exactly right, I believe (I'll check with the hot tamale about it
later, if you like, but it's easy, if not as much fun, to find out about it
on the web). And I believe that, as I said, this is probably the main (if
not the only) way money is "created" for an expanding economy.

The other question I have about this business is how, if X dollars is
invested in a plant, that same X dollars can be used to purchase any
increased output from the plant. Suppose I deposit X dollars in my bank,
and as a result, the bank lends 5X dollars for investment in increasing
production. As long as my deposit remains in the bank, it is not available
for buying the increased production. So who buys it? And with what?

How about with the 5X dollars that were transferred into the hands of
consumers, who were the people from whom the investor purchased, with the 5X
loan money, the capital equipment and services that increased production?

Best

Rick

···

--
Richard S. Marken
MindReadings.com
Home: 310 474 0313
Cell: 310 729 1400

[From Rick Marken (2004.01.23.1205)]

Bruce Gregory (2004.01.23.1417)]

Rick Marken (2004.01.23.1100)

I showed that savings is not equal to investment. The portion of
income that I put into savings is not available to myself or anyone
else for making an investment _while it is in savings_.

I agree completely, just so long as you keep your savings under your
mattress.

Actually, no. If you read my entire post carefully (remember, economics is
serious business) you'll see that this is putting savings under the mattress
is not necessary in order to keep it distinct from money that is invested.
The money in your savings account is not equivalent to the money that is
loaned by banks to investors.

RSM

···

--
Richard S. Marken
MindReadings.com
Home: 310 474 0313
Cell: 310 729 1400

[From Bruce Gregory (2004.01.23.1547)]

Actually, no. If you read my entire post carefully (remember,
economics is
serious business) you'll see that this is putting savings under the
mattress
is not necessary in order to keep it distinct from money that is
invested.
The money in your savings account is not equivalent to the money that
is
loaned by banks to investors.

My mistake. We don't agree.

Bruce Gregory

"Everyone is entitled to his or her own opinions; everyone is not
entitled to his or her own facts."

Daniel Patrick Moynihan

"Everything that needs to be said has already been said. But since no
one was listening, everything must be said again."
                                                                                Andre Gide

[From Bill Powers (2004.01.23.1429 MST)]

Rick Marken (2004.01.23.1200)--

As long as my deposit remains in the bank, it is not available
> for buying the increased production. So who buys it? And with what?

How about with the 5X dollars that were transferred into the hands of
consumers, who were the people from whom the investor purchased, with the 5X
loan money, the capital equipment and services that increased production?

That sounds like a distinct possibility. A brilliant supposition. Let's
see. Say the money is used to increase productivity by improving or buying
machines. If one invests 5X dollars, then the machines should turn out to
increase production by 5X dollars-worth of goods over some length of time.
Or, to put it another way, prices should adjust until it is true that the
increased production uses up the new 5X dollars now in circulation. This
gets into questions of velocity (how fast money circulates), but that is
probably a term from the wrong frame of reference in which there are no
real time-dependent terms. I think you have, however, provided the hint
needed to get all this into the model. I can see where we're going, now.

One thing that helps here is that labor is traditionally paid only after
giving a certain length of service, a week or two weeks or a month. That
gives time for the investment to generate goods free of labor charges, so
the money paid for the machines has time to circulate and be ready for use
in buying the new goods. That, of course, is a wild guess about what the
model will show, and I am not selling stock in it.

I am currently downloading a copy of Swarm (51 MB), which is a Gnu
simulation program used by Bruun in her work -- though she now has Turbo
Pascal working on her modern computer and may go back to that. Of course
she may read about my work and conclude that I am a crank and an ignoramus,
but that is a risk one always, apparently, takes. So far she has not seen
through me.

Best,

Bill P.

[From Rick Marken (2004.01.23.1515)]

Bill Powers (2004.01.23.1429 MST)]

Rick Marken (2004.01.23.1200)--

As long as my deposit remains in the bank, it is not available
for buying the increased production. So who buys it? And with what?

How about with the 5X dollars that were transferred into the hands of
consumers, who were the people from whom the investor purchased, with the 5X
loan money, the capital equipment and services that increased production?

That sounds like a distinct possibility. A brilliant supposition.

Aw, you're just saying that because your Marken's lapdog;-)

Best

Marken

···

--
Richard S. Marken
MindReadings.com
Home: 310 474 0313
Cell: 310 729 1400

[From Bill Williams 23 January 2004 5:50 PM CST]

[From Bill Powers (2004.01.23.1612 MST)]

Premature for my purposes, but an interesting comment anyway.

A revealing comment. In you assessment of Keynes' inconsistencies
it didn't seem to bother you that you'd switched from the definitions
that Keynes had used, to a different set of definitions. Then you
charged Keynes with the result of your switching definition.

I'm interested only in the mechanics of the economy,

You talk about "mechanics." The economy, however, is concerned
with questions regarding values. Why use the language of
behaviorism or positivism in describing your project? It gives the
impression that you have absolutely no idea of what you actually
want to do.

The Test Bed will help answer such questions, without any preference
for one proposal over another, and without forcing any one outcome.

This is an extra-ordinary interesting claim- absurd, but, interesting.
You are proposing to build a machine that will evaluate various
conceptions without expressing a preference. Can you see that there is
a contradiction involved?

It might be better if you just wrote the code. Discussions such as
this one, in which the definitions keep changing, or the discussion
runs in the absence of definitions have a predictable outcome. In
the past, you've blamed the nearest "expert" because the expert
wouldn't "help." As, I have said before, its a fools errand.

Bill Williams