Post by Roger Sparks on Sept 12, 2019 15:58:57 GMT
The action of the ECB today (to lower interest rates further) prompts me to write. It seems to me that monetary theory needs to proceed on two levels:
The first level is the creation of money which results in an increase in national debt w/wo an corresponding increase in money supply.
The second level is the use of money (once created) as a medium of exchange.
To further complicate theory, government seems to have a primary role on the first level. On the second level, government seems to be precluded from playing due to an inability to provide real goods to exchange. (i.e., government can't paint a house--it can only employ someone to do the job.)
The first level seems to theoretically follow the micro-economic model of a shop keeper offering coupons to be redeemed in his shop and used in place of normal money. I created a post to explain this analogy.
The second level seems to theoretically follow more mainstream economic thinking.
To conclude weaving background, I think we need to look at first level monetary theory to explain things like a stratification of wealth and swings in the business cycle. I think we need to look at second level monetary theory to explain things like the effects of taxes and the effects of interest rate changes.
Does anyone have further thoughts on the need for a two level monetary theory?
The first level is the creation of money which results in an increase in national debt w/wo an corresponding increase in money supply.
The second level is the use of money (once created) as a medium of exchange.
To further complicate theory, government seems to have a primary role on the first level. On the second level, government seems to be precluded from playing due to an inability to provide real goods to exchange. (i.e., government can't paint a house--it can only employ someone to do the job.)
The first level seems to theoretically follow the micro-economic model of a shop keeper offering coupons to be redeemed in his shop and used in place of normal money. I created a post to explain this analogy.
The second level seems to theoretically follow more mainstream economic thinking.
To conclude weaving background, I think we need to look at first level monetary theory to explain things like a stratification of wealth and swings in the business cycle. I think we need to look at second level monetary theory to explain things like the effects of taxes and the effects of interest rate changes.
Does anyone have further thoughts on the need for a two level monetary theory?