At Asymptosis: (Modern) Monetarist Thoughts on Wealth and Spending

The full title of the post is (Modern) Monetarist Thoughts on Wealth and Spending: Volume or Velocity?

I started our writing a brief comment at Asymptosis in response to the post. But it stopped being brief. So my choice was to prune it and leave it there, or bring it here and let it grow. The latter.

Don't be surprised if my words here sound as though I'm talking specifically to Steve Roth.


From Roth's opening:

"... 'money' should be technically defined, as a term of art, as 'the exchange value embodied in financial assets.'"

We see things differently. To me, money is the medium of exchange, not the exchange value. It sounds like you're talking about erosion of the dollar's value. But I think you are talking about the liquidity of financial assets.

JW Mason might agree with you that this is what money is today. I don't disagree; it is what money has become. But I see this as the source of our economic troubles. Things that are not money have come to be widely used and accepted as money.


You make things too complicated:

dollar bills aren’t money. They’re embodiments of money

Jesus, Roth. The embodiment of money IS money.

Money and currency aren’t the same thing, and economists’ conceptual confution of “money” with “currency-like things” is central to the difficulties economics faces in understanding how economies work.

How economies work? But since the crisis, or before, economies DON'T work. Currency-like things are the things we spend... things that are current, things that flow. Take a dollar out of the flow and tuck it away as "assets", and it is no longer in the current: It no longer flows.

Graph #1:Household Financial Assets per dollar of Currency-Like Things

By the third paragraph, you're building a story on a definition that you hope is safe: "Add up the value of all financial assets, and that’s the money stock."

Nonsense.


In the paragraph just before your graph, you seem to confuse two definitions of the word "real". Here's the offending sentence:

We see this clearly when we look at recessions and the year-over-year change in real (inflation-adjusted) household assets — a measure of households’ total claims on real assets...

The one meaning of "real" is "inflation-adjusted" as you point out. The other meaning is not monetary. Real assets are things like the drill press you sometimes write about. Financial assets do not become in that sense "real" when you drain the inflation out of them.

I took a look at the total household assets from your first graph, in comparison to total household financial assets:

Graph #2: Total (blue) and Financial (red) Household Assets

Looks like financial assets are the larger part of the total. Real assets -- homes, factories, drill presses -- the smaller part.

Then too, there's some confusion just after your first graph. You write:

When people have less money, they spend less, and GDP declines, or grows more slowly. That is hardly a counterintuitive conclusion.

But before that, you said:

If they want to spend more, there will be more currency-like stuff around; the Fed will ensure it.

You say it's obvious -- hardly counterintuitive -- that when we have less money we spend less. But you also say that if we want to spend more, the money will grow to accommodate us. Your statements are contradictory.


Further, if all financial assets are money as you say, then to calculate the velocity of money one would divide GDP by total financial assets. Not by total assets as you show in your second graph. Not that I buy the premise.


At the end, you pull the inequality rabbit out of the hat. Some readers will like your post because you give them the ending they want. No matter it's non sequitur.

And your last words:

At the very least, the goal should be to reverse the rampant radical upward distribution of the last thirty years

Okay. So look at policy changes since the late 1970s, and reverse them. But don't blather me with nonsense and error.