Posted by: Piotr Berman | May 27 2023 22:07 utc | 83
A very logical way of looking at it Piotr but it is way more complex than that. Greenspan had a lot to do with making M2 useless as he changed a lot of things and moving away from the gold standard.
How Monetarists really think – read this deep dive.
https://monetaryflows.blogspot.com/
The issue the monetarists suffer from is an aggregation issue. If you hold £100, nobody knows if you are saving that or intending to spend it. What we really need is the amount of bank liabilities that have materially changed their ownership tag over a period of time. Then we would know what ‘Vt’ is. But we don’t have that, so monetarists try to
guess – assuming all M is in motion if it fits in a particular classification. Hence all the M1, M2 nonsense. Those categorisations are wrong. Plain and simple.
I don’t have to spend a demand deposit. It can sit there for months. I don’t even need to ‘optimise’ it, because unlike economists my life doesn’t revolve around a belief in interest rates ruling everything. I just keep it there because I like the size of it, or I’m scared of the
future. Or a bit of both.
Montersists say nothing really – other than lamenting
that we can’t work out what money is locked in place and which is in circulation because we now have interest payments on demand deposits and time deposits that can be cashed on demand.
The monetarists are stuck in the 1960s. Finance has evolved so that nothing is locked in place – which means you can’t manipulate it to speed up and slow down the economy.
Instead we need to leave the market for money to private sector to sort out, much as we do the market for tomatoes, and shift the stabilisation policy to the market for labour – where we can do something to speed up and slow down the economy.
Introducing a Job Guarantee would fix it.
Monetarism is a busted flush due to financial liquidity innovation.

Posted by: Derek Henry | May 29 2023 12:55 utc | 101