I have persued Allais’s work and it’s still too much in the neoclassical mould for my liking (though I probably define that more widely than most people do). But I will cover him in more detail for the revised version of Debunking Economics (which won’t see light of day before 2015).

There’s an ongoing debate about Maurice Allais at Jean-Peyrelevade’s blog where I pointed to Steve Keen’s debdeflation blog to help dispell some myths about the money multiplier.

The financial crisis has prompted a surge in interest for Allais but for the most part he remains an enigma(his books are out of print and few economists have studied his work).

Perhaps Steve Keen has been there and will gratify us of a section on Allais in his new book, as he did for other under-estimated authors in the previous one?

Falling Prices Are the _Antidote_ to Deflation
http://mises.org/story/3296

The article makes a lot of sense to me but unfortunately doesn’t answer all my questions about the subject.

Firstly to Reason’s comment: yes I accept that comment on Naked Capitalism, and I actually modified the post to make a fuller statement of Bernanke, and to make it clear that my overall reaction in that post was to neoclassical economics in general, rather than Bernanke himself.

Unfortunately my modifications were one of the things lost in the transition to the new Cyanide ISP. For some time my link still pointed to the old IXWebhosting ISP, after it had been ported. Such is computer life!

I’ll make those mods to this post later today.

However I still regard Bernanke’s discussion of Fisher as a parody, and the complete absence of a reference to Minsky there as unforgivable–let alone the calibre of his actual comment on Minsky later in the post.

Paul Harry, while that interpretation is feasible, neoclassical economics in general doesn’t incorporate private debt in its thinking. The two possible candidates for what he meant by a “transfer” (he doesn’t say) are income or wealth. Given its context, income is the most probable meaning.

Mccartjt (where do you guys get some of these user names??? -:) ), Japan should be in a better shape, but its attempt to reflate out of the crisis by debt-financed government spending has meant that Japan’s aggregate debt situation is now worse than in 1990, even though private debt has fallen somewhat–but not by much.

I’m still trying to assimilate reliable cross-country comparable data on Japan, so I’ll put numbers to that at some later date.

And re the discussions on fractional banking, I’m afraid the problem is much worse than that. We have a fractional banking system in name only–the reality is that the system endogenously determines the amount of credit itself, and drags the government along with it with a time lag.

The explanation for all that is coming in the February Debtwatch.

Other bloggers, sorry but I have to get on to some pressing writing tasks now (including that Debtwatch) so I’ll have to leave some queries for a later date.

Thank you ever so much for this blog. If the big issue for the current economic turmoil is total debt versus gdp, then with Japan’s asset bubbles having been spiked close on 20 years ago, shouldn’t their economy be in a much better position in the short to medium (even long ?) term than the rest of the world?

John M

The structure of Bernanke’s argument is: (1) introduce Fisher’s debt deflation idea, (2) mention the neoclassical economics critique of that idea, (3) and discuss how debt deflation is consistent with neoclassical economics under an asymmetric information framework. Unfortunately Keen stops after #2, enabling him to set up a straw man.”

Steve Keen – any response?

However Prof Allais wrote some some 90 works which makes it difficult to know where to start. Can nfaibis make some suggestions?

I am doubtful that my out of practice French is up to reading economic theory so ask whether these works available in reliable English translation?

whow – 8% only! So if I am a bank and deposit $8k as a reserve at the RBA, can I then write a loan out for $92k? I still meet the 8% reserve requirement. I really would call this “creating money out of thin air”.

The difference in regards to inflation between “printed money” and bank money is that when it is paid back, it disappears. Only one problem: where’s the money for the interest coming from? As we all know the interest might be even higher than the principal, especially for mortgages.

And I don’t even want to think about the scenario when that new money is then deposited at a bank where it again becomes “capital” for that bank to write another loan and create even more bank money. I really hope I got this all wrong. Man, no wonder the banks are in trouble if their debitors start to default. No wonder a single bank collapse can cause a whole chain reaction and make this insane system wobble.

I think the truth is that only 5% of the “money” in circulation is in the form of the paper/plastic notes. The rest is digital and in assets. So really most of the “money” created is bank money, created from debt. Created by banks out of thin air because our laws allow them to do it and to then lend out (at interest) something they only have 8% of.

What a SCAM!

Hey, fractional banking almost meets the criteria of a ponzi scheme, this one with a twist because it actually does create interest.

Our fiat currency is backed by nothing but a pledge of debt which is the only thing that gives it value. Human lifetime/labor and resources.

And I still don’t understand what the real impact of the “official interest rate” is for banks. What do they pay interest for? To whom? Interbank lending? But that is only for the 8%. And as far as I know, credit card rates have not changed with the reductions in the official interest rate.

And I still don’t understand why the government borrows money from the banks and pays interest (taxes) to them when the it has the power to just print interest free money.