Fields Institute presentation series – video 1
Jun17
on June 17, 2012
at 2:24 pm
This is the first video on endogenous money from Steve’s talks at the Fields Institute in Toronto Canada. The talk covers a compressive introduction to endogenous money, along with some of Steve’s latest modeling developments. Here is a Primer on Endogenous Money:
Damien Mearns said:
When it comes to these matters I have a mental block, and I don’t think I’m alone.
Everybody knows that when two people get together and have a child, that 1+1 doesn’t equal 2. The equation is more like 1+1+creation=3
In the Wells Fargo example, this seems to make sense. In the act of creation, there’s more of everything. There are more loans, and there are more deposits.
However, also from an accounting perspective the loans appear on one side of the ledger and the deposits on the other. Therefore they cancel out, they sum to zero, which suggests there is no creation.
This later conceptualization is as basic to human experience as is the sun rising in the east and setting in the west every day, the logical conclusion from which is that the sun rotates around the earth. Bill knows that when he loans Steve $100, he has to take it out of his wallet and give it to Steve. Steve’s purchasing power is enhanced and Bill’s is diminished. There is no creation in this act.
So what you’re asking of people is that they do what the 17th-century astronomers did, to find an Archimedean point somewhere off in outer space so that they can look down upon the solar system and see it as it operates in its totality.
I would say the challenge in doing this is as formidable as that which the 17th-century astronomers confronted. Perhaps even more so, because the 17th-century astronomers at least had a powerful new tool at their disposal to aid them in this endeavor, the telescope.
@Damien Mearns
Ive been gradually setting out this approach on my website – here http://andrewlainton.wordpress.com/2012/06/06/investment-as-renting-money-a-four-factor-model/
and here http://andrewlainton.wordpress.com/2012/06/10/entrepreneurship-and-the-firm-in-the-four-factor-model-entrepreneurship-is-not-a-factor-return/
The aim is to do a conceptual sketch first, then the T accounts and then the maths to avoid the meego issue. The next two parts will look at depreciation/amortization and then a four sector reproduction schedule. I hope the approach is already drawing unexpected dividends as to my mind it casts new light on several issues regarding entrepreneurship.
Apologies as I haven’t been able to complete this as quickly as Id have liked due to (temporary) illness and English weather knocking out my net connection.
The approach is it treats money as a commodity like any other, and what is more a commodity which appreciates/depreciates – and like all commodities its owners can enjoy a factor return when it is put into a productive system. The advantage of this is it unlocks the use of simple linear algebra in the Cambridge/italian approach to look several issues which have been puzzles.
Accounting offers a ‘cost view’ of the world as seen by a firm. But it is only one economic view and the issue of relative prices between firms requires a ‘value view’ looking at how the pricing assumptions of entrepreneurs are realised or not realised in a valorisation process. For that reason we have to occasionally test some key accounting principles when they don’t work macro-economically. Different accounting conventions can offer different ways of looking at balance sheets I hope the next section looking at depreciation will demonstrate this and answer certain issues about historic and inflation accounting. If you want an idea of where I am going with this however look at Robert Viennue’s writings on depreciation and investment http://robertvienneau.blogspot.com/
Please be patient because I want to get this right. Apologies to for fixing certain things as I go along.
On the issue of ‘where does the money come from’ to earn a factor return and ‘where does it go to’ if banks seek to keep equity to a minimum I dont see a problem as the rate of profit of banks during the great moderation was similar to that from other sectors of the economy – the big difference was the scale of profits and not just the rate. This indicates that fairly conventional factor returns were and are being made, the issue then is how they are paid out or not and how then they are valued in terms of equity. Much of the payment of money rent profits will not be captured by equity, they will be paid to those investing in the ‘wealth management’ function of investment banks – where most of the capitalist dosh is. There will also be massive deferral of factor payments as money is further reinvested to lever further loans through expanding the lending power of banks. Please be patient as this will require drawing of money circuits and multiple t accounts which is pretty much impossible to do on here.