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To: Don Lloyd who wrote (82604)	3/20/2001 11:13:26 AM
From: ahhaha	Read Replies (1) \| Respond to of 436258

But even the constancy of growth of money supply has its own ineffectiveness. It may have ineffectiveness with respect to something else, but it's incoherent to say it has ineffectiveness with respect to itself. In talking about an optimal growth of money supply, the goal at issue would not be money supply per se, but rather a generally stable goods exchange rate of money, reducing the risks of all kinds of time sensitive investments. Money supply is not connected to risk. "Goods exchange rate" is called price. You're saying 0 inflation rate is desirable. No one would disagree. However, the goods exchange rate of money is determined at the margin as actual transactions are made or declined and is not directly tied to the total quantity of money, but also depends in part on its detailed distribution over the population and institutions as well. Distribution has nothing to do with the general price level. For any individual, the goods exchange rate of money is set at the point where the subjective marginal utility of money held is slightly greater than the subjective marginal utility of any good that remains available for purchase. This is a demand management argument. It only addresses one half the mechanism. How about the marginal supply and utility? The good's supply utility may not remain stable across the range of price. Assuming that it does is a hidden assumption of demand management. Utility can't be applied in the way you've tried since it's not measurable directly but subjective. The subjective marginal utility of money is always zero even while total utility fluctuates. Because of the lack of continuity a delta function has to be introduced in order to solve utility differential equations. When this is done the integration constants are arbitrary and can only be assigned by measurement, but utility is subjective and beyond measurement. At this point, no further transactions will be made. For both money and goods, the law of diminishing marginal utility applies, which in this case implies that the more money you have, the lower its subjective marginal utility, and thus the lower your goods exchange rate of money. There is no law of diminishing marginal utility. That's a nonsensical concept. It's like saying, "what's the rate of change of a desire". How fast would your utility diminish if FED fails to cut? The more money you have, the greater is its effect to delude you into its greater utility, and the higher the prices you are willing to pay. This is called the wealth effect and you may call it the law of diminishing marginal disutility. However, not all wealth is held in the form of money. This non-monetary wealth will in general have some degree of liquidity, which will effectively serve to replace held money and will drive the both the subjective marginal utility of money and its goods exchange rate lower. My father keeps his horses in the cowshed. Over time, both population demographics and the types of wealth held will evolve, likely in long term trends. These, and other factors, will probably imply that any attempt to stabilize the goods exchange rate of money by attempting to control money supply will be futile, even if the goods available are constant, and ignoring the impossibility of measurements. However, even if futile, it still may well be better than all the alternatives. You are saying that fixing the rate of money supply growth probably won't work, but it probably will, since nothing else probably won't. This sounds like the monetarists who are totally confused about what they believe.