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To: gpowell who wrote (52042)	6/4/2006 10:22:25 PM
From: shades	Read Replies (1) \| Respond to of 116555

That is a disingenuous misstatement made by some critics of Keynes. blog.mises.org In his book "Peddling Prosperity", Paul Krugman picks up Keynes' cash bottles argument: The first, and most obvious, thing to do is to make it possible for people to satisfy their demand for more cash without cutting their spending, preventing the downward spiral of shrinking spending and shrinking income. The way to do this is simply to print more money, and somehow to get it into circulation. Keynes whimsically suggested hiding bottles full of cash where enterprising boys might find them; Milton Friedman was later to offer the image of currency dropped randomly from helicopters. Fortunately for the dignity of monetary policy, there is a more respectable method: in a so-called open-market operation, the Federal Reserve buys U.S. government debt, paying for it with newly created money, which is thereby injected into the economy and put into circulation. (p. 31) Krugman also offers the example of the "baby sitting co-op recession". A group of young professional couples with children forms a baby sitting co-op to look after each other's children. They issue coupons each one worth 1 hour of baby sitting. However, after some time the co-op gets into trouble. Krugman writes For some reason the number of coupons in circulation per couple became rather low. This had peculiar counsequences. Since on average members of the co-op had fewer coupons in hand than the reserve they wanted, couples tried to increase their reserve by baby-sitting more and going out less. But one couple's decision to go out is another's opportunity to baby-sit [...]. The result was a sharp fall in the volume of baby-sitting actually taking place: couples sat glumly at home, unwilling to take a night out until they had accumulated more coupons and nobody else was going out either. In other words, the baby-sitting co-op had managed to get itself into a recession. thememorybank.co.uk A Treatise on Money (1930) Keynes asserts, against the origin myth that has money evolving from the barter of commodities by savages, that states invented money. He distinguishes the way in which debts, prices or purchasing power are expressed ("money-of-account") from what is actually discharged or held ("money-proper"). Money had an insubstantial form, as money of account, and a substantial form, as money proper. It was thus always both an idea and an object; we might say, virtual and real. Money as a convenient means of exchange on the spot, stressed by precursors such as Smith and Marx, seemed to Keynes less important than the emergence of a money standard named by law. Moreover, for almost as long as money proper has existed, it has been recognized that private debts can just as well be used in the settlement of transactions expressed through the money of account; and he calls these acknowledgements of debt “bank money”. The essence of modern state money is that currency of little or no worth is offered to a people by the government in payment for real goods and services, as the sole legal means of exchange within the territory and with the obligation to pay taxes on all transactions using it. Central banks jealously guard the national monopoly, policing the banks who actually issue most of the money. During the last two centuries, state money has oscillated between being based on a commodity (such as gold) and being worthless ('fiat' or paper money). In practice most currencies are a hybrid between commodity- and fiat-money. Keynes named this hybrid "managed money", when a government seeks to maintain a relationship of its currency to an objective standard, while its value is intrinsically artificial. From the beginning, states and markets were symbiotic. States needed the revenues from taxation of trade and some commodities as symbols of power; merchants needed the protection of law and the establishment of a public standard. Each rested on an individualized concept of society: the state was society centralized as a single agency and the market rested on private property in commodities and money. Society conceived of as people belonging to specific communities and associations was excluded from each of these versions