Wanted: Velocity of Money; New Haven vs. Cambridge
According to Irving Fisher from New
Haven, money does its job while moving across two hands (L-1, L for
length in space dimension). As a natural consequence, each piece of legal
tender sometimes called “liquidity” makes a certain number of turns per annum (T-1, T for time).
The aggregate pieces at all different rates of moves would yield the growth domestic
products per annum (Y in macroeconomics)
Spending to Turning.
The gravity on Earth creates energy by attracting an object before getting a
work done, while the gravitating force of legal tender calls in utilities for
human survival and higher-level welfare. The object (“M” for mass in dimension)
never dies naturally; much likewise legal tender (U∙m) never fades
away tenderly. Oh, we mean the principle of conservation!
Where
there is spending, there is getting spent. When anyone in the meantime eats,
wears, burns or prints any pieces of money, he shall be put behind bars; in
other words, money does not disappear into the thin air. As a legal result,
money keeps on turning no less busy than Proud Mary. The remaining question is
how many aggregate turns per annum if
in the “quantity equation.”
The “Quantity Equation.”
Once upon a time in a kingdom by the sea, 15 acorns stamped with the royal seal
was legal tender with the name 10 thalers
on face. The nominal GDP of the kingdom was reported to be 600 thalers in the year 2525 by the royal
income accountancy. A problem in an elementary test: How many turns in average
did the acorn make in the year? The answer: _______. Cuatro
A
problem in the next level: In the year 2526, the nominal GDP was 1,000 thalers with 20 stamped acorns turning
around. How many average turns were made? Answer ______. In the third level:
Did the number of turns stay “constant” in “the short run” of one year from
July 1st respectively? Answer ______. In the advanced level: What would
the relationships among the outstanding money stock (M), the number of turns (V)
and the nominal GDP (P∙Y)?
Cinco y No
The
answer to the final question, advanced or commonsensical, is M∙V≡ P∙Y.
Somehow, the average, ex post of
course, number of turns is named “velocity,” rightly or wrongly. Here, it must
be noted that the metric of both sides of the equation is “thalers per annum.” There is no dimension aberration!
“The
Cambridge Quantity equation” (1937): M= k∙P∙Y
[←M= k∙I,
where I for the (Gross National) Income]. Macroeconomists including John R.
Hicks identify k as a “constant.”
First question, with the velocity changing over time, would be “How constant is
the k?” Second question would be, “When
can the two sides of the equation be equal
to one another, Jan, 1st, Feb. 2nd, Mar. 3rd,
or any other day all the way to Dec. 31st?”
Dimension Aberration. Exogenous
to Cambridge Macroeconomics, the rest of us would never ever add 500 miles (T0
in time dimension) to 500 miles per year (T-1), much less equalizing
them.
Velocity Wanted.
To conclude, the rest of us might always and everywhere take care of the “velocity”
of money (V), period. Otherwise, our
dream of higher welfare from economic stability or economic growth will never
come true. Where is the velocity?
“The
velocity or your equation!”
Four sons: Herman, Lloyd, Arthur, and Fred
Comments
Post a Comment