Fallacy of Composition: Money Market vs Product Market
A
quick question: How many kinds of markets are there in standard vocabulary?
A
snap answer: There are at least five; that is, the mart in practice, the market
in economics, markets in finance and two more in macroeconomics.
8)
The “Money Market.” Very clear to the rest
of us by now: We keep “money” for the sole purpose of using it as medium in the
market while in the meantime saving financial
transaction costs in transforming an asset to “the useless when preferred” money (adapted
from Irving Fisher, Paul Samuelson and William Nordhaus). On the flipside, the
only way to getting rid of the over-flowing money due to “fiscal policy” or
else is spending for various things including “final goods and services” of GDP
Don’t
even think about eating, wearing or using as shelter the annoying money for the
purpose of acquiring utilities: it’s not only deleterious but unlawful. On the
wayside of macroeconomics, “benevolence” for the utility of fame is a “nominal”
possibility except for “real” plausibility.
Again
the fallacy of composition: Each can lower the “money position” as called in
Finance, but all cannot reduce the “liquidity preference” as dubbed in Cambridge;
inasmuch as no one is licensed to destroy, creatively or destructively, money. Vice versa, of course.
At the end of the day: Whether at each
moment or all through the year, L= Md≡
Ms =
M, period.
Where on Earth is the Money Market?
Oh yah, it is nowhere “exogenous” except for everywhere “endogenous.’ You know
what? The economy does when in Cambridge turn around the presumption L= Md≠
Ms =
M. Amen, equilibrium in fine!
9)
The “Product Market.” Very clear to the rest
of us by now: We outside of “Failed Nations” (to Daron Acemoglu and James
Robinson, 2012) make savings always and everywhere in assets, human, physical
or financial. We the Clueless are not dumb enough not to be able anytime
anywhere to find an interest-bearing asset.
Simply put, we invest for the sole
purpose of saving for future utilities, as opposed to for the sake of saving financial transaction costs. As long as
the rest of us are concerned, S≡
I, individually and collectively; and
that always and everywhere, period; but
way before crossing the River. Cheers!
Where is the “money market”? Oh
yah, it “is nowhere except for in Cambridge” (borrowed from Robert Solow while in Cambridge).
10)
The IS-LM model. A certain geo-famed conscientiously-liberal
macroeconomist names it as “a model of several interacting markets.” Guess
where he was trained!
Where are the markets, interacting or otherwise, of the IS-LM? Well, we would never know if ante mortem. Oh yah, the rest of us heave’n yet empirically re-searched the IS-LMentary in the heavens.
IS-LMentary
OCTOBER 9, 2011
3:14 PM October 9, 2011 3:14 pm 82
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