Basic question for Keynesian economists on inequality
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26-02-2014, 12:07 AM
RE: Basic question for Keynesian economists on inequality
(25-02-2014 11:42 PM)Bucky Ball Wrote:  If the gold just sits in the king's storehouse and he doesn't spend it, it's not inflationary. The analogy to the big banks is not necessarily valid. It depends what they do with it.

True. I believe that is one of the reasons why "Quantitative Easing" is not inflationary even though it represents an expansion of the money supply.
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26-02-2014, 12:33 AM
RE: Basic question for Keynesian economists on inequality
(25-02-2014 11:15 PM)Bucky Ball Wrote:  Why would more gold have any value to someone who already held 1/2 the nation's gold. The point is, we don't have enough information to answer the stupid question.

Yes, you do, if you make ordinary assumptions. This isn't a discussion about how many angels fit on the head of a pin. You're being absurdly obtuse.

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26-02-2014, 12:47 AM
RE: Basic question for Keynesian economists on inequality
(25-02-2014 11:27 PM)Chippy Wrote:  As I understand it, the point is that expanding the money supply produces illusory wealth because it is inflationary.

There's more to it than that. The King now has twice the purchasing power as everyone else, rather than being equal to it. If he just sits on it, there is no overall economic impact - his gold might as well still be in the ground.

But if he's a normal king who accumulates gold for the purpose of spending it, then he will presumably now spend more of it, since he went to the trouble of accumulating it in the first place.

As he spends more, prices will rise, but he can spend less of his total wealth for the same quantity of stuff than previously, whereas everyone else must spend more of their total wealth to break even.

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26-02-2014, 01:17 AM
RE: Basic question for Keynesian economists on inequality
(26-02-2014 12:47 AM)toadaly Wrote:  
(25-02-2014 11:27 PM)Chippy Wrote:  As I understand it, the point is that expanding the money supply produces illusory wealth because it is inflationary.

There's more to it than that. The King now has twice the purchasing power as everyone else, rather than being equal to it. If he just sits on it, there is no overall economic impact - his gold might as well still be in the ground.

But if he's a normal king who accumulates gold for the purpose of spending it, then he will presumably now spend more of it, since he went to the trouble of accumulating it in the first place.

As he spends more, prices will rise, but he can spend less of his total wealth for the same quantity of stuff than previously, whereas everyone else must spend more of their total wealth to break even.

I think the point of the question is to contrast the inflationary effect of gold versus fiat paper currency. We'll wait and see what frankksj was getting at.
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26-02-2014, 06:01 AM
RE: Basic question for Keynesian economists on inequality
(25-02-2014 10:54 PM)Chippy Wrote:  
(25-02-2014 09:37 PM)frankksj Wrote:  See, Cjlr. Just like I said. A "professional economist" unable to answer such a basic question that comes naturally to your average 10 year old.

Cathym112 is not a "professional economist".

I never said I was. Somehow he got it into his head that I was.

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26-02-2014, 06:08 AM
RE: Basic question for Keynesian economists on inequality
(26-02-2014 12:07 AM)Chippy Wrote:  
(25-02-2014 11:42 PM)Bucky Ball Wrote:  If the gold just sits in the king's storehouse and he doesn't spend it, it's not inflationary. The analogy to the big banks is not necessarily valid. It depends what they do with it.

True. I believe that is one of the reasons why "Quantitative Easing" is not inflationary even though it represents an expansion of the money supply.

Correct. I was tired of frank's ridiculous way of asking word salad questions. What is was trying to lead us to arrive at, is that the king becomes the fed. And if he stores all the gold, plus the influx of supply, it doesn't actually have any tangible effect until the king releases the supply of gold.

Since gold isn't something you can "make", the fact of the matter is that there is more gold out in the world, no matter where it's located.

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26-02-2014, 06:12 AM
RE: Basic question for Keynesian economists on inequality
(26-02-2014 12:47 AM)toadaly Wrote:  
(25-02-2014 11:27 PM)Chippy Wrote:  As I understand it, the point is that expanding the money supply produces illusory wealth because it is inflationary.

There's more to it than that. The King now has twice the purchasing power as everyone else, rather than being equal to it. If he just sits on it, there is no overall economic impact - his gold might as well still be in the ground.

But if he's a normal king who accumulates gold for the purpose of spending it, then he will presumably now spend more of it, since he went to the trouble of accumulating it in the first place.

As he spends more, prices will rise, but he can spend less of his total wealth for the same quantity of stuff than previously, whereas everyone else must spend more of their total wealth to break even.

No, the king has somewhat higher proportion of the wealth of his realm. But that proportion cannot be calculated from the facts given.

How much silver is there? What quantity of precious gems? Etc., etc., etc.

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26-02-2014, 06:30 AM
RE: Basic question for Keynesian economists on inequality
Spain is not a closed system and it can make use of that extra gold by paying for stuff from abroad. This is where the analogy loses relevance to modern day finance. There is only so much gold available in the world whereas a fiat currency can be specific to a single country, created on demand and cheapened relative to other currencies.

Maybe the thought experiment would be better if it involved a small community ship-wrecked on a desert island with someone who finds out how to manufacture a finite resource that is a useful alternative to another less convenient manufactured resource?
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26-02-2014, 09:45 AM
RE: Basic question for Keynesian economists on inequality
(26-02-2014 06:12 AM)Chas Wrote:  No, the king has somewhat higher proportion of the wealth of his realm. But that proportion cannot be calculated from the facts given.

How much silver is there? What quantity of precious gems? Etc., etc., etc.

...frank wasn't asking to quantify it, but merely the relative impact, which you've answered very reasonably.

We may not be able to say how much that extra gold increased his relative wealth without restricting the hypothetical (or assuming that anything left unstated is not a part of the hypothetical), but we can say it increased the king's share relative to the rest of the kingdom, by some amount.

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26-02-2014, 09:50 AM
RE: Basic question for Keynesian economists on inequality
(26-02-2014 06:30 AM)Mathilda Wrote:  Spain is not a closed system and it can make use of that extra gold by paying for stuff from abroad. This is where the analogy loses relevance to modern day finance. There is only so much gold available in the world whereas a fiat currency can be specific to a single country, created on demand and cheapened relative to other currencies.

Maybe the thought experiment would be better if it involved a small community ship-wrecked on a desert island with someone who finds out how to manufacture a finite resource that is a useful alternative to another less convenient manufactured resource?

As a group, we're overthinking the details of this. In hypotheticals, it's typical not to inject anything that wasn't stated. We assume the kingdom is isolated, because there is no mention of trade with other kingdoms. We assume gold is the only form of money, because other forms were not mentioned, etc. All those details matter in the real world of course, but the idea of a hypothetical is to establish a principle.

Then arguments can be made as to why that principle doesn't apply in the real world, and if those arguments are good, then the hypothetical will be seen to have been too simplistic. But you have to play the game first.

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