At 09:22 08/09/2016 +0100, John Bibby wrote:
>You wrote: "...the government, being the monopoly issuer of the currency,
>has no financial constraints on its spending .... ". But what ARE the
>constraints then? I'd like to see this unpicked. In particular, the
>constraints due to fear of inflation.
As someone with no education in economics, I've often pondered that very
basic question. I may be totally wrong, but it seems to me that it only
becomes relevant in terms of international trade (both directions) and is,
indeed, all about inflation (although that probably does not matter, per
se, in the absence of international considerations).
As I see it (quite probably wrongly!), within an 'isolated' country,
currency is simply a convenient tokenisation of 'bartyring'. A country has
finite resources, in terms of both physical resources and, more
importantly, the available labour force. It doesn't really matter whether
people are paid £10 per hour and have to pay £2.50 for a loaf of bread or
whether they are paid £1000 per hour and have to pay £250 for the loaf - in
either case the loaf costs them 15 minutes' income. Although we would call
the latter 'inflation', I don't see that it matters (directly) within an
'isolated' country - but could well become an issue when one has to
interact with the rest of the world. To me, the important issue is that,
even within an isolated country, merely printing more currency does not, in
itself, do anything the increase the resources - so, in the final analysis,
if the resources are already being used optimally and appropriately, there
ought to be nothing more that they could spend on anything, even if they
printed a lot more currency.
It may, of course, be possible to increase the effectiveness/efficiency of
the resources (e.g. by education/training of the workforce), but I can't
see that as being directly related to the currency supply.
Things obviously happen transiently immediately after an increase in
available currency, but I would think that a 'steady state' is probably
usually achieved fairly quickly.
Am I being naive and getting it all totally wrong?
Kind Regards,
John
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