animist wrote: Nick wrote:
animist wrote:in a way, yes thanks, but what you seem to be talking about are demand and supply in the "real" economy, not about money.
And there's no money in the "real" economy?
I am not saying that myself, but it seems to be how people distinguish between the financial system and the economy as a whole
People say all sorts of things! Not all of them right!
When you talk about M, whether for Van Gogh or cars, you seem to be talking about demand for a particular good, and yes of course, if and only if supply is elastic then prices will not increase but sales will.
Well, yes, I am talking about effective demand, but that is directly effected by the amount of money available. If there is more money in the economy, then people will be able to offer more money, so effective demand increases.
agreed, but I think that it may be confusing to explain things this way
I do what I can.
but when you talk of "money available" for buying houses, all this means is that there is increased effective demand.
You seem to have this the wrong way round. It is the increase in money which has increased the effective demand. If no lender will advance money to buy a particuar type of property, then the value falls.
ah, this is what I mean about confusing the issue (or confusing me, anyway!) I don't think I have got this the wrong way round because I was not denying that increasing M is likely to stimulate demand. But the two things are not same, are they? Demand might be stimulated by other means than increase in M; eg, there might be a fashion in art which favoured Van Gogh, so that demand for his pictures increased - nothing to do with the supply of money
Here I am trying to isolate different influences, and you promptly mix them up again! I'll try again
Suppose the art market is worth a billion pounds. And tastes dictate that this is split equally between Impressionists and Old Masters. Then (for whatever reason, it doesn't matter) there is a change in taste, in favour of Impressionists, then the price of Impressionists will rise, but the price of Old Masters will fall. There has been a change in the value of its component parts, but not in the price of art in total.
If however, M increases (or if more money comes into the market, people prefer art to property, say) then the price of Impressionists coud rise without that of Old Masters falling.
Does that make sense to you...?
Plus which, you have not mentioned V.
Poor V! Is he a mate of yours...?
OK, let's look at V. If V decreases, (money put under the bed, say, ) then M does not vary, but V does. In times of hyper inflation, people would rush out and buy anything, just to secure a store of value. To take an imagined example, if the price of of a tin of beans doubles every week, then it is wise to buy beans, so that they can be swapped in future for other things. This will inflate the price of beans.
OK - of course, the motive might just to be secure in one's beans supply! So what you are saying is that a sudden increase in V will increase P if M is constant? Yet - P has already increased, and that has caused the increase in V, so the causation is not that clear?
There's no reason why such things couldn't be mutually reinforcing.
(And reverting to a barter economy is a pretty extreme situation).
In times of hyper-inflation, this is what we see. It also occurs when printed money is not available. In prisons ciggies count as money. Money is as money does, it doesn't have to be notes and coins. The example is at the extreme end, but the direction of travel is clear.
Or do you mean that V has fallen? In which case, with M and T constant, P should fall.
Any of the variables M,V,P or T can alter, for external reasons. But if there is a change in one of them, it will cause a variation in one r more of the others. In practice, all four are changing because of external factors, but they will still affect each other.
Can you not just DEFINE V rather than giving these "examples"?
My examples were trying to make it easier to undrstand.
OK, well V can be defined as the speed with which M moves through the economy. Better...?
Are we still making progress....?
not really. I asked why this equation was a tautology, and I still don't know. And though you have suggested a meaning for V, I am still not clear on what V is as opposed to T; they both seem to concern the use of money to buy and sell. I assume that what is a tautology, if there is one, is about percentage CHANGES in these four variables, since obviously they are in different units and therefore cannot in themselves appear in an equation
On reflection, and because of your challenges, I think I've made a slight boo-boob.
T is not the number of transactions, but rather the aggregate total of transactions. Thinking it through, that makes much more sense!