Timeline for Concise model of modern fiat money and its non-conservation
Current License: CC BY-SA 3.0
28 events
| when toggle format | what | by | license | comment | |
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| Mar 27, 2015 at 5:17 | review | Close votes | |||
| Mar 27, 2015 at 6:28 | |||||
| Jul 14, 2013 at 1:06 | answer | added | none | timeline score: 3 | |
| Jan 28, 2013 at 16:32 | comment | added | Igor Rivin | @Jyotirnoy: While it is obviously debatable whether the question is mathematical, everything else you say is unreasonable: The OP clearly spent a lot of effort formulating the question, and "can be found in standard undergraduate textbooks" is a completely worthless statement. Give us a book and a page number. | |
| Jan 28, 2013 at 15:04 | comment | added | Jyotirmoy Bhattacharya | -1. This is off-topic. The question does not have any relation to mathematics and shows inadequate background effort by the questioner since the answer can be found in standard undergraduate economics texts. | |
| Jan 28, 2013 at 12:38 | comment | added | user9072 | @Greg Kuperberg: A lot could be said about 'fair' on MO and in life in general. But I will keep this brief: It was a priori clear (at least to me) that this question will have a lot of side-discussions. In addition, it is at least very close to off-topic. Perhaps it is "not fair" to ask such a question in the first place. | |
| Jan 27, 2013 at 23:54 | vote | accept | Greg Kuperberg | ||
| Jan 27, 2013 at 21:28 | answer | added | Greg Kuperberg | timeline score: 5 | |
| Jan 27, 2013 at 16:33 | comment | added | Greg Kuperberg | @quid I'm sorry for the hints of controversy, but the fact is that I'm learning from the earnest answers by Greinecker and Landsburg. I don't think that it's fair to close a question just because there are some ineffectual answers that I didn't want either. | |
| Jan 27, 2013 at 16:22 | comment | added | user9072 | I voted to close this question. Very visibly it creates all kind of (partly off-topic) dicussions. | |
| Jan 27, 2013 at 15:54 | comment | added | Deane Yang | There seem to be two possible questions here? One is the mechanics of how money is created by the Fed. That does not seem like a math question to me but is so interesting I'd like to allow answers for that. Michael Greinecker seems to have provided the most convincing answer to that. Another possible question is a mathematical economic model for how the money supply changes. It appears that Steven Landsburg has provided one possible answer to that. | |
| Jan 27, 2013 at 15:37 | answer | added | Steven Landsburg | timeline score: 12 | |
| Jan 27, 2013 at 15:27 | comment | added | Steven Landsburg | (Continued further) As far as what's "dynamically stable" with a "controllable rate of inflation", the simplest model is M=f(P,Y,i), with P = the price level, Y = income, i = the nominal interest rate and M = the amount of money people want to hold. At time t, the fed supplies M_0(t) dollars; equilibirium requires M_0(t)=M(P(t),Y(t),i(t)), and (in the simplest model) Y(t) is determined by non-monetary factors. Also in the simplest model, i(t)=r+P'(t) (with r determined by non-monetary factors), so given M_0(t), you can solve for P(t) (and the inflation rate P'(t)). | |
| Jan 27, 2013 at 15:20 | comment | added | Steven Landsburg | (Continued). Likewise, if your bank asks the Fed for a 10,000 dollar loan, the Fed creates an account with a 10,000 balance, which is a 10,000 dollar increase in the money supply. One difference is that when your bank wants to make a withdrawal, the Fed can (in effect) print dollar bills to meet that demand, whereas your bank has to take existing dollar bills out of a drawer --- but this is not an important difference (unless you define money to consist solely of dollar bills). Everything else the Fed does is more or less the same as that. | |
| Jan 27, 2013 at 15:17 | comment | added | Steven Landsburg | Greg: I'm not sure how elementary an answer you're looking for (i.e. I'm not sure how much you already understand), but here's a starting point: Forget about the Fed and think about how any bank creates money. You go to the bank, you ask for a 10,000 dollar loan, they approve your loan, and they create an account for you with a 10,000 balance, which you can access via a checkbook. That's a 10,000 dollar increase in the money supply (if we count checking account balances as money). (Ctd.) | |
| Jan 27, 2013 at 13:56 | answer | added | Mozibur Ullah | timeline score: -1 | |
| Jan 27, 2013 at 10:44 | answer | added | Michael Greinecker | timeline score: 21 | |
| Jan 27, 2013 at 9:28 | comment | added | arsmath | That said, Scott's answer is the core story. The Fed holds assets equal the amount of money in circulation, which can exist in the form of either paper curency, or balances held at the Fed. The Fed holds assets equal in value to that. If it prints up money, it uses that money to buy assets. If it takes money out of circulation, it sells assets. If you bury or burn money, then from the point of view it's still "in circulation". | |
| Jan 27, 2013 at 9:14 | comment | added | arsmath | Greg, there are simple mathematical models in any monetary economics textbook. There's only so far you can go in that direction, though, without running into controversial questions, like "What causes inflation?" This isn't physics: there is no objective standpoint that frees you from political controversy. | |
| Jan 27, 2013 at 9:03 | comment | added | Bruce Westbury | The way I would approach it - and I am certainly no expert - is that money is at best a tool to promote the creation of wealth and at worst a confidence trick. The questions I would start with are What is wealth? and how and where is it created? | |
| Jan 27, 2013 at 9:01 | comment | added | Bruce Westbury | It seems to me that you are asking for a mathematical model for macro economics. I doubt anything exists that a mathematician would consider satisfactory. | |
| Jan 27, 2013 at 3:53 | comment | added | Greg Kuperberg | @Felipe - It's not really my question how the Fed decides to expand the money supply, but rather, how it actually does so. I have no clear picture of an overall balance sheet of an economy's money. That is, I have seen such tabulations, involving things like M1 and so on, but I'm not sure what they mean. I can believe that other actors effectively change the money supply -- after all, you can save cash and bury it. I would hope that such activities are easy to list in a total balance sheet. | |
| Jan 27, 2013 at 3:38 | comment | added | Greg Kuperberg | @S. Carnahan - Thanks! Your remark resembles part of an answer. But only part of one, by itself not clearly expressible as an equation. I also don't know how to define "seigniorage", and also the disclaimer "I am speaking from a standpoint of ignorance" doesn't help. But this is at least something. | |
| Jan 27, 2013 at 3:31 | comment | added | Greg Kuperberg | I hope that it can be taken as a valid question in applied mathematics, although I realize that it does not work well as a pure mathematics question. For example, the rules of Monopoly are in fact mathematically rigorous (if not very interesting as mathematics) and are even worth discussing as an inaccurate toy model. | |
| Jan 27, 2013 at 3:31 | comment | added | S. Carnahan♦ | Since Greg is looking for an explicit, albeit simple, mathematical model, and such a model is not immediately found by a few web searches, I think it is a reasonable question from the standpoint of applied mathematics. Regarding the question, I am speaking from a standpoint of ignorance, but I thought central banks expand the money supply by exchanging interest-free currency notes for assets. Such assets are often government bonds (in which case the profits from interest are returned as seigniorage), but also can be drawn from the productive capacity of the private sector. | |
| Jan 27, 2013 at 3:09 | comment | added | Felipe Voloch | (Continuation) There's no math in it, but the following article, found in a Modern Monetary Theory (MMT) forum, has an interesting discussion of the role of the Fed and Treasury in controlling the money supply. neweconomicperspectives.org/2013/01/… And of course, the heterodox economists working on MMT make the claim that it is not only the Fed that expands the money supply. See for example, Steve Keen at: debtdeflation.com/blogs/2009/01/31/therovingcavaliersofcredit | |
| Jan 27, 2013 at 3:08 | comment | added | Felipe Voloch | I don't think this is a math question. This is what my wife said when I passed the question on to her: I'm guessing you'd have to ask the economists at the Fed (or those who study Fed operations closely), to get a detailed mathematical model of how they decide exactly how much to expand the money supply in any given quarter. And bear in mind that the Fed has been winging it since the financial crisis, using unconventional (i.e., little studied) criteria for expanding that supply. (To be continued) | |
| Jan 27, 2013 at 2:07 | answer | added | Igor Rivin | timeline score: 1 | |
| Jan 27, 2013 at 2:00 | history | asked | Greg Kuperberg | CC BY-SA 3.0 |