David Glasner is a very nice and friendly person, but I have to admit that David always scares me a bit – especially when I disagree with him. For some reason when David is saying something I am inclined to agree with him even if I think he is wrong. There are two areas where David and I see things differently. One the “hot potato” theory of money and two our view of Milton Friedman. I tend to think that the way Nick Rowe – inspired by Leland Yeager – describes the monetary disequilibrium theory make a lot of sense. David disagrees with Nick. Similiarly I have an (irrational?) love of Milton Friedman so I tend to think he is right about everything. David on the other hand is much more skeptical about Friedman.
Now David has post in which he makes the argument that Friedman nearly had the same view as James Tobin on the hot potato theory of money – which of course is stark opposition to Nick’s view. So now I have a problem – if he is right I must either betray uncle Milt or revise my view of the hot potato theory of money. Ok, that is not entirely correct, but you get the drift.
Anyway I don’t have a lot of time to write a long post and David’s discussion is much more interesting than what I can come up with. So have a look for yourself here.
I will be traveling quite a bit in the coming weeks so I am not sure how much blogging I will have time for. I will be in Riga, Stockholm, London, Dublin, Moscow and New York in the next couple of weeks so I might run into some of my local readers.
PS David sent me Tobin’s article long ago and I must admit that I have not read it carefully enough to be able to argue strongly for or against it.
JP Koning
/ April 20, 2012Lars, I have been following this debate too.
I’m not sure why this has to be controversial, though. Let me try out the following on you.
I think we can agree that corporate stock is a hot-potato asset. Once issued, it circulates endlessly. Stocks can also be highly liquid -companies can issue new stock to buy services and many sorts of assets rather than using cash.
But if the corporation agrees to repurchase all its stock at $100 and sell unlimited stock at $105, then that stock is no longer hot-potato. Should the firm issue excess stock to buy services, that stock will quickly be returned for $100.
So much like stock, I’d say that central bank money is not necessarily either exogenous (hot potato) or endogenous. Like the stock example above, it depends on how the asset itself is structured and what options it provides its holders.