The Rise of a New Economic Model

Established 4/14/2012.     Version 2.18 (06/12/2015)


In spite of a long absence, I’ve been busy digging deeper into the various critiques of the Quantity Theory of Money (QTM), in particular Monetary Circuit Theory. Core elements of Circuit Theory have only strengthened my confidence in my new economic model of protectionism. After 6 years of fine tuning the economic model, it is time to condense the theory to its very essence. The tab Just Measures is an ideal starting point for the reader new to my writings.

Also new in this post is a germ of an idea regarding inflation. I had intentionally avoided tackling inflation, since it struck me as noise in the system, not the signal itself. My goal was to first establish a sound foundation model (i.e the signal), before trying to analysis the noise in the system (i.e.inflation). The entire history of economic thought has always struck me as models built on theories regarding the noise in the system, ultimately leading into a logical cul-de-sac. This simple model of course assumes the government does not resort to the printing press to pay its own bills, because in spite of what you have heard most governments don’t print to pay their own bills. Instead they tax or just go deeper into debt. Keep in mind, that the creation of credit of out of thin air is not the equivalent of a printing press (the loan is eventually paid off). Instead, credit creation is nothing more than a form of national book keeping (IOUs). As a result, the following model of inflation does not rely on traditional QTM.

In short, building on the notion of Circuit Theory, I propose that “base” inflation results from bankruptcy. Normally, industrial loans created out of thin air are extinguished by the final sales of finished goods (see Just Measures tab for basic model). But if under competitive pressure, a company goes bankrupt, the industrial loan can no longer be extinguished. A similar argument could be made for real-estate defaults. Unlike “healthy” bank deposits which all have their origins in wages, the deposits resulting from defaults will never be removed from the economy. This is similar to digging gold out of the ground in the Wild Wild West days–there was no associated production of an industrial good associated with its introduction into the economy. Thus, when these “orphaned” deposits are spent they are effectively inflationary (more dollars than goods or service produced).

In the spirit of a fresh new start, I’ve removed all of the original home page, and will refer the reader to some of my recent blogs for more in depth analysis:

To keep abreast of recent trade news and opinion, I recommended the following sites:

My Amazon Kindle book: Just Measures by Van Geldstone

And finally one big thank you to my one new follower! :)