Welfare economic foundation of hoarding loss by money circulation optimization

Miura, Shinji (2018): Welfare economic foundation of hoarding loss by money circulation optimization.

Abstract

Saving brings an economic loss. This is one of the basic propositions of the under-consumption theory. This paper aims to give a welfare economic foundation of this proposition through an optimization method considering money circulation in the case where a type of saving is limited to hoarding. If price is fixed, a non-hoarding state is a necessary condition for Pareto efficiency. However, individual agents who prefer future expenditure hoard money, thus individual rational behavior brings about a Pareto inefficient state. This irrationality of rationality occurs because of a qualitative difference of the budget constraint between the whole society and an individual agent. The former’s constraint incorporates a truth that hoarding decreases other’s revenue, whereas the latter’s does not. Selfish individual agents make a decision with an ignorance of this relational truth because their interest is limited to their private range. As a result, agents fall into an irrational situation despite their rational judgment.

• Item Type: MPRA Paper
• Language: English
• Keywords: Money Circulation; Welfare Economics; Under-Consumption; Paradox of Thrift; Intertemporal Choice.
• Subjects: C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C61 - Optimization Techniques ; Programming Models ; Dynamic Analysis; D - Microeconomics > D6 - Welfare Economics > D60 - General; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E21 - Consumption ; Saving ; Wealth

References

Abbati, H., 1924. The Unclaimed Wealth: How Money Stops Production. George Allen & Unwin, London.

Allgoewer, E., 2002. Underconsumption theories and Keynesian economics: Interpretations of the Great Depression. Discussion paper no. 2002-14 of University of St. Gallen.

Allsbrook, O.O., 1986. N.A.L.J. Johannsen: An early monetarist. Journal of Institutional and Theoretical Economics (JITE) / Zeitschrift für die gesamte Staatswissenschaft. 142, 431-437.

Ambrosi, G.M., 1996. Carl Föhl on economic activity and money.

An, S., Chang, Y., Kim, S.B., 2009. Can a representative-agent model represent a heterogeneous-agent economy. American Economic Journal: Macroeconomics. 1-2, 29-54.

Arrow, K.J., 1951. An extension of the basic theorems of classical welfare economics, in: Neyman, J. (Ed.), Proceedings of the Second Berkeley Symposium on Mathematical Statistics and Probability. University of California Press, Berkeley, pp. 507-522.

Augustinovics, M., 1965. A model of money-circulation. Economics of Planning. 5, 44-57.

Barro, R.J., Grossman, H.I., 1971. A general disequilibrium model of income and employment. The American Economic Review. 61-1, 82-93.

Bertsekas, D.P., 1999, Nonlinear Programming, second ed. Athena Scientific, Belmont, Massachusetts.

Blaug, M., 2007. The fundamental theorems of modern welfare economics, historically contemplated. History of Political Economy. 39, 185-207.

Bleaney, M.F., 1976. Underconsumption Theories: A History of Critical Analysis. Lawrence and Wishart, London.

Boianovsky, M., 2002. Simonsen and the early history of the cash-in-advance approach. The European Journal of the History of Economic Thought. 9, 57-71.

Brunner, K., 1951. Inconsistency and indeterminacy in classical economics. Econometrica. 19, 152-173.

Carlson, J.A., 1962. Foster and Catchings: A mathematical reappraisal. Journal of Political Economy. 70, 400-402.

Carroll, C.D., 2000. Requiem for the representative consumer? Aggregate implications of microeconomic consumption behavior. The American Economic Review. 90-2, 110-115.

Carroll, C.D. and Kimball, M.S., 2008. Precautionary saving and precautionary wealth, in: Durlauf, S.N. & Blume, L.E. (Eds.), The New Palgrave Dictionary of Economics, second ed. Palgrave Macmillan, Basingstoke, volume 6, pp. 579-585.

Chamley, C., 2011. A paradox of thrift in general equilibrium without forward market. Journal of the European Economic Association. 10, 1215-1235.

Christiano, L., Eichenbaum, M., Rebelo, S., 2011. When is the government spending multiplier large? Journal of Political Economy. 119, 78-121.

Clark, D., 2008. Monetary cranks, in: Durlauf, S.N. & Blume, L.E. (Eds.), The New Palgrave Dictionary of Economics, second ed. Palgrave Macmillan, Basingstoke, volume 5, pp. 697-699.

Clower, R., 1965. The Keynesian counterrevolution: A theoretical appraisal, in: Hahn F.H., Brechling F.P.R. (Eds.), The Theory of Interest Rates: Proceedings of a Conference Held by the International Economic Association. Macmillan, London, pp. 103-125.

Clower, R.W., 1967. A reconsideration of the microfoundations of monetary theory. Economic Inquiry. 6, 1-8.

Davidson, P., 2012. Keynes’ General Theory, in: King, J.E. (Ed.), The Elgar Companion to Post Keynesian Economics, second ed. Edward Elgar, Cheltenham, pp. 347-355. Davies, P., 2002. How to Build a Time Machine. Penguin, London.

Debreu, G., 1959. Theory of Value: An Axiomatic Analysis of Economic Equilibrium. John Wiley & Sons, Inc., New York. Deleplace, G., Nell, E.J. (Eds.), 1996. Motion in Money: The Post Keynesian and Circulation Approaches. Macmillan, Basingstoke.

Dimand, R.W., 1991. Cranks, heretics and macroeconomics in the 1930s. History of Economics Review. 16, 11-30.

Dimand, R.W., 2008a. Catchings, Wadill (1879-1967), in: Durlauf, S.N. & Blume, L.E. (Eds.), The New Palgrave Dictionary of Economics, second ed. Palgrave Macmillan, Basingstoke, volume 1, pp. 711-712.

Dimand, R.W., 2008b. Foster, William Trufant (1879-1950), in: Durlauf, S.N. & Blume, L.E. (Eds.), The New Palgrave Dictionary of Economics, second ed. Palgrave Macmillan, Basingstoke, volume 3, pp. 471-472.

Eggertsson, G.B., 2011. What fiscal policy is effective at zero interest rates? NBER Macroeconomics Annual 2010. 25, 59-112.

Feenstra, R.C., 1992. Money in the utility function, in: Neuman P., Milgate M., Eatwell. J., (Eds.), The New Palgrave Dictionary of Money and Finance. Macmillan, London, volume 2, pp.790-791.

Feldman, A.M., 2008, Welfare economics, in: Durlauf, S.N. & Blume, L.E. (Eds.), The New Palgrave Dictionary of Economics, second ed. Palgrave Macmillan, Basingstoke, volume 8, pp. 721-730.

Gleason, A.H., 1959. Foster and Catchings: A reappraisal. Journal of Political Economy. 67, 156-172.

Gott, R., 2002. Time Travel in Einstein’s Universe: The Physical Possibilities of Travel through Time. Phoenix, London.

Graziani, A., 1990. The theory of monetary circuit. Économie et Sociétés. 24, 7-36.

Greenwald, B.C., Stiglitz, J.E., 1986, Externalities in Economies with Imperfect Information and Incomplete Markets. The Quarterly Journal of Economics, 101(2), 229-264.

Haberler, G., 1964. Prosperity and Depression: A Theoretical Analysis of Cyclical Movements, fifth ed. George Allen & Unwin, London.

Hagemann, H., Rühl, C., 1990. Nicholas Johannsen and Keynes's "finance motive". Journal of Institutional and Theoretical Economics (JITE) / Zeitschrift für die gesamte Staatswissenschaft. 146, 445-469.

Hayek, F.A., 1931. The “paradox” of saving. Economica. 11, 125-169.

Hegeland, H., 1954. The Multiplier Theory. C.W.K. Gleerup, Lund.

Huo, Z., Ríos-Rull, J.V., 2013. Paradox of thrift recession. NBER Working Paper, No.19443.

Ito, Z., 1952. Mr. Föhl’s theory of public investment. Bulletin of Yamagata University (Humanities). 2, 201-224. (In Japanese)

Izeki, T., 1932. Theory of Japanese Controlled Economy. Kokusai Keizai Shinposha and Takase Shobo. (In Japanese)

Keynes, J.M., Hawtrey, R.G., Robertson D.H. 1933. Mr. Robertson on "saving and hoarding”. The Economic Journal. 43, 699-712.

Keynes, J.M., 1936. The General Theory of Employment Interest and Money. Macmillan, London.

Kimball, M.S., 1990. Precautionary saving in the small and in the large. Econometrica. 58, 53-73.

Kirman, A.P., 1992. Whom or what does the representative individual represent? The Journal of Economic Perspectives. 6-2, 117-136.

Klein, L.R., 1966. The Keynesian Revolution, second ed. Macmillan, New York.

Kojima, H., 1995. Abbati’s theory of effective demand (2): Johannsen, Hobson, and Abbati on saving. Keizai Ronso. 156-2/3, 27-65. (In Japanese)

Kohn, M., 1981. In defense of the finance constraint. Economic Inquiry. 19, 175-195.

Kohn, M., 1988. The finance constraint theory of money: A progress report. The Jerome Levy Economics Institute Working Paper No.5.

Laidler, D., 1989. The context of S.C. Tsiang’s monetary economics, in: Kohn, M. (Ed.), Finance Constraints and the Theory of Money: Selected Papers. Academic Press, San Diego, pp. 359-375.

Lossev, A., Novikov, I.D., 1992. The jinn of the time machine: Non-trivial self-consistent solutions. Classical and Quantum Gravity. 9, 2309-2321.

Marget, A.W., 1966. The Theory of Prices: A Re-Examination of the Central Problem of Monetary Theory. Augustus M. Kelley Publishers, New York, volume 1.

Metzler, L.A., 1948. Three lags in the circular flow of income, in: Income, Employment, and Public Policy: Essays in Honor of Alvin H. Hansen. W.W. Norton Company Inc., New York, pp. 11-32.

Miura, S., 2014. Money circulation equation considering time irreversibility. Advances in Linear Algebra & Matrix Theory. 4, 187-200.

Miura, S., 2015a. Quantification of revenue induction and expenditure reflux in a monetary economy. Advances in Linear Algebra & Matrix Theory. 5, 25-35.

Miura, S., 2015b. Monetary budget constraint and its missing problems. Open Journal of Optimization. 4, 87-99.

Miura, S., 2016. Graphic explanation for welfare economic foundation of hoarding loss. Journal of Economics Bibliography. 3, 265-289.

Nagasawa, K., 1968. Carl Föhl. The Hitotsubashi Review. 59, 507-527. (In Japanese)

Nash, R.T., Gramm, W.P., 1969. A neglected early statement of the paradox of thrift. History of Political Economy. 1, 395-400.

Nemiroff, R., Wilson, T., 2014. Searching the internet for evidence of time travelers. The Winnower 3:e140984.46096.

Pedersen, J., 1954. The creation of money income. Weltwirtschaftliches Archiv. 72, 155-178.

Pedersen, J., 1957. Remarks to Carl Föhl’s “Geldschöpfung und Wirtschaftskreislauf”. Weltwirtschaftliches Archiv. 78, 1-10.

Robertson, D.H., 1932. Reviewed work: “The Economic Lessons of 1929-31: The First Eleven Bulletins of the Unclaimed Wealth Utilisation Committee of Geneva. by A.H. Abbati, T.E. Gregory.” The Economic Journal. 42, 612-614.

Robertson, D.H., 1933. Saving and hoarding. The Economic Journal. 43, 399-413.

Rochon, L.P., Rossi, S. (Eds.), 2003. Modern Theories of Money: The Nature and Role of Money in Capitalist Economies. Edward Elgar Publishing, Cheltenham.

Rothschild, K.W., 1964. The old and the new: Some recent trends in the literature of German economics. The American Economic Review. 54-2, 1-33.

Rühl, C., 2000. Nicholas August Ludwig Jacob Johannsen (1844-1928), in: Arestis, P., Sawyer, M. (Eds.), A Biographical Dictionary of Dissenting Economists, second ed. Edward Elgar, Cheltenham, pp. 327-335.

Samuelson, P.A., 1948. Economics: An Introductory Analysis, first ed. McGrow Hill, New York.

Sasahara, S., 1981. The under-consumption theory of Foster and Catchings: Its feature and political implication. Keizaigaku Ronso. 22, 1-40. (In Japanese)

Schneider, E., 1962. Money, Income and Employment. Translated by Kurt Klappholz, George Allen & Unwin, London.

Schneider, M., 2008. Underconsumptionism, in: Durlauf, S.N. & Blume, L.E. (Eds.), The New Palgrave Dictionary of Economics, second ed. Palgrave Macmillan, Basingstoke, volume 8, pp. 456-459.

Stiglitz, J.E., 1991. The invisible hand and modern welfare economics. NBER Working Paper, No.3641.

Takata, Y., 1934. Regarding the contradiction of thrift: Doubt against the idea of thrift praise by Hayek. Keizai Ronso. 38, 945-963. (In Japanese)

Tavlas, G.S., 1976. Some further observations on the monetary economics of Chicagoans and Non-Chicagoans. Southern Economic Journal. 42, 685-692.

Tsiang, S.C., 1966. Warlas’ law, Say’s law and liquidity preference in general equilibrium analysis. International Economic Review. 7, 329-345.

Van Eeghen, P.H., 2014. Why DSGE analysis cannot accurately model financial-real sector interaction. Real-World Economics Review. 17, 17-40.

Walsh, C.E., 2003. Monetary Theory and Policy, second ed. The MIT Press, Cambridge, Massachusetts.