From: tjdoran@watserv1.uwaterloo.ca (DORAN TJ - BIOLOGY)
Subject: Re: Bank of Canada and printing money.
Organization: University of Waterloo
Distribution: can
Date: Mon, 14 Dec 1992 18:41:19 GMT

In article <1992Dec14.043852.20985@julian.uwo.ca> wlsmith@valve.heart.rri.uwo.ca (Wayne Smith) writes:
>In article <Bz87F5.35n@watserv1.uwaterloo.ca> tjdoran@watserv1.uwaterloo.ca (DORAN TJ - BIOLOGY) writes:
>>I deleted the article beacause it's *really* long. To summarize, the author
>>speculated that velocity of money was the key factor in a healthy economy,and
>>by having to send more and more money through the gov't (a slow institution)
>>we are losing more and more velocity, and, therefore suffering more and more...
>
>But I did have a 1 or 2 paragraph conclusion...

Apologies... you did summarize better than I did.

>
>>Anyway, the GNP is a measure not of velocity, but of production.
>>
>>If I had a '74 El Camino (hypothetically speaking, of course) and sold it to 
>>my good friend Ed for $250, that money would not be included in a calculation
>>of GNP because nothing was created. If, however, I had a company making copies
>>of '74 El Caminos, the money I sold each one for *would* be included since I
>>actually produced something new of value. 
>
>We have an increasingly service based economy which produces nothing,
>chief among them being financial services.  If you sold that car to your
>friend, and you included it in your tax return, then maybe the gov't 
         ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Stuff like this isn't in our tax returns...

>(or stats can) would include it in the gnp.  Conversely, that $250 that
>your friend used to buy the car was paid to him as a salary, and that
>salary was a small part of some corporation's cash flow, which again
>get's counted by the gov't (or stats can).

Correct, except for the 'again' part. Wages are counted once. Money spent on
*new* products is counted once. Exchange of previously-existing goods isn't 
counted in the GNP. The general rule is that wage-earners spend what they get
and employers get what they spend (ie investment).

>
>(If everyone, all 27 million, had $500 of "underground" income during the
>year, the total of that underground economy is less than 3% of the $550
>billion dollar GNP)

But does this count as income? I had to buy that car, it depreciated some, and
I sold it, recovering some of my initial expenditure.

>
>>The shortcoming of GNP is that it fails to look at such transactions as Ed 
>>buying my (hypothetical) El Camino. It also fails to look at non-monetary
>>based transactions.. (I'll cut your hair if you mow my lawn) and do-it-yerself 
>>stuff.
>
>If you look at the cash flow of the nation, you don't need to know what
>every person did with their every dollar to know what the gnp is.  You
>know that there is an average amount of money that a working person will
>get per year, and they will either spend the entire amount, go into debt,
>or save some of it.  What they spend will show up on the books of
>companies and corporations as gross sales, and what they get loaned or
>what they save will end up on the books of financial institutions.
>
>Excercise 1: Find the dollars.
>
>Look.  We're in a recession.  But what is a recession?  Where is all the
>money in Canada right now?  Is it tied up in various accounts (personal,
>provincial, federal?)? We have $35 billion more dollars injected into
>the economy this year.  We are not losing money.  So where is it?
>
>Excercise 2: How many dollars are there?
>
>If the "net-value" of a person or institution is their net monentary worth
>(bank accounts, stocks, bonds, cash, NOT capital), what would be Canada's
>sum total? 
>
>Conclusion:
>Our money is not circulating FAST enough.  This is testable.  
>I would guess that the higher the per-capita GNP, the better the economy.
>So who's got the best economy right now?  Japan? Germany? Sweeden?
>What's their per capita GNP?

I've never seen it from that point of view. I think if you count services as
something new which is created, you're right. When I have my roof repaired to th
the tune of $1000 labour, this is counted in the GNP. If you interpret 
'circulating' as 'the purchase of new goods as well as services', you're right.

Let me know if I have misinterpreted anything. I'm off to study (ironically)
for my Macroeconomics exam.

Cheers,
TJ


      

-- 
TJ Doran  	              |"There you stand like a duck in a thunderstorm
TJDORAN@watserv1.uwaterloo.ca | again... Aren't you ever going to understand?" 
                              |                         - W.A. Mozart
Xref: sparky can.politics:10868 soc.culture.british:17697 soc.culture.australian:5175