John Wiley & Sons 2012. ISBN 978-1118157794
|This impressive book coins the term "Quantity Theory
of Credit" which places the growth (or decline) in credit squarely at the centre of
world economic affairs.
What the author, Richard Duncan, does, is to show what happens in a genuine capitalist free market system of world trade (with asset backed currencies and traditional reserve banking) and compare it with the present ersatz system in which currencies lack asset backing and bank liquidity reserves are minimal.
He shows the consensus Monetarist economic equation: MV=PT = GDP (Amount of money x How fast it circulates = Price level x Volume of goods in circulation = Annual level of economic activity). Where an increase in money (M) can lead to an increase in the price level (P) or it can lead to an increase in the amount of goods bought and sold (T). The important point being that too much M will send up P = inflation = higher interest rates, so M can only be increased within certain limits.
Duncan's equation is, CV=PT = GDP (Amount of credit x How fast it circulates = Price level x Volume of goods in circulation = Annual level of economic activity).
So why is this Quantity Theory of Credit equation superior?
Because he convincingly shows that Credit (C) and Money (M) are nowadays virtually the same thing and C can be expanded indefinitely since the price level (P) is locked down by a massive fall in production costs through global outsourcing.
He gives the example of Michigan auto workers who recently earned $ 200 a day while Chinese and Indians can now do the same job for $ 5 a day, and, although he doesn't mention it, service jobs are now going the same way (e.g. a study undertaken in 2006 by a Princeton economist and former Vice-Chairman of the Federal Reserve, Alan Blinder, which concluded that approximately 42 million US jobs were potentially off-shoreable, with his focus not on manufacturing jobs but on the high-tech service occupations that were supposed to compensate for the loss of manufacturing jobs). (top)
|Basically the QTC (Quantity Theory of Credit) shows that since the 1968
abandonment of gold backed dollars, credit/money could be expanded by big multiples
(actually 50x from 1964 to 2007) to generate record levels of economic activity.
Isn't this good? Well, yes and