Strictly Confidential

Notes

Editor’s note: all information with brackets [ ] has been added for clarification.

We have been charitable in not analyzing in detail Fisher’s money side of the equation E = MV, the average quantity of money in circulation in the period times the average velocity of circulation. V is an absurd concept. Even Fisher, in the case of the other magnitudes, recognized the necessity of building up the total from the individual exchanges. He was not successful in building up T out of the individual Q’s, P out of the individual p’s, etc., but at least he attempted to do so. In the case of V, what is the velocity of an individual transaction? Velocity is not an independently defined variable, as its place in the equation would indicate. Fisher can only derive V as equal to...

The rest of this report is missing.

Furthermore, pension funds, not being redeemable, are not part of the money supply. And, contrary to McKinley, neither are shares in “open-end” mutual funds, which are only redeemable at market value and not at par, and are therefore no more money than any other stock.

McKinley surely errs also in saying that “every extension of debt... involves the creation of money,” since, on his own grounds, not all liabilities are “generally and usually considered as money,” nor are credit transactions (involving the issue of claims to money at a specific future date) the same as issuing claims to money on virtual demand. The latter, being redeemable at par in money, are themselves effectively money. See McKinley, “Federal Home Loan Bank System,” pp. 325–26.

For a summary of many economists who have, and have not, included time deposits in their definition of money, see Richard T. Selden, “Monetary Velocity in the United States,” in Studies in the Quantity Theory of Money, Milton Friedman, ed. (Chicago: University of Chicago Press, 1956), pp. 184–85, 237–44. Selden is certainly correct in including Treasury cash, and Treasury demand deposits at the Federal Reserve Banks, in the money supply.

Meyer does not inform the reader that the explanation for this is very simple and nonsinister. The reason is that the Communists follow the economics of Karl Marx, and Marx wrote at a time when all economics was called “political economy.” Hence, the Communists still cleave to the name—just as do the Henry Georgists, and for similar reasons. The term “economics” only came in toward the end of the nineteenth century.